Tax Deductions

Home Office Deduction for Makers: Simple vs Regular Method & IRS Requirements

If you make products at home—pottery studio, sewing room, woodshop, craft workspace—you likely qualify for one of the most valuable tax deductions available: the home office deduction. Worth $1,000-$4,000 annually for most makers, this deduction is also one of the most misunderstood and feared. This guide demystifies IRS requirements, compares simple vs regular method, and shows you how to claim it correctly.

By Nick Jain•January 22, 2025•10 min read

The $14,400 Left on the Table

Emma runs a soap-making business from her home. She converted a spare bedroom into a dedicated production studio five years ago. For five years, she filed taxes without claiming the home office deduction.

"I heard the home office deduction was an audit red flag," she explained. "I didn't want to risk it."

In 2024, she mentioned this to a fellow maker at a craft fair. The maker was shocked: "You have a dedicated room you use only for business? That's exactly what qualifies! You're leaving thousands on the table."

Emma calculated what she'd missed: 180 sq ft studio using the regular method = ~$2,880 annual deduction. At her 35% effective tax rate, that's $1,008 in tax savings per year. Over five years: $5,040 overpaid. If she'd known sooner and claimed it for 10 years? Nearly $14,400 lost to unnecessary caution.

What Is the Home Office Deduction?

The home office deduction allows self-employed individuals to deduct expenses related to the portion of their home used for business. For makers, this typically covers your production workspace, studio, or craft room.

There are two methods to calculate the deduction:

Simple Method

$5 per square foot of home office space, up to 300 square feet maximum.

Example:

200 sq ft studio × $5 = $1,000 deduction

Best for: Simplicity, small workspaces, renters, first-time filers

Regular Method

Percentage of actual home expenses based on square footage ratio.

Example:

200 sq ft studio / 1,500 sq ft home = 13.3%
13.3% × $21,600 home expenses = $2,873 deduction

Best for: Larger deductions, homeowners, detailed record-keepers

IRS Requirements: "Exclusive and Regular Use"

To qualify for the home office deduction, your workspace must meet two strict tests:

Test 1: Exclusive Use

The space must be used exclusively for business. You can't use it for personal activities.

Examples That Qualify:

✓ Spare bedroom converted to pottery studio (only used for pottery)
✓ Detached garage used exclusively for woodworking
✓ Basement area partitioned off for jewelry making
✓ Sunroom used only for candle production and storage

Examples That DON'T Qualify:

✗ Guest bedroom that sometimes hosts guests
✗ Dining table where you make products but also eat meals
✗ Living room corner with your sewing machine (unless physically separated)
✗ Kitchen where you make bath products and also cook personal meals

Test 2: Regular Use

The space must be used regularly for business—not just occasionally.

IRS definition of "regular": Continuous, ongoing use. There's no minimum hours requirement, but using your workspace 2-3 times per week consistently qualifies. Using it once a month doesn't.

Test 3: Principal Place of Business

Your home office must be your principal place of business. For makers, this is usually straightforward—your home workshop is where you create products.

Note: You can sell at craft fairs, meet clients elsewhere, and ship from a different location—as long as your home workspace is where the primary work (product creation) happens, you qualify.

Common Mistakes That Disqualify You

✗ Claiming your bedroom because you do administrative tasks on your laptop in bed at night
✗ Claiming your entire basement when you only use half for business and the other half for storage/laundry
✗ Claiming a workspace where your kids also play or do homework
✗ Claiming the kitchen because you make food-based products (unless you have a commercial kitchen license and use it exclusively for business)

If the space serves dual purposes (business + personal), you can't claim the home office deduction. Period.

Simple Method: $5 Per Square Foot

The simple method is exactly what it sounds like: multiply your workspace square footage by $5. No tracking expenses, no documentation headaches, no depreciation recapture concerns.

Simple Method Calculation

Step 1: Measure Your Workspace

Example: Dedicated craft room is 12 feet × 15 feet = 180 sq ft

Step 2: Multiply by $5

180 sq ft × $5 = $900

Deduction:

$900

At 35% effective tax rate: saves $315/year

Simple Method Pros & Cons

Pros:

✓ No expense tracking required
✓ No depreciation recapture when you sell home
✓ Easier to document and defend in audit
✓ Good for renters (don't need mortgage/rent records)

Cons:

✗ Capped at $1,500 max deduction (300 sq ft × $5)
✗ Smaller deduction than regular method for most homeowners
✗ Can't deduct actual home expenses separately

Regular Method: Actual Expense Deduction

The regular method calculates what percentage of your home is used for business, then deducts that percentage of actual home expenses. This typically results in a larger deduction than the simple method.

Regular Method Calculation

Step 1: Calculate Business Percentage

Workspace: 200 sq ft
Total home: 1,500 sq ft
Business %: 200 ÷ 1,500 = 13.3%

Step 2: List Deductible Home Expenses

• Mortgage interest: $12,000/year (or rent)
• Property taxes: $3,600/year
• Homeowners insurance: $1,200/year
• Utilities (electric, gas, water): $2,400/year
• HOA fees: $600/year
• Repairs and maintenance: $1,800/year
Total: $21,600

Step 3: Apply Business Percentage

$21,600 × 13.3% = $2,873

Total Deduction:

$2,873

At 35% effective tax rate: saves $1,006/year

What Expenses Qualify Under Regular Method?

