You cannot write off your mortgage as a business expense, even if you run your business entirely from home. The mortgage payment itself is a personal cost, and federal tax law draws a firm line between personal living expenses and deductible business costs. What you can do, if you qualify, is claim the home office deduction, which moves a percentage of your mortgage interest, property taxes, utilities, insurance, and other housing costs from the personal side of your return onto Schedule C.
Why the Mortgage Payment Itself Isn’t Deductible
Federal tax law starts from a simple premise: personal, living, and family expenses are not deductible.1Office of the Law Revision Counsel. 26 USC 262 – Personal, Living, and Family Expenses Your mortgage sits squarely in that category. Working at your kitchen table doesn’t convert your housing cost into an operating expense, any more than eating lunch at your desk makes groceries deductible.
Look at what a mortgage payment actually contains. The principal portion builds equity in your home, and it is never deductible under any circumstance. The interest portion is deductible, but only as a personal itemized deduction on Schedule A. Property taxes work the same way. Neither piece is a business write-off on its own.
The one mechanism that reclassifies a share of these personal costs as business expenses is the home office deduction. It takes a calculated percentage of your housing costs and shifts them from Schedule A to Schedule C, which reduces both your income tax and your self-employment tax. You have to clear real hurdles to qualify.
Qualifying for the Home Office Deduction
The IRS requires your workspace to pass two tests before you can deduct anything: exclusive use and regular use.2Internal Revenue Service. Publication 587 – Business Use of Your Home Both must be met at the same time.
Exclusive use means the space is dedicated solely to your business. A spare bedroom that doubles as a guest room fails the test, even if guests visit twice a year. A corner of the dining table where you also eat dinner fails. The space doesn’t need to be a separate room with a door, but whatever area you designate can’t serve any personal purpose. Regular use means you work there on a continuing, consistent basis rather than occasionally.
You also need to show the space is your principal place of business. The IRS looks at where the most important activities of the business happen. A plumber who does the actual work at customer sites but handles scheduling, billing, and bookkeeping from a home office can still qualify. If no single location stands out as most important, the IRS then looks at where you spend the most time.2Internal Revenue Service. Publication 587 – Business Use of Your Home You can also qualify if you regularly meet clients or customers at your home office face-to-face.
Who Can Actually Claim It
The deduction is primarily a tool for self-employed people who report business income on Schedule C. Sole proprietors, freelancers, independent contractors, and single-member LLCs taxed as sole proprietorships are the target audience.
W-2 employees have a much harder path. The Tax Cuts and Jobs Act of 2017 suspended the itemized deduction for unreimbursed employee business expenses for tax years 2018 through 2025.3Congress.gov. Expiring Provisions in the Tax Cuts and Jobs Act The One Big Beautiful Bill Act, signed into law on July 4, 2025, extended many of these individual tax provisions.4Internal Revenue Service. One, Big, Beautiful Bill Provisions As a practical matter, if you draw a paycheck as an employee, you almost certainly can’t claim a home office deduction on your 2026 return.
One boundary worth naming: you don’t have to own your home. Renters who meet the same tests can deduct a portion of their rent as a business expense.5Internal Revenue Service. How Small Business Owners Can Deduct Their Home Office From Their Taxes The IRS defines “home” broadly to include apartments, condominiums, mobile homes, and boats.
The Simplified Method
The easier calculation lets you deduct $5 per square foot of dedicated office space, up to a maximum of 300 square feet. That caps the annual deduction at $1,500.6Internal Revenue Service. Simplified Option for Home Office Deduction
You don’t track utility bills, insurance premiums, or repair receipts. You measure the office, multiply by five, and claim the result on Schedule C. No Form 8829.
The tradeoff is that $1,500 is modest, you can’t claim depreciation on your home under this method, and you can’t carry forward any unused deduction to future years. You do keep your full mortgage interest and property taxes on Schedule A, since no business portion is carved out.
