Business Tax Preparation · Business expenses, deductions and credits

Home office

Verification 2026 Verified
tax year · reviewed 2026-08-21 · Draft for I. Ohu review

The section starts by disallowing everything and then gives back a narrow exception. Reading it in that order matters, because the questions people ask — how much of the electricity, what share of the mortgage — are second-order. The first question is whether the exception applies at all, and for most rooms in most houses it does not.

The rule

The disallowance. in the case of an individual or an S corporation, no deduction otherwise allowable is allowed with respect to the use of a dwelling unit used by the taxpayer during the taxable year as a residence, except as IRC § 280A itself provides^TY2026 (IRC § 280A(a)).

The exception. the disallowance does not apply to an item allocable to a portion of the dwelling unit exclusively used on a regular basis as the principal place of business for a trade or business of the taxpayer, as a place of business used by patients, clients or customers in meeting or dealing with the taxpayer in the normal course of that business, or, for a separate unattached structure, in connection with that business^TY2026 (IRC § 280A(c)(1)). Three routes, and each requires that the portion be exclusively used on a regular basis.

For an employee. in the case of an employee the exception applies only if the exclusive use is for the convenience of the employer^TY2026 (IRC § 280A(c)(1), flush text) — and see the note below on why this is now almost always academic.

What counts as a principal place of business. principal place of business includes a place used for the administrative or management activities of the business if there is no other fixed location where the taxpayer conducts substantial administrative or management activities of that business^TY2026 (IRC § 280A(c)(1), flush text).

The ceiling. deductions attributable to the business use may not exceed the gross income derived from that use, less the deductions allocable to the use that would be allowable anyway and the deductions allocable to the business but not to the use; the excess carries to the succeeding taxable year and meets the same limit again^TY2026 (IRC § 280A(c)(5)).

The safe harbour. $5.00 per square foot of allowable square footage, being the portion of the home used in a qualified business use but not exceeding 300 square feet — so a maximum of $1,500^TY2026 (Rev. Proc. 2013-13 § 4.01), chosen as the choice is made year by year, by using the method on a timely filed original return, and is irrevocable for that year — but switching between the safe harbor and actual expenses is not a change in method of accounting^TY2026 (§ 4.03), with the consequences that a taxpayer using the safe harbor for a year cannot deduct any depreciation, including additional first-year depreciation, or IRC § 179 expense for the business portion of the home, and the depreciation allowable for that portion for that year is deemed to be zero^TY2026 (§ 4.06) and a taxpayer using the safe harbor who itemises may still deduct qualified residence interest, property taxes and casualty losses in full on Schedule A, and may not allocate any part of them to the business use^TY2026 (§ 4.04). It does not reach the safe harbor does not apply to an employee who receives advances, allowances or reimbursements for the expenses of the qualified business use under a reimbursement or other expense allowance arrangement within Reg. § 1.62-2^TY2026 (§ 4.02).

Renting to your own employer. the home office deduction rules of IRC § 280A(c)(1) and (c)(3) do not apply to any item attributable to renting the dwelling unit to the taxpayer's employer during a period in which the taxpayer uses it in performing services as an employee^TY2026 (IRC § 280A(c)(6)).

