Home Office Deduction.

In plain English

The home office deduction allows self-employed people to deduct expenses for the part of their home used regularly and exclusively for business. Exclusive means that space is not also the family dining table or guest room; it has to be dedicated to work. You can calculate it two ways: the simplified method, which multiplies your office square footage by a set IRS rate up to a cap, or the regular method, which deducts the actual percentage of rent, utilities, insurance, and similar costs that matches your office's share of the home. Employees working from home for an employer generally cannot take it.

01Why it matters

For a freelancer or sole proprietor, this deduction can shave hundreds or thousands off taxable income each year, but the exclusive-use rule is strict, so claiming a space you also use personally can unravel the whole deduction in an audit.

02The math, step by step

Leo freelances from a spare bedroom used only for work that measures 150 square feet in a 1,500 square foot apartment, so 10% of the home. Under the simplified method he multiplies 150 square feet by the IRS rate of $5 per square foot (capped at 300 square feet, a maximum $1,500 deduction). Under the regular method he could instead deduct 10% of his rent, electricity, and renter's insurance.

03What this is NOT

04Receipts

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