When Rigby Financial Group plans for your taxes, we might ask whether you reserve a portion of your home as a business office.

It could be a great idea, even if you have a regular office, to set up a separate room in your house for business purposes. If you need or want to, you can work evenings on weekends and holidays (we don’t recommend this, but some entrepreneurs are subject to workaholism). In addition, clients’ emergencies don’t always stick to a 9-to-5 schedule―and even at RFG, with all our love of work-life balance, we know it can be crucial to respond to these in a timely manner.

For eligible taxpayers, having a home office can provide you with not only this flexibility, but a tax deduction as well, sometimes a significant one.

But, in addition to those rules concerning who is eligible, there are other rules (aren’t there always?). So we thought we’d make things clear for you.

Who is Eligible for the Home Office Deduction?

Employees who work remotely are out of luck here. Before the Tax Cuts and Jobs Act of 2017 (TCJA), these taxpayers were eligible to take the deduction, but the TCJA ended that through 2025, and the One Big Beautiful Bill Act of 2025 (OBBBA) made that ineligibility permanent.

You are eligible for the home office deduction (assuming you have such an office) if you are:

• Self-employed
• A business owner
• An independent contractor

If you are one of these, there are further rules affecting your home office’s eligibility. To qualify for this deduction, your home office must be dedicated solely for business use. The “office” can be:

• A separate room of your home
• An additional structure on your property

The “office” can be used for any genuine business purpose, including meeting with clients, colleagues, suppliers, etc., or to store inventory. Or of course, to conduct any of the day-to-day aspects of your business.

Let’s say you and your home office meet all eligibility requirements. How is your deduction calculated?

Calculating Your Home Office Deduction

There are two ways to calculate your home office deduction:

Regular Method: The most popular way of calculating this is to compare the square footage of your home office with that of your home overall. Then, calculate, according to that percentage, how much you can deduct relative to:

• Mortgage interest or rent
• Property taxes
• Homeowners’ insurance
• Utilities (electricity, water, natural gas if you heat via that fuel, internet)
• Repairs and maintenance
• Depreciation on your home

 
Direct expenses, such as repairs or expansion of your home office alone, or business equipment not used for other purposes, can be deducted in full, if you use this method.

Simplified Method: With this method, you can deduct $5 for each square foot of your home office, up to a total of 300 square feet, or $1,500.

While using the simplified method is likely to result in a smaller tax deduction in many cases, it does have one significant advantage, which we discuss below.

In addition, you will spend less time in calculation and record-keeping, so, depending on your individual situation (as so much does!), it may be worthwhile, especially given the method’s cardinal advantage.

And here is where that advantage comes in:

What Happens, Tax-Wise, When You Sell Your Home?

Here’s where it can be advantageous to have used the simplified method to calculate your home office deduction.

If you used the regular method, when you report the sale on your taxes, you will have to reclaim any depreciation taken on that portion of the home you used as your office.

You’ll have to pay capital gains tax on that portion of the home’s appreciation, which would diminish the effect of your capital gains exclusion on sales of primary residences, which represents $500,000 for married joint filers, $250,000 for single filers, or those who are married but file separately.

If, on the other hand, you used the simplified method, you don’t have to figure depreciation into the picture at all. You never took it as a home office deduction in the first place.

Which method is best for you depends on you―your business picture, your family, your goals and plans.

Consult with your fractional CFO or other trusted tax and financial advisor. S/he will work with you to determine:

• Your and your home office’s eligibility for the home office deduction, and
• Which calculation method is better for you, in light of your own unique situation, goals, and your tax deduction under each method.

At Rigby Financial Group, we have many clients who use home offices―consider us as your partner. Your interests are ours, we’re invested in your success, your flourishing, your life-satisfaction.

Give us a call (866.690.4961 toll-free, or 504.586.3050) to schedule an appointment, or click here to email us directly―Rigby Financial Group’s trusted, expert team are always at your service―that’s what we are here for! We are all about you.

Until next time –

Peace,

Eric