Direct Expenses (100% Deductible)

Expenses that benefit only your workspace:

• Paint/repairs only to office room
• Flooring installed only in workspace
• Office-specific lighting or electrical
• Security system only for workspace

Indirect Expenses (Percentage Deductible)

Expenses that benefit the entire home:

• Mortgage interest or rent
• Property taxes
• Homeowners/renters insurance
• Utilities (electric, gas, water, trash)
• HOA fees
• General home repairs (roof, HVAC, etc.)

Depreciation: The Double-Edged Sword

If you own your home and use the regular method, you can also depreciate the business portion of your home's value. This adds to your deduction but comes with a catch: depreciation recapture.

Depreciation Example

Scenario: Home value (excluding land) = $300,000

Business percentage: 13.3%

Business portion: $300,000 × 13.3% = $39,900

Depreciation: $39,900 ÷ 39 years (IRS residential property schedule) = $1,023/year

Additional annual deduction: $1,023

The Catch: Depreciation Recapture

When you sell your home, the IRS "recaptures" all depreciation you claimed and taxes it at 25%. If you claimed $1,023/year for 10 years ($10,230 total) and sell, you'll owe $2,558 in recapture tax (25% × $10,230).

Should You Take Depreciation?

Take depreciation if: You plan to live in this home long-term (10+ years), the extra annual deduction is meaningful ($1,000+), and you're comfortable with recapture tax when you eventually sell.

Skip depreciation if: You plan to sell in the next 5 years, you prefer simplicity, or the depreciation amount is small (under $500/year). You can still use the regular method—just opt out of depreciation on Form 8829.

Simple vs Regular Method: Which to Choose?

Use this decision framework:

Choose Simple Method if:

→ Your workspace is under 200 sq ft
→ You're a renter and don't want to track expenses
→ You want the easiest possible filing process
→ You plan to sell your home soon and want to avoid depreciation recapture

Choose Regular Method if:

→ Your workspace is over 200 sq ft
→ You're a homeowner with high mortgage interest and property taxes
→ You want the maximum possible deduction
→ You're comfortable tracking expenses and filling out Form 8829

How to Document Your Home Office

In case of an IRS audit, you'll need proof your workspace meets the "exclusive and regular use" tests:

1. Measure and Photograph

• Measure workspace dimensions (length × width)
• Measure total home square footage (tax assessment or floor plans)
• Take photos showing workspace is dedicated to business (equipment, materials, signage)
• Date the photos

2. Keep Expense Records

• Mortgage statements or lease agreement
• Property tax bills
• Utility bills (electric, gas, water)
• Insurance statements
• Receipts for repairs and maintenance

3. Document Business Use

• Keep production logs showing you work from home regularly
• Save photos of products made in workspace
• Track hours spent in workspace (optional but helpful)

Success Story: $16,000 Saved Over 5 Years

Woodworker Carlos converted his 2-car garage (400 sq ft) into a dedicated workshop. For his first three years in business, he didn't claim the home office deduction because he feared an audit.

In year 4, his accountant convinced him: "You have a legitimate workspace used exclusively for business. Claim it." He chose the regular method:

• Garage: 400 sq ft / 2,000 sq ft home = 20%
• Annual home expenses: $24,000
• Deduction: $24,000 × 20% = $4,800
• Plus depreciation: $1,200/year
• Total deduction: $6,000/year
• Tax savings at 35%: $2,100/year

Over 5 years (including retroactive amended returns for prior 2 years): $10,500 in tax savings. He's never been audited. "Best decision I made was to stop being afraid and claim what I'm legally entitled to."

Common Audit Triggers (and How to Avoid Them)

The home office deduction has a reputation as an "audit red flag." This is mostly myth, but there are legitimate triggers to avoid:

Trigger 1: Claiming Entire Home

If you claim 100% of your home or an unreasonably high percentage (like 60%), the IRS will question it. Be honest about square footage.

Trigger 2: No Supporting Documentation

If audited and you can't produce measurements, photos, or expense records, you'll lose the deduction and owe back taxes plus penalties.

Trigger 3: Deduction Exceeds Business Income

You can't deduct more than your net business income. If your home office deduction creates a loss, it will be questioned.

Trigger 4: Inconsistent Year-Over-Year

Claiming $5,000 one year, then $500 the next, then $4,800—raises questions. If your workspace changes, document why.

How TrueCraft Simplifies Home Office Deductions

Manually tracking home expenses, calculating percentages, and choosing between methods is tedious. TrueCraft automates the entire process.

Home Office Calculator

Input your workspace and total home square footage once. TrueCraft compares simple method vs regular method and shows which saves you more. Auto-populates Form 8829.

Expense Tracker

Link your bank accounts. TrueCraft auto-categorizes mortgage/rent, utilities, insurance, and repairs. At year-end, it calculates your business percentage automatically.

Measurement Tracker

Upload photos and measurements of your workspace. TrueCraft stores them forever as audit-proof documentation. Export everything to PDF for your accountant.

Depreciation Decision Tool

TrueCraft calculates depreciation and recapture tax, then shows you the net benefit over your expected years in the home. Helps you decide whether to take depreciation or skip it.

Stop Leaving Money on the Table

If you work from home, you deserve the home office deduction. TrueCraft makes it simple: measure once, track expenses automatically, and claim your deduction with confidence.

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