IRS Code 280A: Home Office, Rentals, and the 14-Day Rule

IRS Code Section 280A starts by saying no. If you live in a home, you generally cannot deduct the costs of running it, even if part of the space doubles as an office or you rent it out from time to time. The statute then carves out narrow exceptions: a qualifying home office, certain rental arrangements, a short-term rental safe harbor, and a few smaller categories. Whether any of those exceptions apply to you depends almost entirely on counting days and measuring space.¹

Mortgage interest, property taxes, and certain casualty losses sit outside this rule. Those come off on Schedule A regardless of any business use, because their deductibility comes from other parts of the tax code.

When Section 280A Treats Your Property as a Residence

The statute defines “dwelling unit” broadly. A house, apartment, condo, mobile home, or boat with basic living accommodations all count. You “use it as a residence” for a given tax year if your personal use days exceed the greater of 14 days or 10 percent of the days you rented it at a fair market rate.²

Personal use is counted broadly. It includes any day you, a family member, or another owner uses the property, days used through a home-swap arrangement, and days someone occupies it for less than fair rent. Days you spend primarily on repairs and maintenance don’t count, even if family is around. Renting to a family member at fair market value as their principal residence generally doesn’t count either, subject to special rules when that relative has an ownership interest.³

This threshold is what drives the rest of the statute. Cross it, and the deduction caps and allocation rules apply. Stay below it, and rental losses may be deductible against other income under the ordinary rules.

The Home Office Exception

Section 280A allows a deduction for the business use of your home if you meet a specific set of tests. Every test has to be satisfied on its own. Falling short on any one of them wipes out the deduction entirely.

Exclusive and Regular Use

The space has to be used exclusively and regularly for business.⁴ Exclusive means no double duty. A desk in a guest bedroom that also hosts homework fails. A converted closet used only for bookkeeping passes. Regular means ongoing use, not one weekend a year.

Two narrow situations relax the exclusivity requirement. Licensed home daycare providers can share the space with family use, with the deduction reduced by an hours-of-use ratio. Retailers and wholesalers whose home is their only fixed business location can claim inventory or sample storage space without meeting the exclusivity test.⁵

Principal Place of Business or an Approved Alternative

Exclusive and regular use isn’t enough on its own. The space also has to qualify under one of these tests:

It is your principal place of business, judged by where the most important activities happen and where you spend the most time. Administrative work counts if no other fixed location is available for those tasks.⁶
You regularly meet clients, patients, or customers there face-to-face in the ordinary course of business.
It is a separate, unattached structure used in connection with the business, such as a detached studio or garage. This test is easier to meet than the principal-place-of-business standard.⁷

Employees Cannot Claim It

If you receive a W-2, the home office deduction is not available to you. The Tax Cuts and Jobs Act eliminated the miscellaneous itemized deduction for unreimbursed employee expenses starting in 2018, and the One Big Beautiful Bill Act made that elimination permanent. The deduction is now practically available only to self-employed people and business owners reporting on Schedule C or similar.⁶

How the Home Office Deduction Is Calculated

Once you qualify, you choose between two methods, and you can switch from year to year.

Simplified Method

The simplified method gives you $5 per square foot of qualified office space, capped at 300 square feet, for a maximum deduction of $1,500 a year.⁸ You skip the utility bills, insurance premiums, and depreciation schedules. Mortgage interest and property taxes still go on Schedule A in full.

Actual Expense Method

The actual expense method usually produces a larger deduction when the office is a meaningful share of the home. Divide office square footage by total home square footage to get a business percentage. Apply that percentage to indirect costs shared by the whole house: utilities, homeowners insurance, rent if you don’t own, general repairs, and depreciation on the building. Repairs made only to the office are fully deductible. The calculations go on Form 8829, which feeds Schedule C.⁹

The Income Cap and Carryforward

Under either method, your home office deduction cannot exceed the gross income from the business conducted in that space, reduced by all other non-home business expenses.⁸ Say a freelance business brings in $4,000 with $3,500 in non-home costs; the home office deduction is capped at $500 for that year no matter what the actual home costs were. Anything disallowed by this cap carries forward to the next year, subject to the same limit again.¹⁰ A bad year doesn’t erase those deductions permanently.

