The two methods in one paragraph each
Simplified method: $5 per square foot of home office, capped at 300 square feet. Maximum deduction is $1,500. No forms, no receipts. Goes on Schedule C Line 30.
Actual method (Form 8829): Calculate the business-use percentage of your home (office sq ft ÷ total sq ft). Apply that percentage to rent/mortgage interest, utilities, insurance, maintenance, depreciation. No cap.
When simplified wins
- Your office is small (under ~150 sq ft)
- You rent a cheap apartment (under $1,200/mo)
- You hate paperwork and would rather click one box than track utility bills
- You file paper returns and don't want to fill out Form 8829
If your actual-method deduction would come out to less than $1,500, simplified wins by default — it's easier and matches the result.
When actual wins (usually)
For most self-employed people in any major metro area, actual wins by thousands. A quick example:
Simplified method: 180 sq ft × $5 = $900 deduction (capped, but they're under the cap)
Actual method:
Rent: $26,400 × 15% = $3,960
Utilities: $2,400 × 15% = $360
Renters insurance: $200 × 15% = $30
Internet: $720 × 15% = $108 (usually tracked separately on Line 25)
Total: ~$4,350 deduction
Actual method wins by $3,450. At a 22% bracket + 15.3% SE tax, that's roughly $1,290 in extra refund.
The math for homeowners
Owners get to deduct a share of:
- Mortgage interest (business-use %)
- Real estate taxes (business-use %)
- Insurance
- Utilities
- Maintenance and repairs
- Depreciation on the home itself (this is the big one)
Depreciation alone often pushes the actual method well past $1,500. A $400,000 home with a $320,000 depreciable basis (excluding land), depreciated over 39 years straight-line, generates about $8,200/year of depreciation. Take 12% of that = $984/year in depreciation alone — and that's before any other expense.
The depreciation catch owners should know
When you sell your home, the depreciation you took (or could have taken) is recaptured as ordinary income — up to 25%. This often leads homeowners to choose simplified to avoid recapture. But the "could have taken" rule applies anyway if you claimed the deduction in any year using the actual method. For most people, the tax savings during ownership outweigh the recapture. But run the numbers.
The switch rule
You can switch between simplified and actual year to year. No election required. Many filers use actual during high-income years and simplified during low-income or transition years.
How to decide in 60 seconds
- Measure your office. Square footage × 12% to 20% of your home area.
- Office sq ft × $5 = your simplified deduction.
- Business-use % × annual rent (or mortgage interest + depreciation) = rough actual deduction.
- If actual is bigger by more than 20%, do actual. It's worth 30 minutes of form-filling.
We flag both methods automatically.
Our tool checks your return and tells you if you left money on the table by picking the wrong method.
If you've been defaulting to simplified without running the actual comparison, pull last year's return and work it out. A 20-minute exercise that often pays $500–$2,000.