IRS Publication 587: Business Use of Your Home
IRS Publication 587 explains the home office deduction — who qualifies, what expenses are deductible, and which method to use. To qualify, you must use part of your home exclusively and regularly as your principal place of business, a place to meet with clients, or a separate structure used for business. Self-employed individuals and independent contractors can choose between the simplified option ($5 per square foot, up to 300 sq ft, maximum $1,500) and the regular method (actual expenses based on square footage percentage). W-2 employees generally cannot claim this deduction post-TCJA through 2025.
Key Topics Covered in Publication 587
Exclusive & Regular Use Test
The space must be used exclusively for business — no dual-purpose rooms (a kitchen table used for business does not qualify). Regularly means on a continuing basis, not occasionally. Exceptions apply for daycare facilities (exclusive use not required during non-business hours) and inventory storage (regular use but not exclusive use required if the home is the sole fixed location of the trade or business).
Principal Place of Business
Your home office qualifies if it is where you conduct the most important activities of your trade or business, or where you regularly deal with your administrative and management tasks and have no other fixed location for those tasks. Even if you perform substantial services elsewhere (outside sales, construction), you may still qualify if your home is where you handle scheduling, billing, ordering, and recordkeeping.
Simplified Option
$5 per square foot, maximum 300 square feet, capped at $1,500 per year. No need to track individual home expenses. Calculated on Schedule C. You cannot depreciate the business portion of the home when using this method. You can switch between simplified and regular methods year to year — use whichever maximizes your deduction.
Regular Method
Deduct actual expenses based on the percentage of your home used for business. Allocate mortgage interest, property taxes, utilities, insurance, repairs, maintenance, and depreciation. Direct expenses (solely for the office) are 100% deductible. Indirect expenses (whole-home costs) are prorated. Deduction cannot exceed gross income from the business use. Unused deductions carry forward to future tax years.
Daycare Facility Rules
Daycare providers get special treatment: the exclusive use requirement is waived. A space used regularly for daycare qualifies even if it is also used for personal purposes outside of daycare hours. The deduction is based on both the percentage of the home used AND the percentage of time the space is available for daycare. Hours spent on cleaning, meal preparation, and recordkeeping during non-daycare hours also count toward the time-use percentage.
Common Mistakes & Correction Strategies
Using a Non-Exclusive Space
The most common audit trigger: claiming a home office in a room used for personal activities. A spare bedroom used as both an office and a guest room fails the exclusive use test. The fix is to carve out a dedicated space within a room (a desk area used only for business) and document the square footage. Never claim a kitchen table or living room couch area as a home office unless you are a daycare provider.
W-2 Employee Mistakenly Claiming
Post-TCJA (2018-2025), employees cannot deduct unreimbursed employee business expenses, including home office expenses. This trips up remote workers who read pre-2018 guides. If you receive a W-2, you do not qualify — even if your employer requires you to work from home. Consider negotiating reimbursement directly with your employer, which is tax-free for both sides under an accountable plan.
Overlooking Depreciation Recapture
Every year you use the regular method and claim depreciation on the business portion of your home, you create potential recapture upon sale. Even if you did not claim depreciation, the IRS treats it as allowed or allowable — the amount you could have claimed is also subject to recapture. If the office is within the dwelling unit, the gain is generally excluded under Section 121 but depreciation recapture still applies at up to 25%. Keep a depreciation schedule from day one so the recapture can be calculated accurately when you sell.
Not Keeping Adequate Records
The IRS expects contemporaneous records of home office expenses. Keep utility bills, mortgage statements, property tax assessments, and receipts for repairs and maintenance. Photograph the office to document its exclusive business use — a timestamped photo showing a desk, computer, filing cabinet, and no personal items is persuasive evidence. Maintain a floor plan with measurements to substantiate the business-use percentage. For the simplified method, you still need to maintain records proving the square footage of qualified space.