How to Legally Deduct Your Home Office on 2025 Taxes: A Complete Guide for U.S. Founders & Freelancers

Something shifted in all of us during the pandemic. Before lockdowns, most of us believed real work lived in tall buildings and long hours.

We thought seriousness came from suits, and productivity from being watched/tracked.

We were so wrong.

Before the pandemic, fewer than 6% of people in the U.S. worked from home. The rest of us were commuting daily, sitting under fluorescent lights, clocking in endless hours.

Then the world shut down. Practically overnight, nearly 70% of people tried working from home. And something surprising happened.

People found a rhythm in this new way of working. Sure, some people hated the isolation.

But many, especially solo founders and independent creators, quietly fell in love with this flexibility.

I’m one of them 🙂 

For the first time in a long time, people cooked lunch with their partners during office hours, walked barefoot between meetings, and answered emails while their furry kid slept on their lap.

You could step away mid-day, take a walk, then come back and still get the job done, maybe even better. With more intention. More of you.

And believe it or not, in our demo sessions, founders often say,

“I work better now from my kitchen table than I ever did in a glass-walled office in Midtown.”

Some have turned spare rooms or garages into studios. Others freelance full-time from the living room. A few have built fully remote teams that are focused, fast, and quietly crushing it.

But here’s the part most people miss..

If You’re Building From Home, You Might Be Eligible for a Major Tax Break

Yes, you heard it right! If you’re using a part of your home regularly and exclusively for your business, the IRS may actually let you deduct a portion of your rent, electricity, internet, and even your repairs.

That’s what the home office deduction is about.

For years, people avoided claiming it, worried it might raise red flags for auditors.

But in recent years, Congress relaxed the rules. If you follow the guidelines carefully and legally deduct your home office, the deduction is perfectly legit, and no longer a red flag.

At doola, we guide founders like you through deductions like this all the time, especially when handling their bookkeeping and tax prep.

And one thing we’ve seen? This one deduction alone can save hundreds, even thousands, if done right. 

In this blog you’ll learn:

• What qualifies as a home office in 2025

• What doesn’t (and might cost you if you get it wrong)

• And the top mistakes founders make when claiming this deduction

Let’s get into it.

Who Is Eligible for the Home Office Deduction?

To qualify, you must:

• Be self-employed (W-2 employees aren’t eligible post-2018 tax reform)

• Use a portion of your home regularly and exclusively for business

• Use that space as your principal place of business

It does NOT have to be a traditional office. Acceptable spaces include:

• A bedroom or den

• A portion of your basement

• A studio, detached garage, or even a greenhouse

• Yes, even a boat, as long as it meets IRS criteria

Homeowners and renters alike are eligible. Ownership doesn’t impact your qualification.

Let’s dive deeper into it. 

What Counts as a “Home Office”?

The IRS doesn’t care if your workspace looks like a WeWork setup. It only cares about two things:

1. Exclusive Use

The space must be used only for business. That means:

• No dinner table doubling as your laptop station

• No couch where you write emails and binge Netflix

• No shared desk that your partner or kids also use

Even if it’s a tiny 4×4 area, you must designate it just for work, say a desk in your bedroom, as long as you only use it for your business, it qualifies.

✅ Acceptable setup: A small desk and bookshelf in your living room that’s solely used for your e-commerce business.

❌ Not Acceptable setup: The kitchen table where you pack Etsy orders in the morning and have dinner in the evening.

2. Regular Use

The space must be used consistently and routinely for your business, not just occasionally, at least 10 to 12 hours per week. But the time required depends on the nature of your business.

So, if you use your “home office” once a week and spend the rest of the time at cafes or coworking spaces, it won’t qualify. The IRS expects your home office to be a primary place of business, not a fallback. 

What Qualifies as a “Home”?

Here’s something people miss: your “home” can be almost anything you live in.

You can claim a home office deduction if you run your business from:

• A rented apartment or condo

• A mobile home or RV

• A house you own (including a garage or shed)

• Even a boat (if it’s your full-time residence)

The only caution: you must be living there, and you must not be renting the space out to someone else. 

Read more: How to Fill Out a 1099 Tax Form 

How to Legally Deduct Your Home Office

You can deduct home office expenses based on the percentage of your home used for business or a simple square footage calculation. 

Let me break this down for you.