Current figures

Item	Rule	Authority
The disallowance	in the case of an individual or an S corporation, no deduction otherwise allowable is allowed with respect to the use of a dwelling unit used by the taxpayer during the taxable year as a residence, except as IRC § 280A itself provides^TY2026	IRC § 280A(a)
The business exception	the disallowance does not apply to an item allocable to a portion of the dwelling unit exclusively used on a regular basis as the principal place of business for a trade or business of the taxpayer, as a place of business used by patients, clients or customers in meeting or dealing with the taxpayer in the normal course of that business, or, for a separate unattached structure, in connection with that business^TY2026	IRC § 280A(c)(1)
Convenience of the employer	in the case of an employee the exception applies only if the exclusive use is for the convenience of the employer^TY2026	IRC § 280A(c)(1)
Administrative or management activities	principal place of business includes a place used for the administrative or management activities of the business if there is no other fixed location where the taxpayer conducts substantial administrative or management activities of that business^TY2026	IRC § 280A(c)(1)
Gross income limitation	deductions attributable to the business use may not exceed the gross income derived from that use, less the deductions allocable to the use that would be allowable anyway and the deductions allocable to the business but not to the use; the excess carries to the succeeding taxable year and meets the same limit again^TY2026	IRC § 280A(c)(5)
Safe harbour amount	$5.00 per square foot of allowable square footage, being the portion of the home used in a qualified business use but not exceeding 300 square feet — so a maximum of $1,500^TY2026	Rev. Proc. 2013-13 § 4.01
How it is chosen	the choice is made year by year, by using the method on a timely filed original return, and is irrevocable for that year — but switching between the safe harbor and actual expenses is not a change in method of accounting^TY2026	Rev. Proc. 2013-13 § 4.03
No depreciation that year	a taxpayer using the safe harbor for a year cannot deduct any depreciation, including additional first-year depreciation, or IRC § 179 expense for the business portion of the home, and the depreciation allowable for that portion for that year is deemed to be zero^TY2026	Rev. Proc. 2013-13 § 4.06
Schedule A unaffected	a taxpayer using the safe harbor who itemises may still deduct qualified residence interest, property taxes and casualty losses in full on Schedule A, and may not allocate any part of them to the business use^TY2026	Rev. Proc. 2013-13 § 4.04
Not for a reimbursed employee	the safe harbor does not apply to an employee who receives advances, allowances or reimbursements for the expenses of the qualified business use under a reimbursement or other expense allowance arrangement within Reg. § 1.62-2^TY2026	Rev. Proc. 2013-13 § 4.02
Rental to an employer	the home office deduction rules of IRC § 280A(c)(1) and (c)(3) do not apply to any item attributable to renting the dwelling unit to the taxpayer's employer during a period in which the taxpayer uses it in performing services as an employee^TY2026	IRC § 280A(c)(6)
Miscellaneous deductions gone	no miscellaneous itemized deduction is allowed for any taxable year beginning after 31 December 2017 — permanent since the 2026 end date was struck, and now at IRC § 67(h) rather than § 67(g)^TY2026	IRC § 67(h)

How it works in practice

Exclusive means exclusive. the disallowance does not apply to an item allocable to a portion of the dwelling unit exclusively used on a regular basis as the principal place of business for a trade or business of the taxpayer, as a place of business used by patients, clients or customers in meeting or dealing with the taxpayer in the normal course of that business, or, for a separate unattached structure, in connection with that business^TY2026 (IRC § 280A(c)(1)). A room used for the business during the day and by the family in the evening fails, and there is no de minimis tolerance in the statute for incidental personal use. The requirement is of the portion of the dwelling unit, so a clearly delineated part of a room can qualify where the whole room does not — but the delineated part must itself be used exclusively.

Regular means more than occasional. A spare room used for the business a few days a year fails the second limb even if nothing else ever happens in it.

Three independent routes. Principal place of business, a place where patients, clients or customers meet the taxpayer in the normal course of the business, or a separate unattached structure used in connection with the business. The third is the most generous: the exclusive-use requirement still applies, but a detached workshop or studio need not be the principal place of business and need not be visited by anyone.

The administrative test rescued a large class of taxpayers. principal place of business includes a place used for the administrative or management activities of the business if there is no other fixed location where the taxpayer conducts substantial administrative or management activities of that business^TY2026 (IRC § 280A(c)(1), flush text). A tradesman who works at customers’ premises all day and does his invoicing at home has a principal place of business at home, provided there is no other fixed location where he does substantial administrative work. The test is about where the administration happens, not about where the money is earned.

The gross income limitation defers rather than destroys. deductions attributable to the business use may not exceed the gross income derived from that use, less the deductions allocable to the use that would be allowable anyway and the deductions allocable to the business but not to the use; the excess carries to the succeeding taxable year and meets the same limit again^TY2026 (IRC § 280A(c)(5)). It works in a specific order: gross income from the use, less the deductions allocable to the use that would be allowable anyway — the business share of mortgage interest and property taxes — less the other deductions of the business. What is left is the ceiling for the operating expenses and depreciation of the space. Anything above it carries to the succeeding year and meets the same test again.

