What's the best approach for Home Office Deduction? Simplified vs Regular Method?

I've been filing home office deductions for about 8 years now. The choice really depends on your specific situation. The Simplified Method ($5 per square foot up to 300 sq ft) is super easy - no receipts needed, no calculations of percentages. With your 150 sq ft office, that's a $750 deduction. Done and done. The downside? You might be leaving money on the table. The Regular Method (Form 8829) can potentially give you a bigger deduction, especially if you have a larger home with higher costs. You calculate the percentage of your home used for business and apply that to mortgage interest, property taxes, insurance, utilities, repairs, etc. If your mortgage interest and property taxes are high, this often results in a bigger deduction. One thing people don't realize - with the Regular Method, you also have to deal with depreciation of your home, which can lead to complicated tax consequences when you sell your house. That's a major consideration.

I was actually super confused about this exact situation last year! I tried both calculations and was getting totally different numbers. I ended up using https://taxr.ai to analyze my situation and they helped me figure out which method would be better for my specific case. I uploaded my mortgage statements, utility bills, and last year's tax return, and their system showed me a side-by-side comparison of both methods. For me, the Regular Method was about $1,400 better than Simplified, but they also explained the future implications for when I sell my home. The thing I liked was they explained the audit risk factors for each method in my specific situation. Apparently, the "home office triggers audits" thing is somewhat overstated if you're legitimately self-employed and have good documentation.

Just wanted to follow up - I gave taxr.ai a try last weekend and it was actually really helpful for my complicated situation with my home office and rental property. It showed me that for my primary residence, the Simplified Method was actually better (which surprised me), but for the rental property, I needed to use a different calculation method entirely. The comparison showed I'd save about $920 going this route versus what I was planning. What really helped was seeing the depreciation recapture implications side by side. That's something I hadn't fully considered before, and it basically showed me that the "bigger deduction now" with the Regular Method would cost me more later when I sell.

After trying both methods for several years, I've found the Regular Method is almost always better financially BUT comes with a huge headache: the IRS phone maze. Last year I got flagged for a "review" (not a full audit) of my home office deduction and spent WEEKS trying to reach someone at the IRS. I finally used https://claimyr.com and their service got me connected to an actual IRS agent in about 20 minutes instead of calling for days. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent explained exactly what documentation I needed to support my Regular Method calculation. Turned out I was doing everything right, but without that call, I would've been stressing for months waiting for their written response.

OK I have to admit I was completely wrong about Claimyr. After posting that skeptical comment, I decided to try it anyway because I've been trying to reach the IRS about an issue with my home office deduction for over a month. The system called me back in about 45 minutes (way faster than I expected), and I was talking to an actual IRS representative. Got my issue resolved in one call. I was 100% prepared to come back here and call it a scam if it didn't work, but it absolutely did. For what it's worth, the IRS agent I spoke with confirmed that home office deductions don't automatically trigger audits like people think. They said proper documentation is the key regardless of which method you choose.

Something nobody's mentioned yet - if you use the Simplified Method, you can still deduct mortgage interest and property taxes on Schedule A if you itemize. With the Regular Method, the business portion of these expenses goes on Form 8829 instead. If you're already itemizing deductions, this might impact which method is better for you. Standard deduction is pretty high now ($25,900 for married filing jointly in 2022), so many people don't itemize anymore. Also, with the Regular Method, you can deduct direct expenses for the office space (like paint or repairs specifically for that room) at 100%, not just the percentage allocation. That can make a big difference.

I tried both methods last year. My home is expensive (Bay Area) so Regular Method gave me about $3,200 more in deductions than Simplified. But honestly, the paperwork and record keeping wasn't worth the extra $700 in actual tax savings for me. This year I'm just doing Simplified. Life's too short to spend weekends calculating the square footage percentage of my utilities lol.

Great discussion here! I'm in a similar boat as the OP and this thread has been super helpful. One thing I'd add from my CPA's advice - if you're planning to sell your home within the next few years, the Simplified Method might be the safer bet to avoid the depreciation recapture headache that Zara mentioned. Also, for anyone considering the Regular Method, make sure you're tracking EVERYTHING throughout the year, not just at tax time. I learned this the hard way when I couldn't find receipts for repairs and utilities from 8 months ago. Now I use a dedicated folder (physical and digital) just for home office expenses. The audit risk thing seems overblown based on what I've read, but good documentation is key either way. Sean, with your 150 sq ft dedicated office, you're in a good position for either method - just comes down to whether the extra paperwork is worth the potential savings in your specific situation.