 1. Regular Method (Percentage-Based): 

Let’s say your apartment is 1,000 square feet, and your office space is 200 square feet. That means 20% of your home is being used for business.

You can now deduct 20% of all eligible home expenses, like:

• Rent or mortgage interest

• Utilities (electricity, gas, water)

• Property taxes

• Internet and phone (if not fully business-only)

• Repairs or maintenance (especially those in the office area)

• Insurance

• Depreciation (if you own your home)

But there’s a catch. To claim via this method, you need to:

• Keep detailed receipts for all those expenses.

• Do the math to calculate your business-use percentage.

• Fill out IRS Form 8829 (It’s the form the IRS uses to calculate and validate your home office deduction under the Regular Method. It gets attached to Schedule C (your profit/loss form) when you file taxes.)

Why Choose This Method?

Because in a place like New York, where rent or mortgage payments are sky-high, 20–30% of that cost adds up fast.

If your office is large, or your housing costs are high, or you’ve invested in good infrastructure (Wi-Fi, HVAC, repairs), the regular method can dramatically reduce your taxable income.

2. Simplified Square Footage Method

Let’s say the regular method feels like too much math, too many receipts, or you just don’t want to deal with depreciation tables.

Then, you should stick to the simplified square footage method. 

Here’s the breakdown:

Instead of doing all the math with your rent, electricity, insurance, and so on, you just multiply the number of square feet you use exclusively for work by a flat rate:

$5 per square foot. Up to 300 square feet max.

So, the most you can deduct is $1,500 a year.

No need to keep receipts. No need to figure out percentages. It’s plug-and-play.

Key Things to Remember:

Your designated space must be used regularly and exclusively for your business. It must be your principal place of business or a space where you meet clients/customers.

If a home office doubles as a computer room for the family, you cannot claim for home office deduction.

This Method Is Best for You If:

• You’ve got a small home office or a simple setup

• You’re a freelancer, solopreneur, or early-stage founder without heavy home-office costs

• You don’t want to stress about audits (the IRS rarely challenges this method because it’s standardized and formulaic)

• You live in a low or moderate rent area, where the percentage method wouldn’t save you much more

What You Can & Can’t Deduct With a Home Office

To qualify for the home office deduction, your space must meet specific criteria:

📌 Regular and Exclusive Use

This is the most critical requirement. The portion of your home you use for business must be used exclusively for business activities, not for personal use.

📌 Principal Place of Business

Your home must be your principal place of business. This means it’s where you conduct the most important and essential functions of your business.

Even if you have other locations where you meet clients or perform some work, if the core management and administrative activities of your business take place at home, it can qualify.

📌 Place to Meet Clients or Customers

Even if your home isn’t your principal place of business, you can still deduct expenses if you use a portion of your home exclusively and regularly to meet clients, patients, or customers in the normal course of your trade or business.

📌 Separate Structure

If you use a separate, unattached structure on your property exclusively and regularly for your business (e.g., a detached garage converted into an office, a studio, or a workshop), it can qualify for the deduction.

Once your home office qualifies, you can deduct a portion of various home-related expenses. 

These typically fall into 2 categories:

1. Direct Expenses: These are expenses solely for your home office.

• Business-related repairs: For example, fixing a leaky faucet only in your office bathroom.

• Office supplies used only in the home office: Pens, paper, printer ink, etc.

• Furniture and equipment used exclusively in the home office: Desks, chairs, computers, filing cabinets.

• Depreciation on assets used exclusively in the home office.

2. Indirect Expenses: These are expenses for your entire home, and you deduct a percentage based on the portion of your home used for business. The most common method to determine this percentage is dividing the square footage of your office by the total square footage of your home.

• Rent (if you rent your home): A proportional share of your monthly rent.

• Mortgage interest: A proportional share of the interest paid on your home loan.

• Real estate taxes: A proportional share of the property taxes.

• Utilities: Electricity, gas, water, internet.

• Homeowners insurance: A proportional share of your insurance premiums.

• Repairs and maintenance (for the entire home): For example, repairing a leaky roof or painting the exterior.

• Depreciation on your home (if you own it): This is a non-cash expense that allows you to recover the cost of your home over its useful life.

What You Can’t Deduct:

It’s equally important to know what you cannot deduct, as attempting to claim unqualified expenses can trigger an IRS audit.

• Expenses for personal use: Any expense that benefits the personal part of your home, even if it indirectly helps your business, is not deductible.