The safe harbour is a trade. $5.00 per square foot of allowable square footage, being the portion of the home used in a qualified business use but not exceeding 300 square feet — so a maximum of $1,500^TY2026 (Rev. Proc. 2013-13 § 4.01). What the taxpayer gives up is set out plainly in the revenue procedure: a taxpayer using the safe harbor for a year cannot deduct any depreciation, including additional first-year depreciation, or IRC § 179 expense for the business portion of the home, and the depreciation allowable for that portion for that year is deemed to be zero^TY2026 (§ 4.06), and the depreciation for that year is deemed to be zero rather than merely not claimed — so it is not recaptured on a later sale either. What the taxpayer keeps is a taxpayer using the safe harbor who itemises may still deduct qualified residence interest, property taxes and casualty losses in full on Schedule A, and may not allocate any part of them to the business use^TY2026 (§ 4.04): the full mortgage interest and property taxes go on Schedule A with no allocation to the business.

And the choice is annual. the choice is made year by year, by using the method on a timely filed original return, and is irrevocable for that year — but switching between the safe harbor and actual expenses is not a change in method of accounting^TY2026 (Rev. Proc. 2013-13 § 4.03). A taxpayer can use the safe harbour one year and actual expenses the next without seeking consent, because the switch is not a change in method of accounting. What is irrevocable is the choice for the particular year, once the return is filed.

For an employee the whole topic is closed. no miscellaneous itemized deduction is allowed for any taxable year beginning after 31 December 2017 — permanent since the 2026 end date was struck, and now at IRC § 67(h) rather than § 67(g)^TY2026 (IRC § 67(h)). An employee’s unreimbursed home office expenses are miscellaneous itemized deductions and are allowed nowhere, so the convenience-of-the-employer test in IRC § 280A(c)(1) now decides nothing for most employees. The two routes that remain are an accountable plan reimbursement, or — and this fails — the home office deduction rules of IRC § 280A(c)(1) and (c)(3) do not apply to any item attributable to renting the dwelling unit to the taxpayer's employer during a period in which the taxpayer uses it in performing services as an employee^TY2026 (IRC § 280A(c)(6)).

The room that was not exclusive

A consultant uses a 180 square foot spare bedroom as her only office. It contains her desk, filing cabinets and computer. It also contains a sofa bed, and her mother-in-law sleeps there for three weeks each summer.

The exclusive use requirement of the disallowance does not apply to an item allocable to a portion of the dwelling unit exclusively used on a regular basis as the principal place of business for a trade or business of the taxpayer, as a place of business used by patients, clients or customers in meeting or dealing with the taxpayer in the normal course of that business, or, for a separate unattached structure, in connection with that business^TY2026 (IRC § 280A(c)(1)) fails. The statute allows the exception only for a portion “exclusively used on a regular basis” for the business, and three weeks of residential use is use for another purpose. No deduction is available for any part of the room, under either method.

Two changes would fix it. She could stop using the room for anything else, in which case both methods become available. Or she could partition off, say, 120 square feet as a study used only for the business, leaving the rest as a guest area — the requirement attaches to the portion of the dwelling unit, not to the room, so a clearly delineated part can qualify.

Note what does not matter. The proportion of the year the room is used residentially is irrelevant; one week would fail as surely as six months. And the fact that the business use is substantial and the personal use trivial does not help, because the statute uses the word “exclusively” rather than “primarily.”

Two methods, one office, different answers

A sole proprietor has a 250 square foot office in a 2,000 square foot home, used exclusively and regularly as her principal place of business. Her home costs for the year are mortgage interest $14,000, property tax $6,200, utilities and insurance $4,400, and depreciation on the whole house would be $9,000. Her business gross income after other expenses is $60,000.

Safe harbour. $5.00 per square foot of allowable square footage, being the portion of the home used in a qualified business use but not exceeding 300 square feet — so a maximum of $1,500^TY2026 (Rev. Proc. 2013-13 § 4.01) — 250 square feet, all within the cap, at the prescribed rate: $1,250. She then deducts the whole $14,000 of interest and $6,200 of tax on Schedule A, with no allocation, under a taxpayer using the safe harbor who itemises may still deduct qualified residence interest, property taxes and casualty losses in full on Schedule A, and may not allocate any part of them to the business use^TY2026. She takes no depreciation, and a taxpayer using the safe harbor for a year cannot deduct any depreciation, including additional first-year depreciation, or IRC § 179 expense for the business portion of the home, and the depreciation allowable for that portion for that year is deemed to be zero^TY2026 deems it zero.

