There are two methods and the easy one is capped. The simplified method pays $5.00 a square foot on an area that, in the IRS's own words, may not exceed 300 square feet. So it stops at $1,500, forever, however big your office and however expensive your home. The other method has no cap at all, and for most people who pay real money for housing it wins.More
The regular method, on Form 8829, works out what percentage of your home the office is and lets you deduct that percentage of your ACTUAL costs: rent or mortgage interest, utilities, insurance, repairs, and depreciation if you own. If your office is a tenth of a home that costs you $30,000 a year to run, that is $3,000, which is double the simplified ceiling. It takes more records and more nerve. It is frequently worth both. And there is a detail nobody mentions: that $5 rate was set by Revenue Procedure 2013-13, which said Treasury may update it from time to time as warranted. Thirteen years on, the IRS's own publication still says $5. In 2013 money it would need to be $6.91 today just to be worth what it was, so the ceiling has quietly slid from $1,500 to an effective $1,085 in real terms. The rate has not been cut. It has simply been left alone while everything else got more expensive. Before any of this matters, though, one thing has to be true, and it is not arithmetic: the space must be used exclusively and regularly for the business. The spare room with the sofa bed in it does not qualify, and measuring it more carefully will not help.
What the home office is worth to you
$3,000
The simplified method: $5.00 a square foot, on no more than 300 of them$750
The regular method (Form 8829): your business-use share of what the home actually costs$3,000
The easy method stops dead at $1,500. It pays $5.00 a square foot on an area which,
in the IRS's own words, may "not exceed 300 square feet". Both phrases are verbatim from Revenue Procedure 2013-13.
So a 400 square foot office gets exactly the same deduction as a 300 square foot one, and a $60,000-a-year home gets
the same deduction as a $20,000 one.More
The regular method has no such ceiling, and usually wins. On Form 8829 you work out what
percentage of your home the office is, and deduct that percentage of what the home ACTUALLY costs: rent or mortgage
interest, property tax, utilities, insurance, repairs. If the office is a tenth of a home that costs $30,000 a year
to run, that is $3,000, which is double the simplified ceiling. It needs records and it needs a form. It is
frequently worth both.
And the $5 has not moved since 2013. Revenue Procedure 2013-13 set the rate and said Treasury "may
update this rate from time to time as warranted". Thirteen years later, the IRS's own Publication 587 still says $5.
To be worth what it was in 2013, the rate would have to be $6.91 today, so the $1,500 ceiling is really about $1,085
in the money of the year it was written. Be precise about what that means: the rate has NOT been cut, and it is NOT
forbidden from rising. It has simply been left alone while everything else got dearer.
Before any of this, one thing has to be true, and it is not arithmetic. Pub 587 requires the space
to be used "exclusively and regularly" as your principal place of business. The spare room with the sofa bed in it
does not qualify. The corner of the kitchen table does not qualify. Measuring more carefully will not help, and this
is the test that disqualifies people rather than the sums.
§ 02 The two methods, side by side
The simplified method, capped at $1,500$750
The regular method, with no such cap$3,000
The share of your home the office is10%
Square feet the simplified method throws away0 sq ft
Every rule on this page is statutory and every phrase we quote is re-fetched from the IRS and checked on each build. The $1,500 ceiling is our multiplication of two figures the IRS does publish (300 x $5.00), and the real-terms erosion is our deflation of one of them. The office size, the home size and the home's cost are yours.
Recommended next steps
The gap is large, and every year you take the easy option you are handing back a substantial deduction for the sake of not filling in a form. Start keeping the records now rather than in April: rent or mortgage interest, property tax, utilities, insurance, repairs, and the square footage of both the office and the home. If you own the home there is more still, because depreciation is not even in this figure. At this size of gap it is worth an accountant's hour.
The simplified method is $5.00 a square foot on no more than 300 square feet. It stops at $1,500.More
Both figures are verbatim from Revenue Procedure 2013-13: 'The prescribed rate is $5.00' and the allowable area is 'not to exceed 300 square feet'. The $1,500 is the multiplication, and it appears as a number in neither document. A 400 square foot office therefore gets exactly the same deduction as a 300 square foot one, and a costly home gets the same as a cheap one.