• Commuting expenses: The travel costs between your home office and another work location are generally not deductible if your home is your principal place of business. Your “commute” effectively begins when you step out of your home office.

• Improvements that are purely personal: Adding a swimming pool or a new patio, for instance, are not deductible home office expenses.

• Expenses for unqualified spaces: If your home office doesn’t meet the “regular and exclusive use” or “principal place of business” criteria, none of the associated expenses are deductible.

• Losses on the sale of your home related to home office depreciation: If you take depreciation on your home office, a portion of your home’s gain on sale will be recaptured as ordinary income when you sell, but you cannot deduct a loss attributed to the depreciation.

Common Mistakes to Avoid When Claiming the Home Office Deduction: 2025 Edition

Here are a few critical mistakes to avoid:

1. Using a Non-Exclusive Space

Your home office must be used exclusively and regularly for work. That means the space should have only one job, i.e. running your business.

But many people  try to claim deductions on areas like the dining table, the corner of the bedroom, or even the couch, spaces that double as living or leisure zones. 

The IRS doesn’t buy that. Plus, if you’re ever audited and it’s clear the space isn’t purely for business, the entire deduction can be denied, even if you’ve done everything else right.

What to do instead:

Set aside a dedicated space for your business. It could be a spare room, a partitioned nook, or even a portion of your garage,  as long as it’s physically separate and not used for anything else.

Even a modest 5×5 setup with a desk and clear boundaries can count, as long as it’s used exclusively for your business, and you use it consistently.

2. Claiming Based on Total Home Square Footage (Incorrectly)

One of the most common mistakes people make when calculating their home office deduction is including areas of the house that aren’t actually part of the office.

For example, some folks mistakenly factor in shared spaces like hallways, bathrooms, or the dining area,  thinking it somehow adds to their business-use percentage. It doesn’t.

The IRS is very clear:

You can only claim the square footage that is used exclusively for work.

That means if your home is 1,000 square feet and your actual office, say, a spare bedroom is 200 square feet, then only that 200 counts. You can’t pad the numbers by adding the hallway outside or the bathroom next to it.

So, measure your space accurately. If you’re using the regular method, divide your office square footage by your home’s total livable area, not the total lot size, and definitely not common-use spaces.

3. Not Keeping Proper Records

This one’s a silent killer for your deduction. 

If you’re using the actual expense method, you need to retain detailed records: rent or mortgage statements, utility bills, repair receipts, depreciation calculations, and maintenance invoices.

Missing receipts? Ballpark numbers? That’s a tocsin! And in case of an audit, it could lead to the deduction being partially or entirely denied.

Here’s what you should do:

Keep a digital folder. Every time you pay for electricity, internet, or a home repair, upload it. Tools like QuickBooks or even Google Drive can help you stay organized. 

4. Claiming Depreciation Without Understanding Recapture

If you own your home and take depreciation under the regular method, that deduction could impact your capital gains later when you sell.

Specifically, the IRS may require recapture of that depreciation, meaning you’ll owe taxes on it when you sell your house.

So, only take depreciation if you’re aware of the long-term implications. 

5. Not Adjusting Deductions Year to Year

Your eligibility for the home office deduction can change every year, especially if your work setup changes.

Maybe one year you rented a bigger apartment, and the next, you downsized. Or maybe your home office became a nursery halfway through the year.

Recalculate annually. The IRS expects that your business-use percentage reflects reality for that tax year. If your square footage changes, or you stop using the space exclusively, adjust the deduction accordingly.

How doola Makes Tax Filing and Home Office Deductions Easy

When you’re running a business from home, keeping up with tax rules,  especially the home office deduction, can feel like its own full-time and overwhelming job.

doola is here to help:

Here’s how we simplify the entire process:

• Personalized Deduction Guidance: We’ll tell you exactly what qualifies and what doesn’t, no vague IRS language or jargon.

• Year-Round Compliance Reminders: Get nudges before critical deadlines.

• Human Support (Always): Not sure if your guest room qualifies? Ask us. You’ll get real answers from real tax pros, not generic checklists.

• Integrated Filing: When tax time comes, we help you file confidently, with all your deductions in place and audit-proofed.

If you’ve outgrown spreadsheets and browser tabs full of tax guides, it’s time. doola brings everything into one place so you can finally feel in control.

Start now and give your business the foundation it deserves. Sign up today!