How does the home office deduction work on Schedule C?

The home office deduction allows self-employed individuals to deduct costs related to the portion of their home used exclusively and regularly for business. There are two methods: **Method 1 — Simplified:** $5 per square foot of your home office, up to 300 square feet. Maximum deduction: $1,500. No depreciation recapture when you sell your home. Easiest to claim. **Method 2 — Regular (Actual Expenses):** Calculate the percentage of your home used for business (office sq ft ÷ total home sq ft), then apply that percentage to: - Mortgage interest or rent - Utilities (electricity, gas, internet) - Home insurance - Repairs and maintenance - Depreciation (based on original cost of home structure) **Example (Regular method):** Your home is 1,500 sq ft. Your office is 150 sq ft. Office = 10%. Annual rent $24,000 × 10% = $2,400 deduction. Utilities $3,600 × 10% = $360. Total home office deduction: $2,760. This is significantly higher than the $750 simplified deduction (150 sq ft × $5). **The exclusive use requirement:** The space must be used ONLY for business — not as a guest room, playroom, or for personal activities. A dedicated room is ideal. A corner of a room used only for business also qualifies. **Reported on Form 8829** (regular method) or directly on Schedule C Line 30 (simplified). Home office deduction cannot create a Schedule C loss — excess can be carried forward.

  • Simplified method: $5/sq ft, max $1,500/year, no depreciation recapture
  • Regular method: actual expense % based on office/total home square footage
  • Exclusive use required — no personal use of the home office space
  • Cannot create a Schedule C net loss (excess carries forward)
  • Regular method usually yields a larger deduction but requires Form 8829

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