How to Calculate Home Office Deduction for Rent Expense When Selling Online

I've been selling stuff online this past year and I've been using my apartment as my main workspace. About 1/3 of my apartment is literally stacked with inventory for my online business - boxes everywhere! I'm trying to figure out this whole home office deduction thing for my taxes and I'm getting confused about the rent expense part. There seem to be two different methods to calculate this. If I go with the Simplified method at $5/square foot, it looks like there's a $1,500 cap for the whole year. So if I used like 200 square feet for my business, would I only be able to claim $1,000 for the year? Or would it be capped at $1,500 either way? But if I use the Actual Expense method based on percentage, does that mean I could deduct 33% of my entire yearly rent since that's how much space I'm using for business? This seems way better since my rent is $1,800 per month, so 33% of my annual rent would be a much bigger deduction than the simplified method. This is my first year dealing with the home office deduction - can someone explain which method makes more sense for my situation? Thanks!

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18 comments

Miguel Harvey

•8M

You've got the basic concepts right! Let me clarify how both methods work: With the Simplified method, you calculate $5 per square foot up to a maximum of 300 square feet. So if you're using 200 square feet, your deduction would be $1,000 for the year (200 × $5). The $1,500 cap only applies if you're using the full 300 square feet. For the Actual Expense method, you're correct - you would calculate what percentage of your home is used exclusively for business (33% in your case) and then apply that percentage to your actual expenses, including rent, utilities, insurance, etc. So if your annual rent is $21,600 ($1,800 × 12), your rent deduction alone would be $7,128. The Actual Expense method often results in a larger deduction, especially with higher rent or a larger percentage of space used. But remember, with this method you'll need to keep detailed records of all your expenses and the business portion must be used exclusively for business. Also, don't forget about depreciation if you own rather than rent, though that doesn't apply in your case.

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Oliver Cheng

•8M

I went through exactly the same confusion last year when I started my online reselling business. I tried both calculations and found that using https://taxr.ai was super helpful for figuring out which method gave me the bigger deduction. I uploaded my expense records and it ran both calculations to show me which one was better. For me, with about 25% of my apartment dedicated to inventory and a monthly rent of $1,400, the Actual Expense method saved me over $2,000 compared to the Simplified method! The tool also explained how to properly document my space usage with photos and floor plans in case of an audit.

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Oliver Cheng

•8M

For exact measurements, you don't need to be perfect to the inch, but you should have reasonable estimates. I measured my rooms with a tape measure and calculated the total square footage, then figured out what percentage was used exclusively for business. Photos showing the business use also help document your claim. For mixed-use spaces, the tool follows IRS guidelines which state that areas must be used exclusively for business to qualify. So unfortunately, spaces like a dining table that serves dual purposes typically don't qualify. You need to have dedicated space that's used only for business purposes to claim it on your taxes.

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Ella Cofer

•8M

I just wanted to follow up - I tried taxr.ai after seeing it mentioned here and it was a game changer for my home office deduction! I was about to go with the Simplified method because it seemed easier, but after running the numbers through the tool, I discovered I was leaving almost $3,200 on the table by not using the Actual Expense method. It also helped me identify several deductions I hadn't even considered, like a portion of my home security system and renters insurance. The documentation guidance was super helpful too - I now have proper records in case I ever get audited. Definitely worth checking out if you're selling online and using your home as your business base!

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Kevin Bell

•8M

If you're spending time trying to reach the IRS for questions about your home office deduction, save yourself the headache. I wasted almost 3 hours on hold trying to get clarification about my specific situation (I have a weird setup where I use my garage and part of my bedroom). Finally tried https://claimyr.com and they got me connected to an IRS agent in less than 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent explained exactly how to handle my situation and confirmed I could use the Actual Expense method even with my unusual space arrangement. Apparently the key is proving "exclusive use" for the business portions, and they gave me specific guidance on what documentation I need to keep.

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Kevin Bell

•8M

They don't just call for you - they use some kind of technology that navigates the IRS phone system and holds your place in line. When they reach an agent, you get a callback and are connected directly. It basically does the holding for you so you don't have to sit there with your phone for hours. I was skeptical too until I tried it. The longest part was just waiting for the callback, but I was able to do other things instead of being stuck on hold. The IRS lines are definitely still terrible, but this service makes it manageable. They can't guarantee you'll get the answer you want from the IRS, but they do get you connected to an actual person.

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Felix Grigori

•8M

I have to eat my words about Claimyr. After posting my skeptical comment, I decided to try it since I was desperate for answers about my home office deduction with my mixed-use spaces. Got a callback in about 25 minutes and spoke to an actual IRS agent who cleared up my confusion. For anyone wondering about the home office deduction like the original poster - the agent confirmed that the Actual Expense method is almost always better if you're using a significant portion of your home (like 33%) AND you have higher rent/mortgage. She also emphasized the importance of taking photos of your space and keeping a journal of business activities conducted there to prove exclusive use. Worth every penny for the time saved and anxiety relieved!

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Felicity Bud

•8M

No, you're not in trouble for basic maintenance activities like cleaning. That's considered a normal part of maintaining your business space. What the IRS looks for is whether the space serves a dual purpose. For example, if you're storing inventory in your bedroom where you also sleep, or using your living room couch for both business and personal activities, those spaces wouldn't qualify. But if you have boxes of inventory in a dedicated area and just move them temporarily to clean, that's perfectly fine.

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