The home office simplified method: an easier way to get your taxes done

The home office simplified method is an easier way to calculate the expenses you can deduct for the use of your home as a business. Taxable years beginning on or after 2013 are eligible to use this method as an alternative to the standard one.

The standard method to determine home office tax deductions has many calculation and substantiation requirements, so the simplified method is intended to reduce that difficulty.

In this article, we will explain how to use the simplified method, the qualifications you need to meet in order to deduct home office expenses, and how to choose the right method for you.

How to use the home office simplified method

To determine your home office deduction under the simplified method, you would deduct $5 for every square foot of the space you have designated as a home office. It can only be used for office spaces of up to 300 square feet, meaning your deduction can be a maximum of $1,500 per year.

Using this method you won’t have to keep records of your home office expenses like rent, utilities, mortgage payments, or real estate taxes. And you don’t have to complete an 8829 Form.

The simplified method does not change the criteria for who may apply for home office deductions, it is only a simpler way of calculating and keeping records of the deduction allowed. Read more on the qualifications:

How to calculate the home office deduction using the simplified method vs. the standard method

Calculating the home office deduction with the simplified method

The simplified method calculates your home office deduction by multiplying the square footage of your workspace by a fixed rate of $5 per square foot. For 2024, you can claim up to 300 square feet, which means the maximum deduction is $1,500. This method eliminates the need to track actual expenses like utilities or rent.

For example, if your dedicated home office is 200 square feet, your deduction would be 200 x $5, totaling $1,000. You simply report this amount on IRS Form 8829 or directly on Schedule C if you’re self-employed. This approach is ideal for freelancers or small business owners who want a straightforward way to claim the deduction without detailed record-keeping.

To use the simplified method, measure your workspace carefully and ensure it is used regularly and exclusively for business. This method reduces paperwork and speeds up tax preparation, but it may result in a smaller deduction compared to the standard method if your actual expenses are high.

Calculating the home office deduction with the standard method

The standard method requires you to calculate the actual expenses related to your home office, including mortgage interest, rent, utilities, insurance, repairs, and depreciation. You then multiply these expenses by the percentage of your home used for business. This percentage is based on the square footage of your office divided by your home's total square footage.

• Mortgage interest
• Rent
• Utilities
• Insurance
• Repairs
• Depreciation

For instance, if your home office is 250 square feet and your home is 2,000 square feet, your business use percentage is 12.5%. If your total eligible expenses for the year are $20,000, your home office deduction would be $20,000 x 12.5%, which equals $2,500. This method often yields a larger deduction but requires detailed records and calculations.

Using tax software like TurboTax, H&R Block, or TaxAct in 2024 or consulting a tax professional can help you accurately calculate and document these expenses. Keep in mind that the standard method may also affect your home's basis for capital gains tax when you sell, so consider long-term implications.

Choosing between the simplified and standard methods

Choosing the right method depends on your specific situation. The simplified method offers ease and less paperwork, making it a good choice if your home office expenses are low or you prefer a quicker tax filing process. However, if you have significant home-related expenses, the standard method could provide a larger deduction.

For example, if your home office is small but your utility bills and mortgage interest are high, the standard method might save you more money. Conversely, if you rent and have minimal expenses, the simplified method’s $5 per square foot rate might be more beneficial. You can switch methods year to year but cannot claim both in the same tax year.

To decide, calculate your deduction both ways using tools like the IRS’s Home Office Deduction Calculator or tax software. This comparison will help you maximize your tax benefit while ensuring compliance with IRS rules.

Who can qualify for the home office simplified method?

You can qualify for a home office deduction if you are self-employed. This includes freelancers, business owners, and independent contractors who are working for profit. For example, a real estate agent who sends e-mails and makes sales calls from a designated workspace, or an independent web designer who works from home.

If you are an employee who works for a company, you are not eligible for the home office deduction even if you work remotely and have an office set up in your home. For example, someone working as a customer service representative from home and on payroll cannot claim the deduction. Many people mistakenly believe claiming the home office deduction will trigger an IRS audit. Read our breakdown of the home office deduction audit myth.

Special circumstances that impact the home office deduction

Your client moved halfway through the year

The home office simplified method can be prorated if your client moved during the tax year. They can claim the deduction only for the months they used a qualified home office at each residence. For example, if they moved in July, they can claim the simplified method for January through June at the first home and July through December at the new home, provided both spaces meet IRS requirements.

To apply this correctly, your client should calculate the number of months the home office was in use at each location and multiply by the $5 per square foot limit, up to 300 square feet. This prorated approach ensures they don’t overclaim the deduction. Remember to keep records such as lease agreements or utility bills to support the time spent at each home.

When preparing taxes in 2024, use tax software like TurboTax or TaxAct. These platforms allow prorated home office deductions. Encourage your client to document moving dates clearly to avoid IRS scrutiny. This approach maximizes the deduction while complying with IRS rules for partial-year home office use.

