My friend Sarah is a freelance graphic designer in Brooklyn.

She converted a spare bedroom in her apartment into a full-time studio with a dedicated desk, monitor setup, the whole works. She pays $3,200 a month in rent.

Last year, she saved over $6,000 on her taxes just from the home office deduction.

Meanwhile, her husband works a corporate job remotely from the same apartment.

He has his own dedicated workspace in their living room.

His home office deduction?

Zero. Zilch. Nada.

They both live out of the same apartment, with the same work-from-home setup, and yet have wildly different tax treatment.

The rules for the home office deduction are completely different depending on how you earn your money.

If you're a W-2 employee working from your couch?

Sorry, no deduction for you.

If you run your own business?

You might be leaving thousands of dollars on the table.

Let me break down exactly how this works.

This is the part that trips up most people.

The 2017 Tax Cuts and Jobs Act (TCJA) completely eliminated the home office deduction for W-2 employees.

That means if you have a regular job with a salary, work from home three days a week, and have a dedicated home office setup... you can't deduct any of it.

Even if your employer requires you to work from home.

Even if you bought a standing desk and fancy monitor.

None of it is deductible on your personal taxes through 2026.

As I've written before, regular salaried W-2 employees get the worst deal when it comes to taxes. Business owners and investors have far more options to reduce what they owe.

The home office deduction is only available to:

If you have both a W-2 job and a side business where you report the income on Schedule C, you can still claim the home office deduction for your side business (as long as it meets the requirements below).

This is actually one of my favorite reasons to have any kind of side hustle.

Even modest self-employment income opens up a world of tax deductions that W-2 employees simply don't have access to.

To qualify for the home office deduction, you need to satisfy two tests without exception.

The space you're claiming must be used only for business and this is where most people mess up.

An example of something that doesn't apply could be a dining room table where you work during the day and eat at dinner at night, or a spare bedroom where you have your desk and a guest bed.

But the corner of your living room with a dedicated desk that never gets used for personal stuff works perfect.

The IRS is serious about this.

You need a clearly defined area that is used exclusively for your trade or business.

It doesn't have to be an entire room, but it can't be a space you also use for personal activities.

There are two narrow exceptions: if you store inventory or product samples at home, or if you operate a daycare facility, you may qualify without meeting the strict exclusive use test.

You need to use the home office on a continuing basis for your business.

Using it occasionally or sporadically won't cut it.

Additionally, the home office must be your principal place of business.

You can satisfy this if:

So if you're a consultant who meets clients at their offices but handles all your invoicing, scheduling, and administrative work from your home office, you qualify.

If you run an e-commerce business from your apartment and occasionally visit a co-working space, your home office is still your principal place of business.

The IRS gives you two methods for calculating your home office deduction.

Pick the one that works best for your situation.

This is exactly what it sounds like: simple.

You take $5 per square foot of your home office, up to a maximum of 300 square feet. That's a maximum deduction of $1,500 per year.

Just measure your office and multiply by five.

The advantages:

The disadvantages:

For most people with modest home offices, this is the way to go.

It's simple, it's clean, and it won't complicate things when you eventually sell your home.

This requires more work but can generate a larger deduction.

First, calculate your "business use percentage" by dividing your home office square footage by your total home's square footage.

For example: 200 square foot office in a 2,000 square foot home = 10% business use.

Then, apply that percentage to your deductible home expenses (e.g, rent and utilities).

The actual expenses method also requires you to depreciate your home over 39 years for the business portion.

This means you can deduct a portion of your home's value each year as it 'wears out' from business use, giving you a small extra deduction on top of rent and utilities.

This sounds great because it gives you an additional deduction now, but the IRS will eventually recapture those deductions with a tax when you sell the home.

Look, I'm not going to pretend tracking home office expenses is fun.

But it doesn't have to be a nightmare either.

I helped build Reimburse to make this stuff easy.

You can use it to track your home office expenses and other mixed-use deductions automatically.

The app calculates both methods (simplified and actual expenses) and tells you which one saves you more money.

You also get free access to:

→ Vehicle mileage tracking
→ AI-powered receipt extraction
→ A tax calendar so you never miss a deadline
→ Support for other common deductions

It's free to sign up and free to use for tracking.

Create your free Reimburse account here →

The expenses that qualify for the home office deduction fall into two categories:

These are costs that benefit only your home office, and they're 100% deductible:

These are costs that benefit your entire home. In these cases, you deduct your business use percentage.

If your office is 10% of your home's square footage, you can deduct 10% of:

It’s important to remember that the above indirect expenses only apply to the business portion of the expenses.

Here's a quick example:

Say you're a freelance consultant paying $2,500/month rent in a 1,000-square-foot apartment.

Your home office is 150 square feet, so 15% business use.

Your annual rent is $30,000. That's $4,500 in deductible home office expenses just from rent alone.

Add in utilities, internet, renter's insurance, and cleaning... you're looking at $5,000+ in legitimate tax deductions.

At a 32% marginal tax rate, that's $1,600 back in your pocket for just having a dedicated workspace at home.

The specific mechanics of claiming the home office deduction vary based on your business structure. This is where things get nuanced.

This is the simplest scenario.

You deduct home office expenses directly on Schedule C (the IRS even has a guide on the form)!

See here:

Use Form 8829 if using the actual expenses method.

Your deduction flows through to reduce your self-employment income, which means you save on both income tax AND self-employment tax.

If you use the simplified method, you just enter your home office square footage directly on Schedule C.

Clean and easy!

Slightly more laborious.

Partners can deduct unreimbursed home office expenses on Schedule E as unreimbursed partnership expenses.

See here:

This is a "below the line" deduction, so it reduces your income but doesn't help with self-employment tax.