The regular method has no such cap, and for most people paying real rent it wins.More
Form 8829. You take the percentage of your home that the office occupies and deduct that share of your actual costs: rent or mortgage interest, property tax, utilities, insurance, repairs. A tenth of a $30,000-a-year home is $3,000, double the simplified ceiling. It takes records. It is usually worth it, and the gap grows with your rent.
The $5 rate has not moved since 2013, and it has lost 28% of its purchasing power.More
Revenue Procedure 2013-13 set it, and said Treasury 'may update this rate from time to time as warranted'. Thirteen years on, Publication 587 for 2025 returns still says $5. Deflated by BLS's CPI-U for all items (2013 annual 232.957, 2025 annual 321.943), the rate would need to be $6.91 to be worth what it was, and the ceiling would be $2,073 rather than $1,500. Be careful how you say this: the rate has not been cut, and nothing forbids it from rising. It has been left alone.
The test that disqualifies people is not arithmetic. It is EXCLUSIVE use.More
Pub 587: the space must be used 'exclusively and regularly as your principal place of business'. Exclusively means what it says. The spare room that is also where guests sleep does not qualify. The end of the kitchen table does not qualify. No amount of careful measuring rescues a room that fails this, and it is where most people who think they have a home office actually fall down.
If you own the home, do not put your mortgage PAYMENT in. Put the interest.More
The principal portion of a mortgage payment is not a cost. It is you buying your own house, and it is not deductible through anything. What counts is the mortgage interest, the property tax, the insurance, the utilities and the repairs. Owners can also depreciate the business share of the building, which is real money now and is recaptured when you sell, and it is worth an accountant.
The deduction cannot create a business loss, and this page does not apply that limit.More
The home office deduction is limited to the gross income of the business less your other expenses, and any excess carries forward to a future year. Our regular-method figure ignores that, because the page does not know your whole Schedule C. If your business is close to break-even, the number here is too high, and we would rather say so than let you discover it in April.
Sourced, and every phrase is checked against the source on each build: the $5.00
prescribed rate and the 300 square foot limit (Revenue Procedure 2013-13, section 4.02, both verbatim), the fact that
Pub 587 for 2025 returns still says $5, and the exclusive-and-regular test. Derived: the $1,500
ceiling, which is 300 x $5 and appears as a literal figure in neither document; and the real-terms erosion, from BLS
CPI-U. Ours: nothing.More
The one limit on the regular method that we are NOT going to let you miss. The home office
deduction cannot create or deepen a business LOSS. It is limited to the gross income from the business, less your
other business expenses. So if the business barely made money, the deduction is capped by that instead, and the
excess carries forward. This page does not model your whole Schedule C, so it does not apply that limit, and if your
business is near break-even the regular figure here will be too high. That is the one place this page can flatter
you, and we would rather point at it than let you find it.
Depreciation, for owners, is left out on purpose. If you own the home, the regular method also lets
you depreciate the business portion of the building, which adds to the deduction now and is recaptured as taxable
gain when you sell. That trade is genuinely worth an accountant's hour and it is beyond a page like this. It also
means an owner's true regular-method figure is HIGHER than the one shown here.
And the real-terms figure is an ALL-ITEMS deflator. The $6.91 answers "what would $5 of 2013
general purchasing power be worth today". It does not claim to track what has happened to the cost of running a home
office specifically, which is a different question we have not answered.
Where every number above comes from
IRS
IRS, Revenue Procedure 2013-13, section 4.02, verbatim: 'The allowable square footage is the portion of a home used in a qualified business use of the home, but not to exceed 300 square feet' and 'The prescribed rate is $5.00. The Service and the Treasury Department may update this rate from time to time as warranted'
IRS, Publication 587, Business Use of Your Home (for 2025 returns). Still the $5 rate thirteen years on: 'you will figure your deduction by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. The area you use to figure your deduction is limited to 300 square feet.' And the test that disqualifies most people: the space must be used 'Exclusively and regularly as your principal place of business'
BLS, CPI-U, US city average, all items (series CUUR0000SA0). 2013 annual average 232.957, 2025 annual average 321.943, a factor of 1.3820. This is what turns the 2013 rate of $5.00 into $6.91 of 2025 purchasing power, and the $1,500 ceiling into $2,073
Every one of these is a place the number could be off. They are here because you should be able to check our working, not because we are hedging.
