Home Office Tax Deductions for Business Owners

If you run your business from home, even part of the time, you may be able to deduct home office expenses on your tax return. The deduction can meaningfully reduce your taxable income, but the IRS has specific rules about who qualifies and how the deduction is calculated. Here’s what business owners need to understand.

Do You Qualify for the Home Office Deduction?

The basic requirement is that a portion of your home must be used “regularly and exclusively” as your principal place of business. That’s a meaningful standard. A kitchen table where you occasionally answer emails likely doesn’t qualify, but a dedicated room used consistently for business typically does.

If your home isn’t your principal place of business, you may still qualify if you physically meet with clients or customers there, or if you use a storage area or separate structure on your property exclusively and regularly for business purposes.

What Home Office Expenses Are Deductible?

Business owners who meet the eligibility requirements can choose between two methods for calculating the deduction.

The actual expense method allows you to deduct costs directly tied to your home office as well as a proportionate share of whole-home expenses. 

Deductible items can include:

• Painting, carpeting, or other improvements made directly to the office space
• A proportionate share of mortgage interest, rent, property taxes, utilities, repairs, maintenance, and insurance
• Security system costs, if applicable to your business
• Depreciation

This method requires organized recordkeeping, but it often produces a larger deduction, particularly for business owners with higher home-related expenses or larger office spaces.

The simplified method is more straightforward: you deduct $5 per square foot of home office space, up to a maximum deduction of $1,500. It requires less documentation, but the cap limits its value for larger spaces and may also produce a smaller deduction for smaller ones. It’s worth running the numbers both ways before deciding.

Can You Switch Home Office Tax Deductions Methods Year to Year?

Yes. You aren’t locked into one approach. You can use the actual expense method one year, switch to the simplified method the next, and switch back again after that. The choice is made annually when you file your return.

What If You Sell Your Home?

If you sell your home at a profit and have previously claimed home office deductions, there may be tax implications to be aware of. The details depend on your specific situation, and it’s worth discussing with your CPA before the sale closes.

It’s also worth noting that home office deductions are subject to income limitations. You generally can’t deduct more than the income attributable to your business use of the home. Any expenses that exceed that limit aren’t lost; they can be carried forward and deducted in future years.

Do Employees Qualify for Home Office Tax Deductions?

No. Under the Tax Cuts and Jobs Act, employees who receive a W-2 have not been eligible to claim home office deductions, even when working from home full-time at their employer’s direction. The home office deduction is available to business owners, not employees.

Let CJG Help You Figure This Out

The home office deduction is a legitimate tax-saving opportunity, but it needs to be claimed correctly. If you’re unsure whether you qualify or which method makes sense for your situation, CJG Partners can help you work through it. Contact us today.