Guides · Home office
Working from home deductions — US and UK
US: home office deduction basics
The IRS allows a deduction for the business use of a home if:
- Regular and exclusive use. The space must be used regularly and exclusively for business.
- Principal place of business. The home must be your principal place of business, OR a place where you meet clients or customers in the normal course of business, OR a separate structure used in connection with the trade.
Two methods for calculating the deduction: simplified and regular. You can switch methods year to year.
US: simplified method
The simplified method is preferred for most home office filers. The math:
$5 × square footage of dedicated business space, capped at 300 sq ft = $1,500 max
Example:
- 200 sq ft home office used exclusively for business.
- Deduction: $5 × 200 = $1,000.
- No Form 8829 required; just enter on Schedule C line 30.
The simplified method has several advantages:
- No depreciation recapture when you sell the home.
- No Form 8829 to file.
- No detailed expense tracking (just square footage).
- Audit-resistant — IRS examiners know the math is mechanical and don't dispute it.
The downside: the deduction is capped at $1,500. If your actual home office costs exceed that, the simplified method leaves money on the table.
US: regular method (Form 8829)
The regular method allows a larger deduction but requires Form 8829 (Expenses for Business Use of Your Home) and detailed expense records. The math:
(Direct home office expenses) + (Indirect home expenses × business use percentage)
Categories of expense:
- Direct — expenses that apply only to the home office (paint, repairs, depreciation of the office portion).
- Indirect — expenses that apply to the whole house (utilities, insurance, property tax, mortgage interest, depreciation of the home).
Business use percentage = home office square footage / total home square footage.
Example:
- 2,000 sq ft home, 200 sq ft home office = 10% business use.
- Indirect expenses: $20,000 mortgage interest + $6,000 property tax + $4,000 utilities + $2,000 insurance = $32,000.
- Indirect allocation: $32,000 × 10% = $3,200.
- Direct expenses: $800 (paint, repairs) = $800.
- Total deduction: $4,000.
The regular method produces a much larger deduction than the simplified method in most cases. The trade-off:
- Depreciation recapture at sale. If you deducted depreciation on the office, the depreciation portion is recaptured as ordinary income on sale (or partial sale) of the home.
- Audit risk. Form 8829 with high expense ratios is scrutinized. Documentation required.
- Mortgage interest on the home office reduces the interest you can deduct as itemized mortgage interest on Schedule A.
US: who qualifies
The home office deduction is for self-employed people (filed on Schedule C), statutory employees (e.g., drivers), and certain employees who:
- Use the home for the convenience of the employer (not just personal preference).
- Don't have a suitable office space at the employer's location.
- Spend significant time at the home office performing work.
Important: W-2 employees who work from home for any other reason cannot claim a home office deduction on their personal return — they can only deduct it if their employer reimburses them under an accountable plan. The Tax Cuts and Jobs Act suspended the home office deduction for W-2 employees for tax years 2018-2025. The OBBBA may have changed this; verify current rules with the IRS or a tax professional.
Self-employed people who work from a dedicated home office regularly qualify. Common qualifying scenarios:
- Freelance writer with a dedicated home office.
- Software contractor whose primary workspace is a home office.
- Therapist seeing clients in a home-based practice.
- Etsy seller with a dedicated crafting space.
- Day trader with a dedicated trading office.
Common non-qualifying scenarios:
- W-2 employee occasionally working from home.
- Self-employed person who works primarily at client sites or coffee shops.
- Dedicated space that's not exclusive (a spare bedroom used for both work and guests).
UK: home-working expenses
The UK has two arrangements for home-working expenses, both applying to employees who work from home regularly:
- P87 flat-rate — for employees whose employer doesn't reimburse expenses. Claims up to £500/year without receipts.
- Actual costs — for self-employed people, claim a proportion of actual household costs based on business use.
Both require the employee to demonstrate that they:
- Work from home regularly (not occasionally).
- Have expenses that are not reimbursed by the employer.
- Use the home for work as a matter of necessity (not just preference).
UK: P87 flat-rate
For 2026/27, the flat-rate home-working allowance is £500/year (£10/week), claimable by employees who:
- Are required to work from home (under their employment contract or by employer direction).
- Have not been reimbursed by their employer for the additional household costs.
- Work from home regularly (the standard is at least some regular pattern, not just occasional).
The £500 covers:
- Heat and lighting (proportional share).
- Business telephone calls (metered or estimated).
- Business use of home contents (e.g., desk, chair).
It does not cover:
- Rent or mortgage interest (unless you're a landlord with a letting).
- Council tax (a personal cost).
- Home contents insurance (mostly personal).
Claims are made via the HMRC online service or by phone. The employer is asked to confirm via the P87 form that the employee works from home regularly and is not reimbursed. Most claims are processed within 4-6 weeks.
Note: from 2026/27 onwards, the £500 figure may have been indexed. Verify the current rate on the HMRC guidance.
UK: actual costs via self assessment
Self-employed people (or employees claiming via Self Assessment for additional expenses beyond the flat-rate allowance) can claim a proportion of actual household costs based on business use:
(Total household costs) × (business-use percentage)
Categories of cost:
- Heat and lighting.
- Council tax (proportional).
- Water rates (proportional).
- Home insurance (proportional).
- Mortgage interest or rent (proportional; for non-owners, only the business-use proportion).
- Repairs and maintenance (proportional for general repairs; full for office-specific repairs).
- Business phone and broadband (full cost of business calls; proportional share of broadband).
The business-use percentage is typically hours worked from home divided by total hours, OR a room-based percentage (square footage). The time-based method is often more defensible for an audit.
Example:
- Work 35 hours/week from home; total 168 hours/week (24/7).
- Business-use percentage: 35/168 = 20.8%.
- Annual household costs: £6,000 utilities + £2,000 insurance + £2,000 council tax + £500 phone/broadband = £10,500.
- Proportional claim: £10,500 × 20.8% = £2,184.
Note: mortgage interest for the property portion used as a home office is generally not deductible for employees (only for the self-employed, and even then with restrictions).
Side-by-side comparison
| Item | US | UK |
|---|---|---|
| Eligible filer | Self-employed (Schedule C) + qualifying W-2 employees | Employees (P87 or PAYE) + self-employed (Self Assessment) |
| Maximum annual deduction | $1,500 (simplified) / unlimited (regular) | £500 (flat-rate) / unlimited (actual costs) |
| Method | $5 × sq ft or actual costs via Form 8829 | £500 flat rate via P87 or actual costs via Self Assessment |
| Documentation | Square footage (simplified) or detailed expense log (regular) | None for flat-rate; receipt-backed for actual |
| Recapture at sale | Yes, on depreciation portion (regular method) | No |
| Common pitfall | Claiming without exclusive business use | Claiming without employer confirmation |