The regular-method figure here ignores the gross-income limit, so it can be too high.
The deduction cannot create or deepen a business loss: it is capped at the business's gross income less its other expenses, with the excess carried forward. This page does not see your Schedule C, so it does not apply that cap. If your business is near break-even, treat the regular figure as an upper bound.
Depreciation is left out, which means an OWNER's real regular-method deduction is higher than shown.
Owners may depreciate the business share of the building. It adds to the deduction now and is recaptured as taxable gain on sale. That trade is worth an accountant's hour and is beyond this page.
EXCLUSIVE use is a real test and the calculator cannot check it for you.
The space must be used exclusively and regularly for the business. A room that doubles as a guest bedroom fails. The calculator will happily compute a number for a room that does not qualify, because it cannot see your house. You can.
The real-terms figure uses an ALL-ITEMS deflator.
The $6.91 answers 'what would $5 of 2013 general purchasing power be worth now'. It is not a claim about what has happened to the cost of running a home office, which is a different question we did not answer.
The $5 rate is not forbidden from rising. It simply has not risen.
Rev. Proc. 2013-13 explicitly reserved Treasury's power to 'update this rate from time to time as warranted'. It has not been used in thirteen years. That is a fact about inaction, and it is a weaker and truer claim than saying the rate is barred from being indexed.
Frequently asked questions
How much is the home office deduction worth?
It depends entirely on which method you use, and the easy one is capped. The simplified method pays $5.00 a square foot on an area the IRS limits to 300 square feet, so it stops dead at $1,500 no matter how big your office is or how expensive your home. The regular method, on Form 8829, deducts the business-use percentage of what the home actually costs you, with no equivalent cap. If your office is a tenth of a home that costs $30,000 a year to run, the regular method gives you $3,000, which is double the simplified ceiling. Put your numbers in above and the page will show you both.
Should I use the simplified method or the regular method?
The simplified method is genuinely easier: measure the room, multiply by $5, no records, no form. If your office is small and your housing is cheap, it may also be the better of the two, and the page will tell you when it is. But for a lot of people it is leaving money behind, and the gap grows with your rent. The regular method needs you to keep records and file Form 8829, and it will not create a business loss for you, but it has no ceiling. Run both numbers above before you assume the easy one is fine.
Why has the $5 rate not changed since 2013?
Because it has been left alone. Revenue Procedure 2013-13 set the rate at $5.00 and said, in terms, that Treasury 'may update this rate from time to time as warranted'. Thirteen years later, the IRS's own Publication 587 still says $5. Deflated by general inflation, $5 in 2013 is $6.91 today, so the rate has lost about 28% of its purchasing power and the $1,500 ceiling is really about $1,085 in the money it was written in. It has not been cut and it is not barred from rising. It has just been left alone, quietly, while everything else got dearer.
Does my spare room count as a home office?
Only if it is used EXCLUSIVELY and regularly for the business, and that word is doing a lot of work. Pub 587 requires the space to be used 'exclusively and regularly as your principal place of business'. A room that doubles as a guest bedroom fails. A desk in the corner of the living room fails. The end of the kitchen table fails. This is the test that disqualifies people, far more often than any of the arithmetic, and no amount of careful measuring will rescue a room that does not pass it.
Can I claim a home office if I have a job?
This page is written for the self-employed, who claim it on Schedule C. The rules for employees are different, they have been through significant change, and we have not checked them for the current year, so we are not going to guess at them here. If you are an employee with a home office, that is a question for the IRS or an accountant rather than for us, and we would rather tell you we have not checked than invent an answer.
