Can I deduct a home office as a business owner?

Deducting a home office is allowed when a part of your home is used regularly and exclusively for business. How you claim it depends on your entity. A sole proprietor deducts it directly, while an S-corporation owner generally reimburses the cost through an accountable plan, because employees lost the ability to deduct unreimbursed work expenses on personal returns after 2017.

Key points

A home office is deductible only when a defined area of the home is used regularly and exclusively for business.
A sole proprietor or single-member LLC owner claims the home office on Form 8829, which flows to Schedule C.
An S-corporation owner cannot deduct a home office personally because unreimbursed employee expenses stopped being deductible after 2017.
An S-corporation should reimburse the owner's home office through an accountable plan, making the payment deductible to the company and not taxable to the owner.
The simplified method applies a set rate to the office's square footage in place of tracking actual home expenses.

What is the regular and exclusive use test?

The home office deduction under Section 280A has a reputation for being risky, but the reputation is undeserved when the rules are followed. The foundation is the regular-and-exclusive-use test, and both words carry weight. The space must be used regularly for business, not occasionally, and exclusively for business, meaning the area is not also the family dining table or a guest room that doubles as an office. A dedicated room is the clearest case, but a clearly defined portion of a room used only for business can also qualify.

The space generally must be your principal place of business, which includes the common situation where you conduct administrative and management work from home even if you also work at client sites or another location. Failing the exclusivity test is the most frequent reason a home office claim falls apart, so keeping the space business-only is what protects the deduction.

How is the home office deduction calculated?

Once the space qualifies, the expenses that can be captured include a proportionate share of costs that relate to the whole home, such as utilities, insurance, repairs, and either rent or depreciation, based on the share of the home's square footage the office represents. Expenses that relate only to the office, such as painting that room, are deductible in full.

A simplified method also exists that applies a set rate per square foot to the office's size instead of tracking actual costs, trading some deduction for far less recordkeeping. Either way, keep a floor plan or measurement showing the office's size and the records of the home expenses used in the calculation.

Why does entity type change how I claim it?

A sole proprietor, including a single-member LLC treated as a disregarded entity, deducts the home office directly against business income on Form 8829, which flows to Schedule C. That path is straightforward.

An S-corporation owner cannot simply take a personal home office deduction. Employees lost the ability to deduct unreimbursed work expenses on their personal returns after 2017, and an S-corporation owner who works in the business is an employee of it, so a home office paid personally and not reimbursed generally yields no deduction at all. The clean solution is an accountable plan: the S-corporation reimburses the owner for the business-use portion of the home, calculated properly and supported by records. The reimbursement is deductible to the corporation and is not wages to the owner.

When does the home office deduction not apply?

The deduction does not apply to space used for both business and personal purposes, no matter how much business is done there. It does not apply to an employee working from home for an outside employer, since the unreimbursed employee expense deduction is suspended. For a sole proprietor, the deduction for the year cannot exceed the net income of the business; any excess carries forward.

Depreciation claimed on an owned home is also recaptured when the home is sold, even where the gain on the residence itself is otherwise excluded, which is one reason some owners prefer the simplified method. In every case, the documentation of exclusive use and of the calculation is what makes the deduction hold.