Home Office Deduction Guide for Freelancers: Simplified vs Actual Expenses

I didn’t claim the home office deduction my first year of freelancing. I’d heard it was an “audit trigger” and was too scared to risk it. My accountant later told me I left $1,500 on the table — money I could have claimed with zero additional risk, because my setup clearly qualified.

The home office deduction isn’t scary. It isn’t complicated. And if you work from home (which most freelancers do), it’s free money you’re probably not claiming. Let me walk you through both methods with my actual numbers.

Do You Qualify?

The IRS has two requirements for the home office deduction:

1. Regular and exclusive use. You must have a specific area of your home used ONLY for business. It doesn’t need to be a separate room — a dedicated desk area in a corner works. But it must be exclusively for work. If your kids do homework at your desk, or you use your office as a guest bedroom, it doesn’t qualify.

2. Principal place of business. Your home office must be where you primarily conduct business, OR where you regularly meet clients. Since most freelancers work from home full-time, this is automatic.

What counts:

• A spare bedroom converted to an office ✅
• A dedicated desk area in your living room ✅ (if used exclusively for work)
• A basement or attic converted to workspace ✅
• A detached garage or shed used as office ✅

What doesn’t count:

• Your dining table where you sometimes work ❌ (not exclusive use)
• A bedroom you also sleep in ❌ (dual use)
• Your couch ❌ (obviously)

Method 1: Simplified Method ($5/sqft)

The IRS introduced the simplified method specifically so freelancers would stop being afraid of this deduction. It’s exactly what it sounds like: simple.

The formula:

• $5 per square foot of your home office
• Maximum 300 square feet
• Maximum deduction: $1,500/year

That’s it. No tracking utility bills, no calculating percentages, no keeping records of mortgage interest. Measure your office, multiply by $5, claim the deduction.

My office: 280 square feet (a spare bedroom). Deduction: 280 × $5 = $1,400/year.

Pros:

• Takes 2 minutes to calculate
• No additional record-keeping
• Minimal audit risk (you just need to know the square footage)
• You can still claim regular business deductions (internet, phone, etc.) separately

Cons:

• Capped at $1,500 regardless of actual expenses
• Doesn’t account for actual costs (which might be higher)
• No depreciation deduction on your home

When to Use the Simplified Method

For most freelancers, the simplified method is the right choice. It’s simple, safe, and $1,500 is a meaningful deduction. Unless your actual expenses would yield significantly more (usually only if you have a large home office or high housing costs), don’t bother with the complexity of Method 2.

Method 2: Actual Expense Method

The actual expense method deducts the business-use percentage of your actual home expenses. More complex, potentially higher deduction.

Step 1: Calculate your business-use percentage.

Option A: Square footage method

• Home office: 280 sqft
• Total home: 1,400 sqft
• Business use: 280/1,400 = 20%

Option B: Room count method (simpler but less precise)

• Home office: 1 room
• Total rooms: 6 rooms
• Business use: 1/6 = 16.7%

Most people use the square footage method. I’ll use 20% for my example.

Step 2: Add up deductible home expenses.

The result: Under the actual expense method, I could deduct $4,840 — compared to $1,400 under the simplified method. That’s $3,440 more in deductions, saving roughly $960 in taxes.

Pros:

• Often yields a higher deduction (especially with high rent/mortgage)
• Includes depreciation for homeowners
• No $1,500 cap

Cons:

• Requires tracking every home expense throughout the year
• More complex Form 8829 at tax time
• Slightly higher audit risk (more numbers to verify)
• If you sell your home, depreciation recapture applies (homeowners only)

When to Use the Actual Expense Method

Use this method if:

• You live in a high-cost area (rent/mortgage > $2,000/month)
• Your home office is a large percentage of your home (25%+)
• You own your home (depreciation adds significant value)
• You’re comfortable with the additional record-keeping

My Choice

I use the simplified method even though the actual expense method would save me an extra $960/year. Why?

1. Time cost: Tracking all home expenses, calculating percentages, and filing Form 8829 takes 2-3 extra hours. At my hourly rate, that time cost exceeds the $960 savings.
2. Simplicity: I have enough financial complexity. One fewer thing to track.
3. Audit safety: The simplified method is nearly audit-proof. You know your square footage — that’s all you need.

But if you work with an accountant (I do), ask them to run both methods and compare. If the actual expense method saves you $2,000+ more, it’s worth the complexity. My accountant runs both calculations every year and tells me which to use.

Expenses You Can Deduct SEPARATELY From the Home Office Deduction

Important distinction: some home-related expenses are business deductions on their own, separate from the home office calculation.

Business portion of internet: 50% of my $150/month internet bill = $900/year. This is claimed on Schedule C as a utility expense, NOT on the home office form. (If using the actual method, be careful not to double-count.)

Business portion of phone: 60% of my $100/month phone bill = $720/year. Same treatment.

Office furniture and equipment: A desk, chair, monitor — these are business equipment deductions, not home office deductions. Deduct 100% on Schedule C.

Office supplies: Printer paper, ink, pens, sticky notes — Schedule C deductions.

Common Mistakes

Mistake 1: Not claiming it at all. The home office deduction is legitimate and common. The “audit trigger” reputation is outdated. Millions of freelancers claim it every year without issue.

Mistake 2: Claiming too large a percentage. If you work in a 10×10 room in a 2,000 sqft house, your business percentage is 5%, not 25%. The IRS knows the average room size. Unreasonable percentages draw attention.

Mistake 3: Claiming dual-use spaces. If you work at your kitchen table and also eat there, it doesn’t qualify. The space must be used EXCLUSIVELY for business. If you occasionally eat lunch at your desk, that’s fine. If the room serves another primary purpose, it’s not.

Mistake 4: Confusing the two methods’ rules. Under the simplified method, you deduct internet/phone separately on Schedule C. Under the actual method, you might include internet as a home expense in the calculation. Don’t double-count.

Mistake 5: Not switching methods when circumstances change. You can switch between simplified and actual methods each year. If you move to a bigger space or your rent increases significantly, the actual method might become better. Recalculate annually.

Renters vs. Homeowners

Renters: You can deduct the business-use percentage of rent under the actual method. This is often a large deduction in high-cost cities. Renting a $2,500/month apartment with a 20% home office = $500/month = $6,000/year in deductions.

Homeowners: You can deduct the business-use percentage of mortgage interest (not principal), property taxes, insurance, utilities, repairs, AND depreciation. The depreciation piece is unique to homeowners and can be substantial — but be aware of depreciation recapture when you sell.

My situation: I rent, so the actual expense method gives me a significant rent deduction. Homeowners with large mortgages often benefit even more from the actual method.

The Bottom Line

The home office deduction is one of the easiest, most valuable deductions available to freelancers who work from home. At minimum, you should claim the simplified method for up to $1,500/year. If your housing costs are high, the actual expense method could yield $3,000-6,000+ in additional deductions.

Don’t leave this money on the table. Measure your office, pick a method, and claim it. If you’re unsure which method yields more, your accountant can calculate both in 10 minutes.

And please stop being afraid of this deduction. It exists specifically for people like us. Use it.