Renting Out a Home You Also Use

Section 280A also governs mixed-use rentals. The tax outcome depends on two counts: personal use days and fair-market rental days. Three scenarios cover the possibilities.

Fewer Than 15 Rental Days: Income Is Tax-Free

Rent the home for fewer than 15 days in the year and none of the rental income is reported. It’s excluded from gross income entirely. In exchange, you get no deductions tied to the rental beyond the mortgage interest and property taxes you’d claim anyway.¹¹ This is sometimes called the Augusta Rule, after homeowners near the Masters Tournament, but it works for any local event, festival, or sporting week that lets you rent at a premium for a short window.

Rented 15+ Days With Heavy Personal Use: Deductions Capped at Rental Income

Rent for 15 or more days, and if your personal use also exceeds the greater of 14 days or 10 percent of the rental days, the property is treated as a residence. All rental income goes on Schedule E, but rental expense deductions cannot exceed the gross rental income. You cannot generate a net rental loss from the property.¹⁰

Expenses are split between rental and personal use based on the ratio of rental days to total days of use, and then deducted in a set order: mortgage interest and property taxes first, then operating costs like utilities and insurance, and depreciation last. Anything over the income cap carries forward. The ordering matters because the earlier categories eat into the cap first, pushing depreciation into future years. Mortgage interest and taxes allocated to personal use stay deductible on Schedule A.

Rented 15+ Days With Limited Personal Use: Standard Rental Property

Keep personal use at or below the threshold (no more than 14 days and no more than 10 percent of rental days) and the property falls outside the Section 280A caps. All ordinary and necessary rental expenses, including depreciation, are deductible, and the property can produce a net loss. That loss then runs through the separate passive activity loss rules of Section 469 rather than the 280A income cap.¹²

What a Home Office Does to a Future Sale

Section 121 lets you exclude up to $250,000 of gain on the sale of your primary residence, or $500,000 if married filing jointly, provided you owned and lived in the home for at least two of the five years before the sale.¹³ Claiming a home office along the way changes what happens at sale time, and the details depend on where the office was.

If the office was inside the main structure of the home, you don’t have to split the sale between business and personal portions. The full Section 121 exclusion applies to the whole gain. But depreciation you claimed (or were entitled to claim) after May 6, 1997 has to be recaptured and is taxed at a maximum rate of 25 percent, even if the rest of the gain falls within the exclusion.¹⁴¹⁵ Claim $15,000 of depreciation over the years and you owe tax on that $15,000 at sale.

A separate structure, like a detached office or converted garage, is treated differently. You generally allocate the sale between the residential and business portions. The business portion doesn’t qualify for the Section 121 exclusion unless it also passes the two-out-of-five-year residence test for that specific space, and the gain on it is reported on Form 4797 with depreciation recapture.¹⁴ Worth thinking about before building your office in a detached building.

Records That Decide the Outcome

The IRS looks harder at home office deductions than most other Schedule C entries, and Schedule E rental losses draw scrutiny when they’re large. A handful of records do most of the work.

For a home office, keep a floor plan or measurement showing the dedicated space, receipts for direct office expenses, and, if you use the actual expense method, totals for every shared household cost plus the home’s purchase price and improvement history for depreciation. Under the simplified method the paperwork shrinks to the square footage and proof you qualify.

For a mixed-use rental, a day-by-day calendar categorizing each night (fair-value rental, personal, repair) is the single most useful document. The line between 14 and 15 days of personal use can move the property between generating deductible losses and producing no benefit beyond what Schedule A already gives you.

1
Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc
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Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc – Section: Use as Residence
3
Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc – Section: Personal Use of Unit
4
Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc – Section: Certain Business Use
5
Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc – Section: Use in Providing Day Care Services
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Internal Revenue Service. Publication 587 – Business Use of Your Home
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Internal Revenue Service. Topic No 509 – Business Use of Home
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Internal Revenue Service. Simplified Option for Home Office Deduction
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Internal Revenue Service. About Form 8829 – Expenses for Business Use of Your Home
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Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc – Section: Limitation on Deductions
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Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc – Section: Special Rule for Certain Rental Use
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Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
13
Internal Revenue Service. Topic No 701 – Sale of Your Home
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Internal Revenue Service. Publication 523 – Selling Your Home
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Internal Revenue Service. Topic No 409 – Capital Gains and Losses