How does the simplified method work?
Publication 587 gives three steps. First, multiply the allowable area by $5. Second, subtract the business costs that are not related to the use of your home from the gross income related to the business use of your home. Third, take the smaller of the two amounts. That is your deduction for that business use.
In most cases the allowable area is the smaller of the actual area you use for business and 300 square feet.
How much can I deduct?
At $5 a square foot, before the income limit:
- 100 square feet is $500
- 200 square feet is $1,000
- 300 square feet or more is $1,500, the most the method allows
What do I give up by choosing it?
The IRS lists what changes when you elect the simplified method:
- You cannot deduct actual expenses of the home, such as rent, utilities and insurance, though business costs not related to the use of the home are still deductible
- You cannot deduct depreciation or section 179 expense for the part of the home used for business, although you can still depreciate other assets such as furniture and equipment
- Mortgage interest, real estate taxes and casualty losses are treated as personal expenses on this form, and they remain deductible on Schedule A if you itemize
- Any disallowed amount carried over from a year you used actual expenses cannot be deducted in a simplified year
How do I choose it?
You choose each tax year whether to use the simplified method. You make the election by using it on a timely filed, original federal income tax return, and once made for a year it cannot be undone. Switching between the simplified method and actual expenses from one year to the next is allowed and does not need the IRS to consent.
If you have more than one qualifying business in the same home, your election applies to all of them. If you used more than one home in the year, you can elect it for only one of them.
Where do I report it?
A Schedule C filer uses the Simplified Method Worksheet in the Instructions for Schedule C instead of Form 8829, and reports the entire home office deduction on line 30 of Schedule C (Form 1040).
What if I used the space for part of the year, or moved?
If you used the space for only part of the year, started during the year, moved, or changed the size of the space, your deduction is limited to the average monthly allowable square footage.
The IRS example: an owner began using 420 square feet on July 20 and kept using it to the end of the year. The allowable area is 300 square feet for each month from August through December, divided by the 12 months of the year, which is 125 square feet. At $5 that is $625.
What if I run more than one business, or share the space?
If you have more than one business that qualifies, the maximum is 300 square feet for all of them together, and you allocate the space in a reasonable way. If you share space with someone whose business also qualifies, you may not both count the same square feet.
Is the simplified method better than actual expenses?
The IRS does not say which is better. The simplified method is easier because it removes the percentage and the bills, while actual expenses need records of each cost and can produce a larger or a smaller amount. A tax professional can compare the two for your numbers.
Sources: IRS Publication 587 (2025), Business Use of Your Home (read October 31, 2026); IRS Publication 334 (2025), Tax Guide for Small Business (read October 30, 2026); IRS, What kind of records should I keep (read October 30, 2026).
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