Home Office Deduction,
simplified and actual expense, side by side.

Deduction guide

Two methods, one real tradeoff beyond the dollar amount.

The IRS gives self-employed workers and business owners two ways to deduct home-office costs: a flat, simple safe harbor, or a percentage of your real expenses. Most guides stop at “pick whichever is bigger” — but the bigger number isn’t always the better choice, because of what happens when you sell your home.

Simplified method

No Form 8829, no recordkeeping beyond your square footage, and critically — no depreciation. That means no depreciation recapture (extra tax) when you eventually sell your home, which the actual-expense method does trigger. You elect this method fresh each year; it’s never a one-time or irrevocable choice.

Actual expense method

No dollar cap, so it usually wins for a larger office or a more expensive home — but it requires real records, involves depreciating the business-use portion of your home each year, and that depreciation is taxed back (recaptured) as ordinary income when you sell, even if the home-sale gain itself would otherwise be tax-free.

Both methods share an income limit — but not a carryforward

Neither method can create or increase a business loss: both are capped at your income from the home-business-use (gross income minus other business expenses unrelated to the home). The difference is what happens to anything above that cap. Actual expense carries the excess forward to future years. Simplified method’s excess for that year is simply lost — it cannot be carried forward or claimed later.

Two real exceptions to exclusive use

Ordinarily, home-office space must be used only for business — any personal use, even occasional, disqualifies it. Two situations are genuine exceptions, not workarounds:

• Inventory or product-sample storage — if your home is your business’s only fixed location and you’re in the wholesale or retail trade, a space used regularly to store inventory or samples keeps the deduction even if you also use it personally.
• Licensed daycare providers — since the space is usually shared family living space, the business percentage is computed differently: see below.

The daycare-provider formula, precisely

A common shorthand claims the daycare business percentage is just hours-operated ÷ 8,760 hours in the year, ignoring square footage entirely. Checked directly against the IRS’s own Form 8829 instructions: that’s not the actual formula for the typical case of a daycare space also used personally. The real calculation multiplies a space percentage by a time percentage:

Include prep and cleanup time in your hours, and prorate 8,760 if you only operated for part of the year. A daycare space used 100% exclusively for business (never personal use) doesn’t need this special formula at all — it’s just the ordinary square-footage calculation, since the time factor is automatically 100%.

Disclaimer

This calculator estimates your 2026 home office deduction under both IRS methods; it does not compute actual depreciation (which requires your home’s cost basis with land value excluded) or model a daycare space that is partly exclusive and partly shared, which the IRS itself says requires a separate attached statement rather than the standard formula. This is an estimate for planning purposes, not tax advice — confirm your actual eligibility and amount with a tax professional before filing.