Can I deduct my home office if I rent my home?

Yes. Renters can use the home office deduction. Under the actual method, rent replaces mortgage interest as the primary cost being prorated. You'd calculate the business-use percentage of your rent and deduct that amount. Utilities, renter's insurance, and internet are also deductible in proportion to business use.

Does the room need to have a door?

No, the IRS doesn't require a separate room with a door. A clearly defined area within a larger room can qualify. What matters is that the area is used exclusively and regularly for business. An open-plan corner of your living room that you use only for work qualifies; a dining table you eat at and occasionally open your laptop on does not.

What about depreciation recapture when I sell my house?

This is the main downside of the actual method. When you deduct depreciation on the business portion of your home and later sell, you may owe tax on the depreciation you claimed — called depreciation recapture, taxed at up to 25%. The simplified method avoids this entirely. For some owners, the simplicity and clean exit is worth the smaller deduction.

I work from home as an S-corp owner. How do I take the deduction?

S-corp owners can't use the home office deduction directly on their personal return. Instead, the S-corp should adopt an Accountable Plan that reimburses you for home office expenses. You document the costs and the business-use percentage, the S-corp reimburses you, and the corporation deducts the reimbursement as a business expense. The reimbursement isn't taxable income to you. This gets the same result without the home office deduction limitation.

Can I take both internet and cell phone deductions if I also have a home office?

Yes — those are separate deductions. Internet you use for business is deductible in proportion to business use (or fully, if it's a dedicated business line). Cell phone used for business is deductible in proportion to business use. These don't double-count with the home office deduction, which covers the physical space of the home.

Tax deductions

The Home Office Deduction: Who Qualifies, How to Calculate It, and Which Method Saves More

Self-employed business owners can deduct the business-use portion of their home — but only if it meets the exclusive-use test. How the simplified and actual methods compare, and which one to use.

Written by Matt Reese, CPA · 5 min read · Published April 2026·Share on LinkedIn

Key Takeaways

The space must be used regularly and exclusively for business — a guest room that doubles as an office doesn't qualify.
Simplified method: $5 per square foot, up to 300 sq ft ($1,500 max). Easy to calculate, no depreciation recapture.
Actual method: your real costs (mortgage interest, rent, utilities, insurance) prorated by the percentage of your home used for business. Usually larger.
S-corp owners can't take the home office deduction directly — but the S-corp can reimburse you for home office expenses under an Accountable Plan.

The deduction most home-based owners either miss or misclaim

If you work from home as a self-employed business owner and have a dedicated workspace, you can deduct the business-use portion of your home costs. At $2,000/month in rent or $3,000/month in housing costs, the deduction is worth real money — typically $2,000–$6,000/year for a solo operator.

The two most common mistakes: owners who qualify don’t take the deduction, and owners who don’t qualify take it anyway. The IRS audits home office deductions disproportionately — not because they’re illegal, but because they’re frequently overclaimed.

The deduction is legitimate. The test is strict. Make sure you pass before you claim it.

The qualification test

To claim the home office deduction, the space must be:

Used regularly and exclusively for business — this is the test most people fail. The space must be used consistently for business and only for business. A desk in your bedroom that you also use for personal browsing doesn’t qualify.
Your principal place of business — or a place where you meet clients or customers in the normal course of business, or a separate structure on your property used for business.

The exclusive-use test is strict

The IRS interprets “exclusive use” literally. A home office that occasionally doubles as a guest room, a hobby space, or a general relaxation room does not qualify — even if you use it for work most of the time. If you can’t confidently say the space is used only for business, you may not have a qualifying home office.

Two methods: simplified vs actual

Method	How it works	Max deduction	Complexity
Simplified	$5 × business square footage	$1,500 (300 sq ft cap)	Minimal — one number
Actual	Prorated share of real home costs (rent/mortgage interest, utilities, insurance, repairs, depreciation)	No cap — based on actual costs	More complex — need records; depreciation recapture on sale

You can choose either method each year — you’re not locked in. Most CPAs run both calculations and use whichever produces the larger deduction.

The simplified method

Rate: $5 per square foot of your home office
Cap: 300 square feet ($1,500 maximum)
No depreciation:You don’t deduct depreciation on the home, so there’s no recapture risk when you sell.

Best for: Owners with small offices, low home costs, or those who plan to sell their home and want to avoid depreciation recapture.

The actual method

The actual method calculates your home office as a percentage of your total home square footage, then applies that percentage to your actual home costs.

Home office percentage = Office square footage ÷ Total home square footage

Deductible costs include:

Rent (for renters) or mortgage interest + property tax (for owners)
Utilities: electricity, gas, water
Homeowner’s or renter’s insurance
Repairs and maintenance (to the whole home, prorated)
Depreciation on the business-use portion of the home (for owners)
Internet service (prorated if also used personally, or fully if dedicated)

Simplified vs actual — which saves more?

