Which work-from-home expenses may be deductible?

Self-employed people can have two different groups of deductions:

  • home office costs, such as an eligible share of rent, mortgage interest, real estate taxes, utilities, insurance, repairs, and depreciation; and
  • ordinary business costs, such as software, supplies, professional fees, advertising, and the documented business share of phone or internet service.

The second group does not become “home office” spending merely because you bought it at home. A business-only subscription may be a regular Schedule C expense; a whole-home utility normally requires allocation.

Start with net profit, not revenue. If your business collects $90,000 but incurs $15,000 of non-office business expenses, profit before a home office deduction is $75,000. Those example amounts are assumptions, not statutory thresholds. A deduction reduces business profit; it does not reimburse the full purchase price dollar for dollar.

The IRS lists eligible categories and methods in its home office guidance and Publication 587.

Who qualifies for the home office deduction?

For federal purposes, a self-employed taxpayer generally must use a specific area regularly and exclusively for business and satisfy a business-use test. It may qualify as the principal place of business, a normal meeting place for patients or clients, or a separate business structure. Inventory storage and certain daycare uses have special exceptions.

Exclusive use is literal. A spare bedroom used only for consulting can qualify; a desk in a family room that is also used for television and homework generally does not. Regular use means recurring business use, not occasional administrative work.

For tax year 2026, a person working only as a W-2 employee generally cannot claim a federal home office deduction, even if remote work is required. The IRS states this in its eligibility guidance. A self-employed side business may separately qualify, but only its costs enter the calculation. State law and accountable-plan reimbursements can differ.

How do the simplified and actual methods differ?

The simplified method multiplies qualifying square footage by an IRS-set rate. For tax year 2026, the statutory simplified rate is $5 per square foot, limited to 300 square feet, so the maximum simplified deduction is $1,500. These tax-year 2026 dollar figures appear in IRS Revenue Procedure 2013-13 and the IRS simplified home office option.

The actual-expense method uses direct costs plus a reasonable business percentage of indirect home costs. Square footage is common:

office square feet ÷ total finished home square feet

A direct office repair may be fully allocable, while whole-home costs are generally multiplied by the business percentage. Homeowners must consider depreciation and later-sale consequences. Income limitations apply; consult tax-year 2026 Form 8829 instructions. You cannot mix methods for the same office in one year.

What does a fully worked home office example show?

Assume a sole proprietor has:

  • $90,000 of business revenue;
  • $15,000 of other deductible business expenses;
  • a 200-square-foot office inside a 1,200-square-foot rented home;
  • $18,000 annual rent, $2,400 utilities, and $600 renters insurance; and
  • a $300 repair made only to the office.

These amounts and dimensions are assumptions, not statutory limits. Only the identified simplified-method figures are IRS-set.

Profit before the home office deduction is:

$90,000 revenue − $15,000 other expenses = $75,000

Under the simplified method:

200 square feet × $5 = $1,000 deduction

The $5 tax-year 2026 rate and 300-square-foot tax-year 2026 ceiling are sourced above. Profit after this deduction would be:

$75,000 − $1,000 = $74,000

Under the actual method, the business-use percentage is:

200 ÷ 1,200 = 16.67%

The allocable indirect expenses are:

($18,000 + $2,400 + $600) × 16.67% = $3,500

Add the direct office repair:

$3,500 + $300 = $3,800 potential actual-method deduction

Profit after that potential deduction would be:

$75,000 − $3,800 = $71,200

Here the actual method is $2,800 larger before limits or adjustments. That is not $2,800 of cash savings; savings depend on applicable marginal tax rates. The renter still needs leases, bills, measurements, and evidence of exclusive use.

What work-from-home trip-ups should you avoid?

Claiming personal space. A multipurpose guest room or kitchen table usually fails exclusive use. Measure the defined area.

Assuming W-2 status is irrelevant. Federal tax-year 2026 rules generally deny employees this deduction. Do not move employee expenses onto a separate business return.

Deducting all internet, phone, or utilities. Personal use must remain personal. Use a supportable allocation and keep the underlying statements.

Confusing revenue with profit. Home office deductions reduce eligible business profit. They do not reduce gross receipts, and owner withdrawals do not create deductions.

Double counting costs. Do not claim the simplified amount and allocate the same housing costs for the same year.

Overlooking depreciation. Actual-method homeowners may face depreciation requirements and later gain consequences.

What action should you take now?

Measure the space, test regular and exclusive use, and total direct and indirect costs. Compare both methods after considering records, income limits, and depreciation.

Take one clear action today: create a tax-year folder containing the floor-plan calculation, workspace photographs, monthly bills, and a note explaining its business use. Ask a credentialed tax professional about mixed use, homeownership, daycare, inventory, or combined W-2 and self-employed work.