There are two ways to calculate it, and you should run both to see which saves you more.

The simplified method is straightforward. Measure the square footage of your home office, multiply by $5, and that’s your deduction. The IRS caps it at 300 square feet, so the maximum you can claim is $1,500. No tracking of actual home expenses required. You just need to know the size of the space.

The regular method takes more work but usually produces a bigger number. First, calculate your business-use percentage by dividing your office square footage by your home’s total square footage. Then apply that percentage to your actual home expenses for the year. That includes rent or mortgage interest, property taxes, utilities, homeowner’s insurance, general repairs, and depreciation if you own the home.

Here’s a quick example. Say your office is 200 square feet in a 2,000 square foot home. That’s 10% business use. If your total qualifying home expenses for the year come to $30,000, your deduction is $3,000. The simplified method for that same space would only give you $1,000. In the Greater LA area where housing costs are high, the regular method almost always wins.

Before you calculate anything, make sure you qualify. The space has to be used regularly and exclusively for business. That spare bedroom where you handle estimates, scheduling, and invoicing works as long as it’s not doubling as a guest room. For contractors and trade business owners, a garage or shed dedicated to storing tools and equipment can also qualify, even if your paperwork happens somewhere else.

One thing to watch with the regular method is depreciation. If you own your home, the calculation includes depreciating the business portion of the structure. This is a real deduction that saves you money now, but it reduces your cost basis in the home and can affect your taxes when you sell. It’s generally still worth taking, but it’s worth factoring into your tax strategy especially if you plan to sell in the next few years.

Keep your home expense records organized throughout the year. Utility bills, insurance declarations, property tax statements, and mortgage interest statements all feed into the regular method calculation. If you’re pulling these together for the first time in March, you’ll spend hours hunting down documents. A Long Beach bookkeeper who works with trade businesses can keep this organized so the numbers are ready when you need them.

If you’re unsure which method to use, the general rule is this: the simplified method works fine for small spaces or if you just want the easiest path. The regular method is worth the extra effort when your dedicated space is large, your housing costs are high, or both. Run the numbers both ways at least once so you know what you’re leaving on the table.