Your client only uses their home office for part of the year

The simplified method requires exclusive and regular use of the home office, but if your client only uses it part of the year, they can still claim a partial deduction. The IRS allows the deduction to be prorated based on the number of months the office was actively used for business.

For example, if the home office was used for six months, the maximum deduction is $5 multiplied by the square footage, then multiplied by 6/12. If the office is 200 square feet, the full deduction would be $1,000 annually, but for six months, it would be $500. This ensures the deduction accurately reflects actual business use.

To apply this, track the exact months the home office was in use and maintain a log or calendar. Tax software like H&R Block’s online platform supports partial-year deductions using the simplified method. This strategy helps freelancers and small business owners avoid overclaiming and stay compliant in 2024.

Your client operates more than one business out of their home

When a client runs multiple businesses from the same home office, the simplified method deduction must be split according to the percentage of time or space each business uses. The IRS requires the home office to be used exclusively for business. Shared spaces can complicate the deduction and reduce eligibility.

For instance, if your client uses their 300-square-foot office 60% for freelance writing and 40% for consulting, they can allocate $900 ($5 x 300 sq ft x 60%) to writing and $600 ($5 x 300 sq ft x 40%) to consulting under the simplified method. This split must be reasonable and documented.

Advise your client to keep detailed records showing how the office space is divided or how much time is spent on each business. Use tools like QuickBooks Time or Toggl to track hours by business. Proper allocation prevents IRS audits and ensures each business claims a fair share of the deduction in 2024.

Your clients are married and both work from home

Married couples who both work from home can each claim the simplified method deduction if they have separate, exclusive home office spaces. The IRS allows multiple home office deductions as long as each space meets the exclusive use test.

For example, if a couple each has a 150-square-foot office, they can each claim up to $750 (150 sq ft x $5) for a total of $1,500. However, if they share the same office space, only one deduction is allowed. This distinction is important to avoid disallowed claims.

To handle this properly, couples should clearly define their office areas and maintain separate records. Tax preparation software like TaxSlayer supports multiple home office deductions for spouses. Review home layout and usage to maximize deductions while staying within IRS guidelines in 2024.

Irs rules for the home office deduction

Understanding the simplified method requirements

The simplified method for the home office deduction allows you to deduct $5 per square foot of your home office, up to 300 square feet. To qualify, the space must be used regularly and exclusively for business purposes. This means your home office cannot double as a guest room or personal space.

For example, if your dedicated home office is 200 square feet, you can claim a deduction of $1,000 (200 sq ft × $5). The IRS requires that the area be your principal place of business or a place where you meet clients regularly. Meeting these criteria ensures you comply with IRS rules and avoid audits.

To apply the home office simplified method, use IRS Form 8829 or the simplified worksheet provided in the Schedule C instructions for 2024. This approach reduces paperwork and recordkeeping compared to the regular method. It's ideal for freelancers and small business owners seeking a straightforward deduction.

How to document your home office for IRS compliance

Keeping accurate records is crucial when claiming the home office deduction under the simplified method. Although the IRS does not require detailed expense tracking for this method, you must be able to prove the square footage and exclusive business use if audited. Measuring your home office space and noting its business purpose is essential.

Using tools like a tape measure or smartphone apps such as RoomScan Pro can help you document the exact size of your workspace. Additionally, maintaining a simple floor plan or photos showing the dedicated office setup can support your claim. This documentation helps demonstrate compliance with IRS rules if questions arise.

For 2024 tax filings, keep these records for at least three years. This practice safeguards you against potential audits and ensures you can confidently claim the deduction without risking disqualification due to insufficient evidence.

Limitations and exceptions to the simplified method

The simplified method has specific limitations that freelancers and small business owners must understand. You cannot claim this deduction if you rent your home and the home office is in a part you don’t rent. Also, if you use the space for both personal and business activities, the deduction does not apply.

Another important exception is that the simplified method cannot be used if you claim depreciation on your home office under the regular method in previous years. Switching between methods is allowed, but you must follow IRS guidelines to avoid double-dipping.

For the home office simplified method, if your office is 350 square feet, you can only deduct 300 square feet, capping the deduction at $1,500. Understanding these limits helps you choose between the simplified and regular methods to maximize your tax benefits in 2024.

What if you use the home office simplified method for only a few months?

You may be able to claim a partial home office deduction if you were self-employed only for a few months. For example, if you did some consulting while you were looking for a full-time job, the home office expenses would be prorated for those few months you worked from home.

But being self-employed (no matter for how long) won’t make you qualify for home office deductions on its own. You will also need to meet other strict qualifications.

How to qualify for the home office simplified method

To qualify for the home office simplified method, you must meet any of the following requirements:

Exclusive and regular use requirements

You must prove that you use this space exclusively for business purposes. It does not need to be a separate room, but it must be in an area where you don’t do anything else. Using a part of your home such as a room or garage for both business and personal purposes disqualifies you from the deduction.

