Simplified or actual method — which is better?

Whichever is larger. The simplified method caps at $1,500 with no recordkeeping; the actual method can far exceed that if your rent or mortgage is high, but requires tracking expenses and proration.

Does the home office deduction increase audit risk?

Not on its own anymore — it's a routine deduction for the self-employed. Just make sure the space is genuinely used only for business and keep a simple record of the square footage and costs.

Can a W-2 employee deduct a home office?

Generally no. The home office deduction is for self-employment income reported on Schedule C, not for employees who work from home.

Deductions

The home office deduction, explained

Updated June 2026·2 min read·Checked against IRS Rev. Proc. 2025-32

If you run your business from home, part of your housing cost can become a business deduction — lowering both your income tax and your self-employment tax. There are two ways to claim it for 2026, and the rule that decides whether you qualify is stricter than most people think.

Key takeaways

✓You must use the space regularly and exclusively for your business.
✓Simplified method: $5 per square foot, up to 300 sq ft — a flat $1,500 max.
✓Actual method: prorate real housing costs by the share of your home you use.

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The rule: regular and exclusive use

This is the part that trips people up. The space has to be used both regularly and exclusively for your business — a spare room that is only your office qualifies; the kitchen table where you also eat dinner does not. It also has to be your principal place of business, which for most freelancers it is. Get this right and the rest is arithmetic.

The simplified method (almost no paperwork)

Multiply the square footage of your office by $5, up to a 300-square-foot cap — so the most you can deduct is $1,500. You keep no receipts and do no proration. For a small office or anyone who hates recordkeeping, it's the easy win, and you can switch methods year to year.

The actual-expense method (bigger if rent is high)

Here you take the percentage of your home the office occupies — say a 200 sq ft office in a 1,000 sq ft apartment is 20% — and deduct that share of rent, utilities, renters' or homeowners' insurance, and maintenance. If you own and use the actual method, you can also depreciate the business portion of the home, though that depreciation is recaptured (taxed) when you sell. In a high-rent home, this method often beats the $1,500 cap by a wide margin.

Which one to pick

Run both. If your prorated actual costs come to more than $1,500, the actual method wins; if they're close or your records are thin, take the simplified $1,500 and move on. A common pattern: renters in expensive cities use actual; everyone else takes the simplified flat rate for the simplicity.

Two things to know

The deduction can't exceed the profit of the business that uses the office — it can't create a loss (the simplified-method excess is simply lost, while actual-method excess can carry forward). And this deduction is for self-employment income: if you're a W-2 employee, a home office generally isn't deductible, even if you work from home. It lowers net profit, so it cuts both your income tax and your 15.3% self-employment tax.

Frequently asked questions

Yes, if you use a space regularly and exclusively for your business and it's your principal place of work. You can deduct it with the simplified $5/sq ft method (up to $1,500) or by prorating actual housing costs.

Self-employed tax deductions →Schedule C, explained →How much to set aside →

A planning estimate, not tax advice. Figures use IRS Rev. Proc. 2025-32 (2026). Confirm decisions with real money on the line with a CPA or enrolled agent.