Home Office Deduction Calculator
Compare the simplified $5 per square foot home office deduction against the actual expense method, including the depreciation recapture the actual method creates when you sell.
How to use this calculator
- 1Measure the space used regularly and exclusively for business, and the total floor area of the home.
- 2Enter your annual housing cost, property tax and running costs for the whole home — the calculator apportions them.
- 3If you own, enter the building value excluding land, since land is never depreciated.
- 4Enter gross business income, because neither method can produce a loss.
- 5Set how long before you sell, then compare the two methods net of the recapture the actual method creates.
How the calculation works
Simplified = min(office sq ft, 300) × $5. Actual = (office ÷ home) × indirect costs + depreciation. Depreciation = building value × business % ÷ 39- Business percentage
- Office area divided by total home area. A room-count method is permitted where rooms are of similar size
- Indirect costs
- Whole-home costs apportioned by that percentage: rent or mortgage interest, property tax, utilities, insurance, maintenance
- 39 years
- The home office is nonresidential real property under MACRS, depreciated straight-line
Both methods are capped at gross income from the business, but only the actual method carries the excess forward. Under the simplified option it is lost.
You may switch between methods from year to year. Switching does not undo depreciation already claimed.
Under the simplified option, mortgage interest and property tax are claimed in full on Schedule A rather than apportioned.
Worked example
A 200 sq ft office in a 2,000 sq ft owned home
- 1.The office is 10% of the home, so 10% of the $29,400 of indirect costs is deductible — $2,940.
- 2.Depreciation adds 10% of the $400,000 building over 39 years, which is $1,025.64 a year.
- 3.The actual method therefore gives $3,965.64 against the simplified option's $1,000, since only 200 sq ft counts at $5.
- 4.Over ten years the actual method saves about $12,690 in tax at 32%.
- 5.But it also accumulates $10,256 of depreciation, taxed at up to 25% on sale — roughly $2,564 — which the simplified option would avoid entirely.
Result: Actual method wins by $2,965.64 this year, and stays ahead after recapture
The deduction that follows you to closing
Most comparisons of the two methods stop at which number is larger this year. That is the easy half. The actual expense method requires you to depreciate the business portion of your home, and depreciation on a home office has a consequence that arrives years later, when you sell.
Section 121 normally excludes up to $250,000 of gain on a principal residence, or $500,000 for a married couple. Depreciation claimed on a home office is carved out of that exclusion. It comes back as unrecaptured section 1250 gain, taxed at a rate of up to 25% — higher than the 15% or 20% most people pay on long-term gains, and payable in a year when you may have no other income to plan around.
The trap is in the phrase "allowed or allowable". Recapture applies to the depreciation you were entitled to claim, not the depreciation you actually claimed. Skipping the deduction in a year you qualified does not spare you the tax on sale — it simply means you paid for the recapture without ever receiving the deduction.
The simplified option resolves this cleanly. It claims no depreciation, so there is nothing to recapture. For a homeowner in a rapidly appreciating market with a small office, that can be worth more than the larger annual deduction.
What "regular and exclusive" actually excludes
The statutory test is that the space be used regularly and exclusively for business, and exclusively is meant literally. A spare bedroom that hosts guests twice a year fails. A desk in the corner of a living room fails for the whole room, though a clearly delineated portion of a room can qualify — the space does not have to be a separate room, but it does have to be used for nothing else.
The space must also be your principal place of business, or a place where you regularly meet clients. Since 1999 the definition includes a home office used substantially for administration and management where there is no other fixed location for that work, which is what brings most self-employed people inside the rule.
One group is excluded outright: employees. The Tax Cuts and Jobs Act suspended miscellaneous itemised deductions from 2018, and with them the employee home office deduction. Working from home for an employer, however necessary the space, produces no federal deduction. The provision now reaches the self-employed, independent contractors and partners.
Why the simplified option keeps shrinking
The $5 per square foot rate and the 300 square foot ceiling were set by Revenue Procedure 2013-13 and contain no indexing provision. They have not changed since 2013. The $1,500 maximum has therefore lost roughly a third of its real value while rents, utilities and house prices have risen.
That is why the simplified option so often looks unattractive on the annual comparison. Its case has quietly shifted from "this saves you more" to "this saves you paperwork and protects your section 121 exclusion", which is a narrower but genuine argument.
The other structural difference is the loss of the carryover. Both methods are capped at gross income from the business, but the actual method lets you carry the disallowed excess into a future year, while the simplified option loses it permanently. For a business with an uneven income pattern, that alone can decide it.
What this assumes, and where it stops
Assumptions
- The space qualifies under the regular and exclusive use test, which is a question of fact this cannot verify.
- You are self-employed, a contractor or a partner — employees have had no federal home office deduction since 2018.
- The business percentage is computed by floor area, which is the usual method.
- A full year of depreciation is taken; the first year uses a mid-month convention and would be lower.
- The marginal rate you enter includes self-employment tax, which the deduction also reduces.
Limitations
- Direct expenses that benefit only the office, such as painting that room, are fully deductible under the actual method and are not separately modelled.
- The first-year mid-month convention is not applied, so year one is slightly overstated.
- The recapture figure assumes the top 25% rate on unrecaptured section 1250 gain; a lower-income seller may pay less.
- State treatment varies and is not included.
- Daycare facilities and rental use of part of the home follow different rules that are outside this calculation.
Common questions
Should I use the simplified or actual home office deduction?
The actual method almost always produces a larger deduction, because the simplified option is capped at $1,500 and has not been increased since 2013. But if you own your home and expect substantial appreciation, the actual method builds depreciation that is excluded from the section 121 exclusion and taxed at up to 25% when you sell. For a small office in a home you will sell at a large gain, the simplified option can be worth more overall despite the smaller annual figure.
Does the home office deduction cause problems when I sell my house?
Only if you used the actual expense method. Depreciation claimed on the office is not covered by the section 121 exclusion and comes back as unrecaptured section 1250 gain, taxed at up to 25%. Crucially the rule applies to depreciation "allowed or allowable", so declining to claim it in a year you qualified does not avoid the recapture. The simplified option claims no depreciation, so it creates no recapture at all.
Can I claim a home office if I work from home for an employer?
No. The Tax Cuts and Jobs Act suspended miscellaneous itemised deductions from 2018, which removed the employee home office deduction entirely. It does not matter how necessary the space is or whether your employer requires you to work from home. The deduction is available to the self-employed, independent contractors and partners. Some employers reimburse home office costs under an accountable plan, which is a separate arrangement.
What does "regular and exclusive use" mean?
The space must be used for business regularly, and for nothing else at all. A spare room that occasionally hosts guests fails the exclusivity test, as does a dining table used for work during the day. It does not have to be a whole room — a clearly identifiable portion of a room qualifies — but whatever area you claim must have no personal use. This is the requirement that most often fails on examination.
Sources
- Publication 587 — Business Use of Your Home — US Internal Revenue Service
- Simplified Option for Home Office Deduction — US Internal Revenue Service
- Publication 523 — Selling Your Home — US Internal Revenue Service
Formula and content last reviewed on .
Results are estimates for information only, not professional advice.
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