Actual expenses. The business percentage is 250 over 2,000, or 12.5 percent. She deducts 12.5 percent of everything: $1,750 of interest, $775 of tax, $550 of utilities and insurance, and $1,125 of depreciation — $4,200 in all against the business. The remaining $12,250 of interest and $5,425 of tax go on Schedule A.

The actual method is worth $2,950 more here, but it requires records for every item, produces depreciation that will be recaptured on a sale, and the interest and tax it moves to Schedule C are worth more there only because they escape the state and local tax cap and the itemising threshold. The comparison has to be done on the individual facts; neither method is generally better.

The ceiling that pushed a deduction forward

A sole proprietor’s home office produces gross income of $18,000 for the year. The business share of mortgage interest and property taxes is $7,000; other business expenses not allocable to the office are $13,000; and the office’s utilities, insurance and depreciation come to $5,500.

deductions attributable to the business use may not exceed the gross income derived from that use, less the deductions allocable to the use that would be allowable anyway and the deductions allocable to the business but not to the use; the excess carries to the succeeding taxable year and meets the same limit again^TY2026 (IRC § 280A(c)(5)) works in that order. Gross income of $18,000, less the $7,000 of interest and taxes allocable to the use that are allowable anyway, less the $13,000 of other business deductions — which takes the figure below zero. The ceiling is nil.

So none of the $5,500 is deductible this year. The $7,000 of interest and tax still is, because IRC § 280A(b) allows those without regard to the business use. And the $13,000 of other business expenses is unaffected.

The $5,500 is not lost. The closing sentences of IRC § 280A(c)(5) carry it to the succeeding taxable year as a deduction allocable to the same use, where it faces the same test again — and it will keep doing so until a year with enough gross income arrives.

Note the order the statute sets. Had the other business deductions been applied last rather than second, part of the $5,500 would have been allowed. The sequence is not neutral.

Traps.

Exclusive use has no tolerance. {fig:home.business_exception} (IRC § 280A(c)(1)). Any personal use of the portion defeats the exception for the whole of it.

The separate structure route does not require it to be the principal place. IRC § 280A(c)(1)(C) — a detached workshop qualifies if used in connection with the business, and no client need ever visit.

The gross income limitation subtracts in a set order. {fig:home.gross_income_limit} (IRC § 280A(c)(5)) — the deductions allowable anyway come off first and the other business deductions second, before the office's own expenses are tested.

Safe harbour depreciation is deemed zero, not merely unclaimed. {fig:home.safe_harbor_no_depreciation} (Rev. Proc. 2013-13 § 4.06). So there is nothing to recapture for that year on a later sale.

The safe harbour does not reduce Schedule A. {fig:home.safe_harbor_itemized} (§ 4.04) — the full interest and taxes remain itemized deductions with no allocation to the business.

An employee gets nothing without an accountable plan. {fig:misc.suspension}. And renting the space to the employer fails too, under {fig:rent.employer_rental} (IRC § 280A(c)(6)).

How this has changed

The employee side of the topic closed in 2018 and is now permanently closed. Unreimbursed employee business expenses, including a home office, are miscellaneous itemized deductions. no miscellaneous itemized deduction is allowed for any taxable year beginning after 31 December 2017 — permanent since the 2026 end date was struck, and now at IRC § 67(h) rather than § 67(g)^TY2026 (IRC § 67(h)). Pub. L. 119-21 § 70110(a) made the suspension permanent and § 70110(b)(2) redesignated it from IRC § 67(g) to IRC § 67(h). The consequence for this topic is that the convenience-of-the-employer condition in IRC § 280A(c)(1) — which generated decades of litigation — now decides nothing for the great majority of employees, because there is no deduction for it to qualify.

That has a practical corollary worth stating: a question about an employee working from home is almost always answered by the absence of a deduction, and the only productive routes are an accountable plan reimbursement from the employer, which is excluded from the employee’s income and deducted by the employer, or a genuine change in the working relationship.

The safe harbour rate has not moved since 2013. Rev. Proc. 2013-13 § 4.01(3) states the prescribed rate and adds that “the Service and the Treasury Department may update this rate from time to time as warranted.” No update has been issued, so the rate and the square footage cap are as first prescribed — meaning the maximum safe harbour deduction has lost roughly a third of its real value since the procedure was published. A taxpayer for whom the safe harbour was the better choice in 2013 may well find the actual method better now on identical facts.

