Working at home does not by itself create a home office deduction. Federal treatment depends first on whether you are an employee or self-employed, then on how you use the space.
Employees and self-employed workers have different federal rules
An employee generally cannot deduct unreimbursed home office costs on a federal return under current law. That remains true when the employer allows or requires remote work. The office may be necessary in everyday terms without being deductible on Schedule A.
A sole proprietor, independent contractor, or other self-employed person may qualify. The expenses must relate to an active trade or business, and the space must satisfy one of the IRS business-use tests.
Someone with both wage income and self-employment income should separate the activities. A room used for an employer’s work and a side business is not automatically fully deductible against the side business.
The regular and exclusive use tests
The most common route is using part of the home exclusively and regularly as the principal place of business.
Exclusive use means the identified area is used only for business. A desk in a family room usually fails if the same desk or area is also used personally. The area does not need permanent walls, but it must be separately identifiable.
Regular use means more than occasional or incidental work. The facts should show a continuing business pattern.
A home can qualify as the principal place of business when it is used exclusively and regularly for administrative or management activities and there is no other fixed location where substantial administrative or management work occurs. Other routes can apply to a place used to meet clients in the normal course of business or to a separate structure used regularly and exclusively for business.
Limited exceptions to exclusive use exist for qualifying inventory storage and daycare. The IRS home office publication explains each test and exception.
Simplified method or actual expenses
Once the space qualifies, there are two calculation methods.
The simplified method applies the IRS rate to qualifying square footage, up to the allowed area limit. It reduces recordkeeping and does not create home depreciation. It may produce a smaller deduction when actual housing costs are high.
The actual-expense method separates direct and indirect costs. A repair only inside the office may be direct. Rent, utilities, insurance, mortgage interest, real estate tax, general repairs, and depreciation may be partly allocable based on the business-use percentage and other rules.
The deduction can be limited by business income. Disallowed actual expenses may carry forward, while the simplified method has different carryover treatment. A homeowner should also understand depreciation recapture before choosing the actual method.
California employees may have a state adjustment
State rules can differ from federal rules. California does not conform to the federal suspension of miscellaneous itemized deductions for unreimbursed employee expenses. The 2025 California Schedule CA instructions direct taxpayers to prepare federal Form 2106 using California amounts and report allowable unreimbursed employee expenses on Schedule CA.
That is not an automatic deduction for every remote employee. The expense still must qualify under California rules, itemized-deduction limits apply, and the regular and exclusive use requirements remain relevant. Ask the employer about reimbursement before personally absorbing a business cost.
For a return that combines remote work, self-employment, and California adjustments, the scope and pricing of Santafino’s tax and accounting services are available before scheduling a consultation.
Records to keep
Retain a floor plan or measurement, photographs showing the defined workspace, bills, proof of payment, a business-use calculation, and evidence of the work performed there. For actual expenses, keep the allocation and depreciation schedule from year to year.
The bottom line
Remote employees generally get no federal home office deduction. Self-employed people can qualify when a specific area is used regularly and exclusively for a qualifying business purpose. Determine eligibility before comparing the simplified and actual methods, and check state law separately because it may not follow the federal result.
FAQ
Can a remote employee claim a federal home office deduction?
Generally no. Working from home does not create a federal deduction for an employee's unreimbursed home office costs under current law.
Does a home office have to be a separate room?
No. It can be a separately identifiable part of a room, but it generally must be used exclusively and regularly for the qualifying business purpose.
Can a self-employed person use the simplified home office method?
Yes, if the office qualifies. The simplified method uses a prescribed rate and square-foot limit instead of allocating many actual home expenses.
