If you’re self-employed and use part of your home for business, you may be able to deduct expenses allocable to the business use. The home office deduction is available for homeowners and renters. To qualify for the deduction, you must use the space in your home regularly and exclusively as your principal place of business. Any personal use of the space will disqualify you from claiming a home office deduction.
You may choose one of two methods for calculating your deduction—the simplified method or the regular method. The simplified method allows you to claim $5 per square foot for a maximum of 300 square feet. This gives you a home office deduction of no more than $1,500. No other deductions are allowed. You are still permitted, however, to claim any mortgage interest or property taxes on Schedule A, if you itemize deductions.
The regular method requires a bit more recordkeeping. Generally, when using the regular method, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the square footage of the business use compared to the square footage of your entire home. This percentage is then used to calculate the percentage of deductible expenses such as mortgage interest, insurance, utilities, repairs and depreciation.
You may choose to use either the simplified method or the regular method for any taxable year. Once you choose, you cannot change your mind for that year. You can, however, use the simplified method one year and the regular method in another. If you use the simplified method for one year and use the regular method for any subsequent year, you must calculate the depreciation deduction for the subsequent year using the appropriate optional depreciation table.
During 2020, many employees were sheltering in place and forced to work from home. The current rules for deducting home office expenses do not apply to employees since deductions for employee business expenses have been suspended until 2026.