Tax & accounting

Home Office Deduction Rules for the Self-Employed (IRS Pub 587)

If you run your business from home, Pub 587 explains when part of your home qualifies and how to figure the deduction. Ask the assistant about your situation, from a spare-room office to inventory storage or a daycare.

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Answers are written by a language model solely from this base's documents, with numbered sources. They can be wrong and aren't legal, medical or financial advice: check the sources before any important decision.

The exclusive use and regular use tests

To deduct expenses for business use of your home, you must use part of it exclusively and regularly as your principal place of business, or as a place where you meet patients, clients or customers in the normal course of business. A separate structure not attached to your home can also qualify if used in connection with your business.

Under the exclusive use test, a specific area must be used only for your trade or business. Using the same area for both business and personal purposes fails the test. Two uses are exceptions: storage of inventory or product samples, and use as a daycare facility.

When your home is your principal place of business

Pub 587 looks at the relative importance of the activities performed at each place you do business and the time spent at each. Your home can also qualify if you use it exclusively and regularly for administrative or management activities and have no other fixed location where you conduct substantial administrative or management activities.

Schedule C filers figure the deduction on Form 8829, or with the Simplified Method Worksheet in the Instructions for Schedule C.

Simplified method or actual expenses

The simplified method replaces the calculation, allocation and substantiation of actual expenses. You generally multiply the prescribed rate of $5 by the area used for business, limited to 300 square feet.

For a year you use the simplified method, the depreciation deduction for that part of the home is deemed to be zero. With actual expenses, if your home expenses exceed the current year's limit, you can carry over the excess to the next year in which you use actual expenses.

Frequently asked questions

Can I claim a home office if I also use the room as a guest room?

Generally no. The exclusive use test is not met if the area is used for both business and personal purposes. The exceptions are inventory or product sample storage and daycare use.

What is the maximum area under the simplified method?

The allowable area is generally the smaller of the actual business area and 300 square feet. It may be smaller for a qualified joint venture, shared use, part-year use, or a change in area during the year.

Which form do sole proprietors use for the home office deduction?

If you file Schedule C, you use Form 8829 for actual expenses or the Simplified Method Worksheet in the Instructions for Schedule C.

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