Key Takeaways
- Exclusive and regular use required.
- Principal place of business OR admin with no other office.
- Simplified Method (Tax Year 2024): $5/sq ft, max 300 sq ft = $1,500.
- Actual Expense: allocate costs by business %.
- W-2 employees cannot claim home office (since 2018).
- Net income limitation with carryforward.
Last updated: January 2026
Home Office Deduction
Why This Matters for the Exam
Home office rules are tested every exam. Know the exclusive use test, simplified method rates, and the W-2 employee trap.
Expect at least 3-4 questions on home office.
Qualifying Tests
| Test | Requirement |
|---|---|
| Exclusive use | Space used ONLY for business |
| Regular use | Continuing, not occasional |
| Principal place | Main location for business OR admin with no other office |
Exclusive Use Exceptions
| Exception | Exclusive Use Required? |
|---|---|
| Inventory storage | No |
| Daycare facility | No |
Principal Place of Business
| Qualifies If | Description |
|---|---|
| Admin/management activities | Done at home |
| No other fixed office | For substantial admin work |
Two Methods
| Method | Calculation |
|---|---|
| Simplified | $5/sq ft × up to 300 sq ft |
| Actual Expense | Allocate actual costs |
Simplified Method (Tax Year 2024)
| Element | Amount |
|---|---|
| Rate | $5 per sq ft |
| Maximum sq ft | 300 |
| Maximum deduction | $1,500 |
Actual Expense Method
| Expense Type | Treatment |
|---|---|
| Direct (office paint) | 100% deductible |
| Indirect (utilities, insurance) | Allocate by business % |
| Depreciation | MANDATORY (39-year nonresidential) |
Method Comparison
| Feature | Simplified | Actual |
|---|---|---|
| Rate | $5/sq ft | Actual costs |
| Max size | 300 sq ft | No limit |
| Depreciation | None | Required |
| Recapture on sale | None | Required (25% max) |
| Form | Computed on Sch. C | Form 8829 |
Net Income Limitation
| Rule | Description |
|---|---|
| Deduction cannot exceed | Business gross income - other expenses |
| Order | Interest/taxes → utilities → depreciation |
| Excess | Carried forward indefinitely |
The Employee Trap
| Status | Home Office Allowed? |
|---|---|
| Self-employed | Yes |
| W-2 employee | NO (since 2018) |
Real-World Scenario (Tax Year 2024)
Scenario: Consultant uses 200 sq ft home office exclusively for business.
- Simplified method: 200 × $5 = $1,000.
- Actual (if calculated): Would require Form 8829.
- Result: $1,000 deduction (simplified).
Net Income Example
| Item | Amount |
|---|---|
| Business gross income | $5,000 |
| Other business expenses | $4,500 |
| Available for home office | $500 |
| Calculated home office | $2,000 |
| Deductible this year | $500 |
| Carryforward | $1,500 |
On the Exam
Expect 3-4 questions on home office, typically:
- Simplified Questions: "What is the max deduction for 200 sq ft?"
- Exclusive Use Questions: "Does this space qualify?"
- Employee Questions: "Can W-2 employee claim home office?"
The key is to remember: Exclusive + regular use. Simplified = $5/sq ft × 300 max = $1,500 (Tax Year 2024). W-2 employees = no deduction.
Test Your Knowledge
Consultant uses 200 sq ft exclusively for business. Tax Year 2024 simplified method deduction?
A
B
C
D
Test Your Knowledge
Freelancer: $5,000 gross, $4,500 expenses, $2,000 home office calculated. Deductible?
A
B
C
D
Test Your Knowledge
What disqualifies home office deduction?
A
B
C
D