Nothing in Pub. L. 119-21 amended IRC § 280A, so the statutory rules on this page are unchanged for 2026.

Exam focus

Test the exception before anything else. Exclusive use, regular use, and one of the three routes. A question that describes any personal use of the space is testing the first of those, and the answer is that nothing is deductible.

Know the administrative or management activities test and what it requires: no other fixed location where substantial administrative work is done.

Know the safe harbour figures, the annual and irrevocable nature of the choice, and the two consequences — no depreciation for that year, deemed zero, and no allocation of interest and taxes away from Schedule A.

Finally, apply the gross income limitation in the order the statute sets, and remember that the excess carries forward rather than being lost.

Check yourself

1. A taxpayer uses a 200 square foot room exclusively and regularly as her principal place of business. What is her safe harbour deduction?

Answer: $1,000. $5.00 per square foot of allowable square footage, being the portion of the home used in a qualified business use but not exceeding 300 square feet — so a maximum of $1,500^TY2026 (Rev. Proc. 2013-13 § 4.01) — the allowable square footage is the portion used in the qualified business use, capped at 300 square feet, multiplied by the prescribed rate of $5.00.

2. Does a detached garage workshop have to be the taxpayer’s principal place of business?

Answer: No. the disallowance does not apply to an item allocable to a portion of the dwelling unit exclusively used on a regular basis as the principal place of business for a trade or business of the taxpayer, as a place of business used by patients, clients or customers in meeting or dealing with the taxpayer in the normal course of that business, or, for a separate unattached structure, in connection with that business^TY2026 (IRC § 280A(c)(1)(C)) allows a separate structure not attached to the dwelling unit that is used in connection with the taxpayer’s trade or business. Exclusive and regular use are still required, but neither principal-place status nor client visits are.

3. A taxpayer using the safe harbour has a home office in a house on which depreciation would otherwise be $2,000 for the business portion. What happens to that depreciation?

Answer: Nothing, and nothing later either. a taxpayer using the safe harbor for a year cannot deduct any depreciation, including additional first-year depreciation, or IRC § 179 expense for the business portion of the home, and the depreciation allowable for that portion for that year is deemed to be zero^TY2026 (Rev. Proc. 2013-13 § 4.06) — the depreciation allowable for that portion for that year is deemed to be zero, so there is no basis reduction and nothing to recapture on a subsequent sale.

4. An employee works from a room used exclusively for her job, at her employer’s insistence, and is not reimbursed. What may she deduct?

Answer: Nothing. Her expenses are miscellaneous itemized deductions and no miscellaneous itemized deduction is allowed for any taxable year beginning after 31 December 2017 — permanent since the 2026 end date was struck, and now at IRC § 67(h) rather than § 67(g)^TY2026. The IRC § 280A(c)(1) convenience-of-the-employer condition is satisfied but there is no deduction for it to qualify, and the home office deduction rules of IRC § 280A(c)(1) and (c)(3) do not apply to any item attributable to renting the dwelling unit to the taxpayer's employer during a period in which the taxpayer uses it in performing services as an employee^TY2026 (IRC § 280A(c)(6)) closes the alternative of renting the space to the employer.

5. A home office produces $9,000 of gross income. The business share of interest and taxes is $4,000, other business expenses are $6,000, and the office’s utilities and depreciation are $2,500. How much of the $2,500 is deductible?

Answer: None this year. deductions attributable to the business use may not exceed the gross income derived from that use, less the deductions allocable to the use that would be allowable anyway and the deductions allocable to the business but not to the use; the excess carries to the succeeding taxable year and meets the same limit again^TY2026 (IRC § 280A(c)(5)) — $9,000 less $4,000 less $6,000 is below zero, so the ceiling is nil. The $2,500 carries to the succeeding taxable year as a deduction allocable to the same use and faces the same limitation again.

Change log

2026-08-21Initial draft. Sets out the IRC § 280A(a) disallowance and the IRC § 280A(c)(1) exception with its exclusive and regular use requirement, the convenience of the employer condition for an employee, and the administrative or management activities test, together with the IRC § 280A(c)(5) gross income limitation and its carryover. Sets out the Rev. Proc. 2013-13 safe harbor with its square footage cap, its year-by-year irrevocable election, and the depreciation and Schedule A consequences of using it.