Home Office Deduction for Freelancers: Simplified vs Regular Method
General information for US federal taxes. Not tax advice. Read IRS Publication 587 or ask a tax professional. Figures below should be verified there.
The home office deduction can be valuable for freelancers who work from home, but it has strict conditions.
Two requirements
The IRS requires that the space be used:
- Regularly and exclusively for business. A dedicated room or a clearly separate part of a room works. A desk in the living room that also serves as a family workspace generally does not qualify.
- As your principal place of business, or otherwise meet the conditions the IRS lists (for example, you use it substantially and regularly to meet clients, or for administrative work when you have no other fixed location where you do it). Check Publication 587.
The two methods
Simplified method. You multiply a prescribed rate by the square footage of the office, up to a cap. The rate under the simplified method has been $5 per square foot up to 300 square feet (maximum $1,500); confirm the current figures in Publication 587. No need to track actual home expenses.
Regular method. You deduct the business percentage of actual home expenses, such as mortgage interest or rent, utilities, insurance and repairs, plus depreciation if you own the home. It needs more records and can produce a larger deduction.
Worked example (illustrative)
A 150 sq ft office in a 1,500 sq ft home. Annual rent is $24,000 and utilities are $3,000.
| Method | Calculation | Deduction |
|---|---|---|
| Simplified | 150 × $5 | $750 |
| Regular | (150 ÷ 1,500 = 10%) × ($24,000 + $3,000) | $2,700 |
The regular method is larger here, but it needs records of each expense. Whether it is worth the extra effort depends on your numbers. Some limits apply based on business income. Ask a professional.
What to keep
- A floor plan or measurements of the office and the home.
- Photos of the space as used.
- Rent, utility and insurance records if using the regular method.
Effect on your tax
A $2,700 deduction lowers profit by that amount, which reduces both SE tax and income tax. See how profit changes the total in our tax set-aside calculator and the expenses overview.
Track it
Whatever the method, record the figures at year end with your other expenses in a spreadsheet or in accounting software such as QuickBooks Online or FreshBooks; see spreadsheet vs software.