The Regular Method
The regular method uses your actual housing expenses. It requires more bookkeeping but usually produces a larger deduction. You report the calculation on Form 8829, which files alongside Schedule C.7Internal Revenue Service. Form 8829 – Expenses for Business Use of Your Home
Start with your business-use percentage. Divide the square footage of the office by the total square footage of your home. A 200-square-foot office in a 2,000-square-foot house gives you a 10% business-use percentage.
Apply that percentage to your indirect expenses: mortgage interest, property taxes, homeowner’s insurance, utilities, and general maintenance. If your annual mortgage interest is $12,000 and your business-use percentage is 10%, then $1,200 of that interest becomes a business expense on Form 8829. The remaining $10,800 stays on Schedule A as a personal itemized deduction, assuming you itemize.
Expenses that benefit only the office are direct expenses and fully deductible without applying the percentage. A dedicated business phone line, repairs limited to the office space, or paint for the office walls all fall in that category.
Depreciation Is Mandatory
Under the regular method, you must calculate depreciation on the business portion of your home. The IRS treats that area as nonresidential real property, depreciated over 39 years using the straight-line method.2Internal Revenue Service. Publication 587 – Business Use of Your Home The starting point is the lesser of your home’s adjusted cost basis or its fair market value when you began using it for business, minus the value of the land.
Skipping depreciation doesn’t help. The IRS reduces your home’s tax basis by the depreciation you were allowed to take, whether or not you actually took it. You lose the deduction now and still owe the tax consequence later when you sell.
The Income Cap
Your home office deduction generally cannot exceed the gross income from the business that uses the office. It can’t be used to create or deepen a business loss.8Internal Revenue Service. Topic No. 509, Business Use of Home
If you use the regular method and some expenses are disallowed because of this cap, you can carry them forward to the following tax year. The simplified method offers no carryover.8Internal Revenue Service. Topic No. 509, Business Use of Home For businesses with uneven revenue, the carryover under the regular method can rescue deductions that would otherwise disappear.
What Happens When You Sell
Claiming the deduction under the regular method creates a tax consequence you won’t feel until you sell. The depreciation you claimed, or were entitled to claim, gets recaptured as ordinary income at sale and is taxed at a federal rate of up to 25%.9Office of the Law Revision Counsel. 26 U.S. Code 1250 – Gain From Dispositions of Certain Depreciable Realty The recaptured amount cannot be sheltered by the Section 121 exclusion that lets you exclude up to $250,000 of gain, or $500,000 for married couples filing jointly, on the sale of a primary residence.10Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
If your home office is inside your home rather than in a separate detached structure, you don’t need to allocate the rest of the gain between business and personal. The Section 121 exclusion applies to the entire remaining gain, as long as you meet the standard ownership and use tests.11Internal Revenue Service. Publication 523 – Selling Your Home For most home-based businesses, recapturing depreciation is the only sale-day cost of having claimed the deduction.
If you used the simplified method every year you claimed the deduction, there’s no depreciation to recapture. No basis reduction occurred, so no recapture tax applies at sale. That is one reason some taxpayers stick with the simplified method despite its lower annual benefit.
Choosing Between the Methods
You can switch between the simplified and regular methods from year to year, but you cannot use both in the same tax year. The right choice depends on your numbers:
- Small office, modest housing costs. The simplified method at $5 per square foot often comes close to what the regular method would produce for offices under about 150 square feet, without any of the record-keeping.
- Large office, high housing costs. The regular method almost always wins when the office is large and your mortgage interest, insurance, and utility bills are substantial. The gap between the $1,500 cap and an actual-expense calculation can run into thousands of dollars.
- Planning to sell soon. The simplified method avoids depreciation recapture entirely. If you expect to sell within a few years and the annual difference is small, the simplified method may save more at sale than the regular method saves you now.
- Uneven income. The regular method’s carryover preserves deductions the income cap would otherwise wipe out. The simplified method has no such safety net.