Home office size200 sq ft

Total home2,000 sq ft

Business-use percentage10%

Monthly rent$3,500/month ($42,000/year)

Monthly utilities$300/month ($3,600/year)

Monthly insurance$100/month ($1,200/year)

— Simplified method deduction$5 × 200 sq ft = $1,000

— Actual method deduction10% × ($42,000 + $3,600 + $1,200) = $4,680

Actual method saves more by$3,680/year

At typical Bay Area or California rent levels, the actual method almost always wins by a wide margin. The simplified method is faster and avoids depreciation recapture, but leaves money on the table for most renters and owners in high-cost markets.

S-corp owners: the Accountable Plan workaround

S-corp owners who own more than 2% of the corporation can’t take the home office deduction directly on their personal return. But there’s an equivalent option: an Accountable Plan.

Under an Accountable Plan, your S-corp reimburses you for home office expenses. The corporation deducts the reimbursement as a business expense, which reduces pass-through income. You receive the reimbursement tax-free. The net result is the same as taking the deduction yourself — it just runs through the corporation.

Accountable Plan requirements

To be an Accountable Plan, three conditions must be met: (1) expenses must have a business connection, (2) you must adequately account to the corporation (submit documentation), and (3) excess advances must be returned. Your CPA can set up the written plan document — it’s a one-time setup with an annual substantiation process.

Where the deduction appears on your return

Sole prop: Form 8829 (Expenses for Business Use of Your Home), which flows to Schedule C. Your CPA or tax software handles the actual entries — you provide the square footages and home costs.

S-corp owner: No Form 8829 on your personal return. The corporation deducts the Accountable Plan reimbursements on Form 1120-S.

Partnership: Unreimbursed partner expenses can flow to Schedule E, but check with your CPA — the treatment depends on the partnership agreement.

The real risk

The IRS flags home office deductions at above-average rates in audits. The risk isn’t that the deduction is illegitimate — it’s that many people claim it when they don’t actually pass the exclusive-use test. If you work at your kitchen table, the living room couch, and occasionally at a dedicated desk, you probably don’t qualify.

If you do qualify: keep documentation. A floor plan sketch with measurements, photos of the space, and a consistent square footage calculation are enough. If you’re ever questioned, you want evidence that the space was genuinely dedicated to business use.

You might also read

Tax deductions

What Counts as a Business Write-Off?

The ordinary-and-necessary standard, common deductible expenses, and why personal charges don't become write-offs just because they clear the business account.

Tax deductions

The QBI Deduction: How the 20% Pass-Through Deduction Works for Business Owners

Section 199A lets pass-through business owners deduct up to 20% of qualified business income. Who qualifies, what the income limits are, and how it interacts with S-corp structure.

Tax deductions

Self-Employed Health Insurance Deduction: How It Works and Why Most Owners Miss It

The self-employed health insurance deduction reduces your adjusted gross income — not just your taxable income. Here's who qualifies, how to claim it correctly, and what's different for S-corp owners.

Business setup

The 30-Day Business Setup Checklist: What to Do Before Your First Dollar

A week-by-week action plan for new business owners — EIN, business bank account, bookkeeping software, tax savings habit, quarterly estimates, insurance, and the one conversation you should have with a CPA before you get busy.

Frequently asked

Questions owners actually ask

Can I deduct my home office if I rent my home?: Yes. Renters can use the home office deduction. Under the actual method, rent replaces mortgage interest as the primary cost being prorated. You'd calculate the business-use percentage of your rent and deduct that amount. Utilities, renter's insurance, and internet are also deductible in proportion to business use.
Does the room need to have a door?: No, the IRS doesn't require a separate room with a door. A clearly defined area within a larger room can qualify. What matters is that the area is used exclusively and regularly for business. An open-plan corner of your living room that you use only for work qualifies; a dining table you eat at and occasionally open your laptop on does not.
What about depreciation recapture when I sell my house?: This is the main downside of the actual method. When you deduct depreciation on the business portion of your home and later sell, you may owe tax on the depreciation you claimed — called depreciation recapture, taxed at up to 25%. The simplified method avoids this entirely. For some owners, the simplicity and clean exit is worth the smaller deduction.
I work from home as an S-corp owner. How do I take the deduction?: S-corp owners can't use the home office deduction directly on their personal return. Instead, the S-corp should adopt an Accountable Plan that reimburses you for home office expenses. You document the costs and the business-use percentage, the S-corp reimburses you, and the corporation deducts the reimbursement as a business expense. The reimbursement isn't taxable income to you. This gets the same result without the home office deduction limitation.
Can I take both internet and cell phone deductions if I also have a home office?: Yes — those are separate deductions. Internet you use for business is deductible in proportion to business use (or fully, if it's a dedicated business line). Cell phone used for business is deductible in proportion to business use. These don't double-count with the home office deduction, which covers the physical space of the home.

Take the next step

Turn tax questions into a plan. Talk with Matt or see how we work with operating business owners.

Talk with Matt See how we work with owners

Educational content only.This article is for informational purposes and does not constitute tax, legal, or investment advice. Every owner’s facts are different; consult a qualified CPA and advisor before acting. Tax and accounting services are provided through Matt Reese, CPA; investment advisory services are provided through Measured Risk Portfolios, a registered investment adviser. Matt Reese, CPA and Measured Risk Portfolios are separate entities; clients are not required to engage both.