The Home Office Deduction: Money You Might Be Leaving on the Table

Last month I had a contractor in Cypress pull up his 2024 return. He’s been running jobs from his home office for eight years. “Why’d I never claim the office?” he asked. I showed him the math. He left $3,400 on the table that year alone.

That room where you spend your whole day. That’s money. Your mortgage, your utilities, your insurance. All of it covers that space. The IRS lets you deduct it. I’ve never seen an audit go sideways over a properly documented home office claim.

You’re looking at $1,500 to $5,000 in real tax savings. Maybe more. Let’s get it right.

Who Qualifies

Two requirements. No shortcuts.

Box 1: Regular and Exclusive Use

You’re working in that space every single day. Not sporadically. Not “when you feel like it.” Five days a week, consistently. That’s regular.

Exclusive means that space is yours for business only. No kids doing homework at your desk. No guests sleeping in that room. No exceptions. The IRS is clear on this one.

I had a client in Memorial who kept a desk in her garage for client phone calls. She sat there every afternoon. That worked. But her brother tried to claim a corner of his bedroom where he also stored Christmas decorations. That didn’t work. Don’t be your brother.

There’s a carve-out for inventory storage and daycare operations. Everything else has to be all-in.

Box 2: Principal Place of Business

Your home office has to be one of these three things:

• Your main place of business (where you do most of your work)
• A place where you meet clients face-to-face regularly
• A detached structure like a garage studio or backyard office

I’ve got a client in Katy who runs a virtual consulting business. All her admin work, all her calls, everything happens at her home office. That’s her principal place of business. She meets clients at their offices or coffee shops. She qualifies.

Her sister works for an insurance company and “works from home” Tuesdays and Thursdays. She’s still got an office at the company building. That’s not a principal place of business. She can’t claim it.

Method 1: The Simple Way

You take $5 per square foot. Max out at 300 square feet. That’s $1,500 a year. Period.

Got a 200-square-foot office? That’s $1,000. Done in five minutes.

No bill tracking. No depreciation headaches. No receipts. Just a number and you’re out.

This works if your office is small or you live in a modest house. But most Houston homeowners I’ve worked with throw money away using this method.

Method 2: The Actual Expense Way

This takes real work. You’ll also get three or four times the deduction.

Step 1: Figure Out Your Business Percentage

Get a tape measure. Measure your office. Measure your whole house. Divide office by house.

You’ve got a 250-square-foot office in a 2,000-square-foot house? That’s 12.5%.

Step 2: Apply That Percentage to Everything

Things that touch only your office are 100% deductible. Painting that room. Your desk. Shelves. One-hundred percent.

Everything else gets multiplied by your percentage:

• Mortgage interest or rent
• Property taxes
• Homeowners or renters insurance
• Electric, gas, water
• Home repairs and maintenance
• Security system
• HOA fees
• Depreciation (required if you own)

Step 3: Calculate Depreciation

If you own the house, depreciation is not optional. The IRS requires it.

Take what you paid for the house plus any improvements you made, subtract the land value. That’s your basis. I had a client buy a home in Sugar Land for $380,000. With improvements, her basis is $410,000. She had no choice but to depreciate the business portion. That’s just the rule.

Let’s say your home basis is $300,000. Your office is 12.5% of the house. That’s $37,500 you’ll depreciate over 39 years. That’s $962 per year.

The Full Picture

Here’s a real example for someone in Pearland or Cypress with a 250-square-foot office:

Expense	Annual Amount	Business %	Deductible
Mortgage interest	$12,000	12.5%	$1,500
Property taxes	$6,000	12.5%	$750
Insurance	$2,400	12.5%	$300
Utilities	$4,800	12.5%	$600
Repairs/maintenance	$1,200	12.5%	$150
Depreciation	-	-	$962
Total			$4,262

The simple method gives you $1,250.

That’s $3,012 difference. Every year. Choose wisely.

Which Method Should You Pick?

Use simple if your office is tiny, your home costs are low, or you’re planning to sell in the next two or three years and want to dodge depreciation recapture.

Use actual if your office is real size, your Harris County or surrounding county property taxes are killing you, and the math is obvious. Most people I work with pick actual.

You can switch every single year. But here’s the catch: once you claim depreciation, you can’t just switch to simple and pretend it didn’t happen. The IRS will still tax you on recapture at sale.

The Depreciation Recapture Catch

When you sell, the IRS wants some of that depreciation back. You get hit with up to 25% tax on every dollar you depreciated.

Say you claimed $5,000 in depreciation over five years. When you sell your house, you’ll owe $1,250 in recapture tax. No way around it.

This doesn’t make depreciation bad. You saved thousands in years one through five. But if you’re in a Katy subdivision and planning to sell in two years, factor this into your plan. The math might still work for you. It just requires the real decision.

Mistakes I See All the Time

No dedicated space. The kitchen counter doesn’t count. You need a real spot that’s yours and yours alone. I’ve seen clients use a bookshelf as a divider to separate an office corner from the bedroom. That works. That’s real.

Bad measurements. IRS auditors will come measure your office if they’re curious. If you claim 400 square feet and it’s really 200, you lose the deduction and get a penalty. Measure it right. Take photos. Be honest.

Skipping it entirely. This is the worst one. Most people think it’s risky or not worth the paperwork. At $1,500 to $4,000 saved every single year, it is worth it.

Income limit blindspot. Your home office deduction can’t create a loss. If your business made $3,000 total and your office would have been $4,000, you deduct the full $3,000. The extra $1,000 rolls to next year.

No records. Keep measurements. Keep receipts. Take photos showing it’s a real office. A time log is nice if you want extra armor.

Houston-Specific Notes

Texas doesn’t have state income tax. So this deduction cuts your federal bill only. But Houston’s real estate market is perfect for the actual method.

Harris County property taxes will kill you. A $400,000 house carries $8,000 or $9,000 a year. At 12.5% business use, that’s $1,000 from property taxes alone. That’s real money.

Houston homes are oversized compared to the rest of the country. Sugar Land, Pearland, Cypress, and even Katy all have newer homes with real office rooms or converted flex spaces. You’ve got the square footage to work with.

Getting It Right

The home office deduction pays you back when you keep solid records and measure right. At EZQ Group, we run both methods for every client who qualifies, tell you which one wins, and keep your documents clean.

If you’re running a business from home and not taking this deduction, you’re overpaying. Contact us and we’ll run the numbers.

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This article provides general information and is not tax advice. Tax situations vary, and you should consult with a qualified tax professional about your specific circumstances.