Home Office Deduction
Self-employed individuals who use part of their home regularly and exclusively for business can deduct home office expenses. There are two calculation methods. The Simplified Method: $5 per square foot of office space, up to 300 sq ft maximum = up to $1,500 deduction per year. Easy to calculate, no depreciation recapture on sale. The Regular Method: calculate the percentage of home used for business (office sq ft / total home sq ft), then apply that percentage to actual home expenses (mortgage interest or rent, utilities, insurance, repairs, depreciation). Example: 200 sq ft office in a 2,000 sq ft home = 10%. If annual home expenses total $30,000, the deduction = $3,000. The regular method typically yields a larger deduction but requires more record-keeping and triggers depreciation recapture when you sell the home (the portion of gain attributable to depreciation taken on the office space is taxed at 25%). The office must be used regularly AND exclusively for business — a dining room table where you occasionally work does not qualify. A separate room or clearly partitioned space is required. W-2 employees cannot claim home office deductions even if they work from home (the Tax Cuts and Jobs Act eliminated this for 2018–2025).