Tax Tip Tuesday: Home Office Deduction Tips

Working from home has become the norm for many small business owners, freelancers, and remote employees. If you're using part of your home regularly and exclusively for business, you may qualify for the home office deduction — and it can be a valuable tax-saver.

Let’s break down some tips to help you make the most of this deduction:

1. Understand Who Qualifies

To claim the home office deduction, your home office must be:

• Used regularly and exclusively for business (no personal use).

• Your principal place of business, or where you meet clients/customers, or a separate structure used solely for business.

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Even if you do some work at a coffee shop or co-working space, your home can still qualify if it meets the above conditions.

2. Know Your Deduction Methods

You have two options to calculate the deduction:

Simplified Method

• $5 per square foot, up to 300 square feet (max $1,500).

• No need to track actual expenses.

  
  

Actual Expense Method

• Deduct a percentage of actual home-related expenses (mortgage interest, rent, utilities, repairs, insurance, depreciation).

• Requires good recordkeeping.

  
  

Tip: If your home office is 10% of your home’s square footage, you can deduct 10% of eligible expenses.

3. Track Your Expenses Carefully

If you’re using the actual expense method, you’ll want to keep clear records of:

• Mortgage interest or rent

• Utilities (electric, gas, water)

• Homeowners/renters insurance

• Repairs and maintenance

• Property taxes

• Depreciation (if you own the home)

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Make sure your records match your use of space and are well-documented in case of an audit.

4. Don’t Forget Depreciation (If You Own Your Home)

Depreciation is often missed but can be a significant deduction. It involves deducting a portion of your home’s cost (excluding land) over 39 years.

Important: If you later sell your home, you may have to recapture depreciation and pay taxes on that portion — so track it correctly!

5. Employees Usually Can’t Deduct Home Offices

If you’re a W-2 employee working remotely, the 2017 Tax Cuts and Jobs Act eliminated unreimbursed employee business expense deductions through 2025. Unless you're self-employed, you likely can’t take this deduction.

6. Use the Right IRS Forms

• Sole proprietors use Form 8829 with Schedule C.

• S-corp or partnership owners must be reimbursed by their entity through an Accountable Plan — not by taking the deduction on their personal return.

This is where many taxpayers make mistakes. If you're an S-corp owner, you cannot deduct the home office directly on your personal return. Your business must reimburse you.

The IRS is clear: regular and exclusive use is key. If you’re using your guest room once in a while or letting kids do homework there, that space doesn’t qualify. Be honest, be consistent, and document everything.

Need help figuring out your deduction? Email us at info@mkhstaxgroup.com — we’re happy to help you navigate the best tax strategy for your business.