The home office space must be used regularly, not occasionally, for business purposes. For example, if you perform administrative tasks daily but only use your home office once or twice a month, you do not meet the requirement.

Principal place of business requirements

Your home office qualifies as a principal place of business if you have no other fixed location for administrative or management activities of your business. These include billing, ordering supplies, and bookkeeping.

You do not qualify for the deduction if administrative and management activities occasionally occur at another business location or if you outsource or delegate some of these activities to others.

Meeting with patients or clients

You can also qualify for home office deductions if you use your home as a place to meet with patients, customers, or clients. The home office doesn’t need to be your principal place of business to qualify if you meet this requirement. However, using your home for this purpose must be essential to run your business.

Daycare services

If you use your home as a regular space to provide daycare services for children, disabled, or elderly persons, you can claim a deduction for that part of your home. You will be eligible even if that area of your home is used for non-business purposes.

In order to apply, you must have approval under State law to provide such services. If your authorization is rejected or your license is at any point revoked, you will no longer qualify for this deduction.

Limitations of the home office simplified method

There's a home office deduction limitation. Using the home office simplified method will only allow you to calculate your deductions based on the size of the area used for business. Here is more information on what you will not be able to include in your deductions.

No other expenses can be deducted

If you elect to use the home office simplified method, you won’t be able to deduct any actual expenses for the business. Your mortgage interest, real estate taxes, and casualty losses will be considered personal and not business expenses. Track your actual expenses with our home office deduction excel worksheet.

Using more than one home

If you used more than one home for your business during one year, you can only choose the simplified method for one of them. You must use the standard method to calculate deductions for any other home used as a qualified business.

Depreciation deduction rules

You cannot deduct any depreciation (including additional first-year depreciation) for the portion of the home that is used for business. The allowable depreciation deductible for that year will be set as zero. This also means you don’t have to recapture any depreciation for the years in which you use the simplified method.

Even though you cannot deduct any depreciation for the portion of your home used for business, the simplified method still allows you to claim depreciation on other assets used in the business like equipment or furniture.

How does the regular method compare to the home office simplified method?

When using the regular method, the calculation of your home office deductions is based on the percentage of your house that is being used as an office. The tax-deductible expenses include mortgage interest, utilities, repairs, depreciation, and insurance.

First, you obtain your deductible percentage by dividing your home office square footage by your home’s total square foot. Then, multiply this percentage by the sum of your total allowable expenses and that would be your home office deduction.

Unlike the simplified method, the regular method does not have a limit to how much you can claim.

Example calculations for the home office simplified method

Let’s say a small business owner has a portion of their house dedicated to selling clothes. The annual gross income from this activity is $10,000. Their entire home is 1,000 square feet, and they are using 400 square feet for their business purposes. This means they are using 40% of their home for business.

Using the regular method this business owner would have to calculate direct expenses (installing a new carpet or painting the wall) as well as indirect expenses (mortgage and utilities). Let’s say they add up to $5,000 annually. The next step would be to take that 40% ratio and multiply it against the expenses (5,000 x 0.4) resulting in an annual deduction of $2,000.

Using the home office simplified method, they would only have to look at the square footage of the space designated for business. In this case, they would only be able to claim a maximum of $1,500 because the limit is set at 300 square feet.

Choosing the right home office deduction method

Once you determine that your home office space meets the requirements, choose the method of calculation you want to use. Keep in mind that once you choose your method, you cannot change it for that year. However, you can select a different method each year.

Many people choose to use the home office simplified method to avoid record-keeping requirements. However, in some situations, this method results in a lower deduction than the standard method.

If you have a single-room office and small operations, the home office simplified method can work well. However, if you have many expenses this year exclusively related to your home business space, or if your home office is large, the standard method could provide a higher deduction.

To maximize your home office expenses, calculate deductions using both the home office simplified method and the standard method each year. Determine which gives the higher deduction. Here's the IRS's comparison of the two methods.

Important points to understand about the home office simplified method

• Other normal business expenses such as supplies, advertising, and wages are still fully deductible if they are not related to the home business.
• The amount of the deduction cannot exceed the net income of your business, meaning the deduction should not be used to create a business loss.
• If you are using the same home space for more than one business you have to use the simplified method for all of them.
• If you choose to use the simplified method, you will only report your business’ income and expenses on Schedule C (1040 Form) to take the deduction.

Taking a home office deduction requires understanding the general rules and meeting the required qualifications. Due to the coronavirus pandemic, employees may receive a home office reimbursement or be fully repaid for items purchased solely for the home office.

Bonsai offers you a business expense tracker and tax software that will make this process easier and faster. It will help you calculate your expense deductions so you can make the right decision and maximize your self-employment tax savings.