Home Office Deduction

Two tests gate the deduction, and both have to hold. The space must be used regularly for business and exclusively for business. A spare bedroom that doubles as a guest room or where the kids do homework fails the exclusivity test, full stop. Pass both, and you pick one of two methods to size the deduction.

The simplified method is the lazy one, and that's a compliment. You take $5 per square foot, up to 300 square feet, for a hard ceiling of $1,500. No receipts, no proration math, no depreciation schedule. The IRS hasn't touched those numbers for 2026, so the cap is the same $1,500 it has been since the safe harbor first appeared. The trade-off: you can't depreciate the office, which also means no depreciation to recapture when you sell.

The regular method is where the real money usually sits. You figure your business-use percentage by floor area, then apply it to actual home costs, including rent or mortgage interest, property tax, utilities, insurance, repairs, and depreciation on the business portion of the house. That last piece is the kicker: the regular method lets you depreciate part of an asset you couldn't otherwise write off, and it lets you peel off a share of costs that are normally dead weight on a personal return. The catch is recordkeeping and the depreciation recapture you'll owe at sale, taxed as unrecaptured Section 1250 gain at your ordinary rate but capped at 25%.

If you're a W-2 employee, this deduction is gone, and it isn't coming back. The 2017 Tax Cuts and Jobs Act suspended unreimbursed employee expenses through 2025, and the One Big Beautiful Bill Act signed in July 2025 made that repeal permanent starting in 2026. So a salaried employee working from a home office gets nothing on their own return. The fix is to have your employer set up an accountable reimbursement plan, which is deductible to the company and tax-free to you. The home office deduction now belongs to the self-employed, independent contractors, and owners filing Schedule C or as partners.

One practical note on the regular method: your deduction can't exceed the gross income from the business use of your home. If the home office would push you into a loss, the excess carries forward rather than evaporating. (The simplified method has no such carryover, so any amount above your income limit there is simply lost.) Run both methods before you file. They aren't a permanent election, so you can switch year to year and take whichever number is bigger, and for a small office that crosses the 300-square-foot line, the choice flips more often than people expect.