Alternatively, the partnership can establish an accountable plan to reimburse partners for home office expenses. This is generally the better approach because it creates a deduction at the partnership level.

Here's where most people mess up badly:

If you operate as an S-Corp, you cannot directly deduct home office expenses on your personal tax return. This is a critical distinction from sole proprietorships.

As an S-Corp shareholder-employee, you're considered an employee of your own corporation. And remember: employees cannot take the home office deduction.

The solution is an accountable plan.

An accountable plan is a formal reimbursement policy that allows your S-Corp to pay you back for business expenses you personally incur. When done correctly:

It's genuinely one of the best ways to get money out of your S-Corp.

To have a valid accountable plan, you must meet three IRS requirements:

The most common mistake I see is

S-Corp owners just cutting themselves a check for "home office" with no documentation.

That's not an accountable plan, which means the reimbursement is taxable income to you.

Get this right.

Have a written accountable plan policy. Document everything. File expense reports monthly or quarterly. (I helped build reimburse.com for exactly this)

One more thing for S-Corp owners: any portion of mortgage interest and property taxes reimbursed through an accountable plan must be subtracted from what you deduct on Schedule A. You can't double dip.

If you skimmed the S-Corp section above and thought "this sounds like a lot of paperwork," you're right.

Setting up an accountable plan correctly requires documentation, expense reports, and a formal written policy.

Mess it up and your reimbursements become taxable income. Not great.

Reimburse handles all of this for you.

For $49/month, you get:

→ A signed, IRS-approved accountable plan
→ W-2 salary optimizer to find your ideal salary vs distribution split
→ Augusta Rule support (rent your home to your business for meetings)
→ Hire Your Kids strategy with compliant documentation
→ CPA-ready downloadable reports for everything

Plus all the free features: mileage tracking, receipt scanning, home office calculations, and the tax calendar.

If you're running an S-Corp without an accountable plan, you're probably leaving money on the table and exposing yourself to unnecessary risk.

Check out Reimburse here →

Homeowners have additional considerations that renters don't face.

When you use part of your home for business, you can depreciate the business portion over 39 years.

Here's how the math works:

Take your home's value (not including land). Multiply by your business use percentage. Divide by 39.

For example: $500,000 home value, 10% home office, equals $50,000 business portion. Divided by 39 years = $1,282 per year in depreciation deductions.

This is on top of your other home office expenses like utilities and insurance.

When you eventually sell your home, you will owe taxes on all the depreciation you claimed (or could have claimed) after May 6, 1997.

This is called depreciation recapture, and it's taxed at a maximum rate of 25%.

Here's the painful part: the IRS will recapture depreciation whether or not you actually claimed it.

If you were entitled to take depreciation deductions but didn't, you still have to pay recapture tax when you sell as if you had taken them.

So if you're going to have a qualifying home office as a homeowner, you might as well take the depreciation deductions. You're going to pay recapture either way.

If you use the simplified $5 per square foot method, depreciation is treated as zero.

This means no depreciation recapture when you sell.

For many homeowners, this makes the simplified method very attractive.

You still get a home office deduction (up to $1,500 per year), but you avoid the complexity and future tax hit of depreciation recapture.

Good news here. If your home office is located within your primary residence (like a converted bedroom or portion of a room), you do not need to allocate your gain between the business and personal portions when you sell.

Your entire gain can qualify for the $250,000 single / $500,000 married home sale exclusion. You just need to pay recapture tax on prior depreciation.

However, if your home office is in a separate structure (like a detached garage, finished basement with separate entrance, or converted carriage house), you may need to allocate gain between the residence and business portions. The business portion wouldn't qualify for the home sale exclusion.

Alright, let's talk strategy:

1. Track everything

If you're using the actual expenses method, you need documentation.

Save receipts for repairs. Keep utility bills. Track cleaning service invoices.

This doesn't have to be complicated, and reimburse.com makes it easy to keep track.

2. Measure accurately

Square footage matters at lot, so measure your home office space carefully.

If your office is 180 square feet versus 150 square feet, that's an extra $3,600 in potential deductions over 10 years using the actual expense method.

3. Consider your commute

Here's a hack most people miss:

Once you have a qualifying home office, your "commute" is from your bedroom to your office.

Any travel from your home office to another business location becomes business mileage.

Without a home office, driving from your home to a client meeting is considered commuting (not deductible).

With a home office established as your principal place of business, that same drive becomes business travel.

At 70 cents per mile in 2026, this can add up fast if you regularly travel for your business.

4. Run the numbers on both methods

Don't just default to the simplified method because it's easier. Run the math both ways.

If your actual home expenses are low (maybe you live somewhere cheap or have a small office), the simplified method might be better.

If you have high rent or mortgage payments, expensive utilities, or a larger office space, the regular method could save you significantly more.

5. Combine it with other deductions

The home office deduction is just one piece of the puzzle for self-employed tax optimization.

If you're running a business from home, you should also be looking at:

The home office deduction alone might save you $1,000 to $5,000+ per year depending on your situation.

Combined with these other strategies, you could be looking at tens of thousands in annual tax savings.

A final note: This deduction is not something that should scare you.

There's a lot of outdated advice floating around about how the home office deduction triggers audits.

That was maybe true decades ago when some people got aggressive.

But if you have a legitimate home office that meets the requirements, document it properly and calculate your deduction correctly.

— Ankur

Full Disclosure: I'm writing this as myself, not as some investment adviser or broker-dealer representative. This is just educational stuff and my personal thoughts, not investment, legal, tax, or professional advice. While my startup Carry owns an investment adviser and broker dealer, this is not meant to be an advertisement and nothing here represents them. Financial decisions involve risk, including losing money. Taxes are complex. Please do your own research or talk to a licensed pro before acting on anything you read here.