Home Office Deduction for eBay Sellers: Simplified vs Regular Method

Most eBay sellers work from home, and most of them have heard they can "write off the home office". Few know that the IRS has a precise test for who qualifies, that the most common home setups fail it, and that there are two ways to calculate the number when you do. One is a flat $5 per square foot. The other is a share of what your home actually costs you. They can produce very different results, and the regular method brings extra obligations that the flat rate avoids. This guide covers both, using the IRS's Publication 587, the Schedule C and Form 8829 instructions, and a worked example you can adapt.

1. Do you qualify at all?

Publication 587 starts with a warning: generally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation or property insurance, as business expenses. The exception is for the business use of part of your home when you meet specific requirements. To qualify, you must use part of your home in one of these ways:

• exclusively and regularly as your principal place of business;
• exclusively and regularly as a place where you meet or deal with customers in the normal course of your business;
• as a separate structure not attached to your home, in connection with your business;
• on a regular basis for storage of inventory or product samples (with conditions);
• for rental use or as a daycare facility, which are outside the scope of this article.

Before any of that, the publication's flowchart asks whether you use part of your home in connection with a trade or business, and whether you are using it as an employee. Using it as an employee leads to no deduction. And the use must be a trade or business: the publication gives the example of someone reading financial periodicals and managing their own investments, which is not a trade or business, so no deduction. If your eBay activity is a hobby, not a business, the same logic applies. We cover where the line sits in our Schedule C guide.

Regular use

Regular use means you use a specific area of your home for business on a regular basis. Publication 587 says incidental or occasional business use is not regular use and that all facts and circumstances count. A desk you work at most days passes; a corner you visit when you remember does not.

Exclusive use

Under the exclusive use test you must use a specific area of your home only for your business. The area can be a room or another separately identifiable space, and the publication says it does not need to be marked off by a permanent partition. What it cannot be is shared. The publication states that you do not meet the test if you use the area both for business and for personal purposes, and gives the example of a den used for writing briefs that the family also uses for recreation: no deduction.

That has direct consequences for sellers. The kitchen table where you also eat dinner fails. A spare bedroom that is a guest room at weekends fails. A corner of a bedroom with a desk used only for the business may pass if it is a separately identifiable space and you never use it for anything else. The test is about the area, not the house, and a dedicated room is the cleanest way to meet it.

Principal place of business

The most common basis for an online seller is the principal place of business test. The publication says your home office qualifies if you use it exclusively and regularly for administrative or management activities of your business and you have no other fixed location where you conduct substantial administrative or management activities. Its examples of such activities include keeping books and records, ordering supplies, forwarding orders and billing customers. Listing management, supplier orders and bookkeeping for an online shop resemble those examples, though the publication does not discuss eBay specifically.

The publication lists things that do not disqualify a home office: having others do your administrative work elsewhere, doing some administrative work in a car or hotel room (not fixed locations of your business), occasionally doing minimal administrative work at a fixed location outside your home, doing substantial non-administrative work at a fixed location outside your home, and having suitable space outside your home but choosing to use your home office instead. The reverse matters too: if you rent an office or run the back office from a fixed location outside your home, your home may not be the principal place of business.

2. Storing inventory at home

If you stock goods for sale, you may qualify through the inventory storage rule, which the publication says does not require exclusive use. All of these must be true:

1. you sell products at wholesale or retail as your trade or business;
2. you keep the inventory or product samples in your home for use in your business;
3. your home is the only fixed location of your trade or business;
4. you use the storage space on a regular basis; and
5. the space is a separately identifiable space suitable for storage.

The publication's example is a seller of mechanics' tools who regularly uses half of a basement for inventory and sometimes uses the area personally; the expenses are deductible. The Schedule C instructions reflect this by allowing the simplified method to apply to area used regularly for storage of inventory or product samples. IRS Topic 509 repeats the sole fixed location condition.

Two points. First, a dropshipper who never holds stock has nothing to store, so this route is for sellers who keep goods. Second, the test is worded as your home being the only fixed location of your business, so a rented storage unit or warehouse is a fact to put to a preparer before relying on it. The Form 8829 instructions add a detail for the regular method: do not include on line 1 the area of your home used to figure any expenses allocable to inventory costs, because the business percentage of those expenses should already have been taken into account in Schedule C, Part III.

3. The simplified method

The Schedule C instructions describe the simplified method as an alternative to calculating, allocating and substantiating actual expenses. In most cases you multiply the area used regularly and exclusively for business, or regularly for storage of inventory or product samples, by $5. The area cannot exceed 300 square feet, so the maximum is 300 x $5 = $1,500. The IRS's Topic 509 describes it as a safe harbor under Revenue Procedure 2013-13 and says depreciation is treated as zero.

The rules around it:

• Annual election. You choose each year. The election is made by using the method on a timely filed original return, and an election for a year, once made, is irrevocable. Switching between methods from one year to the next does not need the IRS's consent.
• No actual home expenses. If you use it, you cannot deduct actual expenses for the home. You can still deduct business expenses that are not related to the use of the home, such as advertising, wages, supplies and depreciation on equipment.
• No depreciation on the home. Depreciation for the home portion is deemed zero for the year. You can still depreciate furniture and equipment.
• Mortgage interest, real estate taxes and casualty losses stay personal. They are treated as personal expenses subject to normal personal limits and generally deductible only if you itemize.
• Gross income limit. The deduction is the smaller of the $5 amount and your gross income from the qualifying use less business expenses unrelated to the home. If those expenses exceed the income, there is no deduction.
• Carryovers. You cannot deduct an unallowed amount carried over from a prior regular-method year while you use the simplified method; it keeps carrying over until a year you use actual expenses.
• Part-year use. The deduction is based on the average monthly allowable square footage, and a month with fewer than 15 days of qualifying use counts as zero. The publication's example: someone who starts using 420 square feet on July 20 is limited to 300 square feet a month from August, which averages 125 square feet for the year.
• Multiple businesses. The 300-square-foot cap covers all qualifying businesses at the home.

You report the result on Schedule C, line 30, and enter the square footage on that line. No Form 8829 is needed.

4. The regular method

With the regular method you work out the share of real home expenses attributable to the business and report the result on Form 8829. The line 36 amount of that form goes to Schedule C, line 30.

Business percentage

Publication 587 says any reasonable method works. Two common ones are the area used for business divided by the total area of the home, or the number of rooms used divided by the number of equally sized rooms. Its example: a 240 square foot office in a 1,200 square foot home is 20 percent.

Direct and indirect expenses

The publication sorts home expenses into three groups. Direct expenses are only for the business part (painting or repairs only in that area) and are deductible in full, subject to the limit. Indirect expenses keep up the whole home (insurance, utilities, general repairs) and are deductible at the business percentage. Unrelated expenses, such as lawn care, are not deductible. For renters, the publication says to multiply rent payments by the percentage of the home used for business. Owners cannot deduct the fair rental value of their home, but may depreciate it.

Some specifics from the publication:

• Utilities and services such as electricity, gas, trash removal and cleaning are primarily personal, but you can deduct the business part; generally the business percentage for utilities equals the percentage of the home used.
• The basic local charge for the first telephone landline into your home is a personal expense. Business long-distance calls on that line and a second line used exclusively for business are deductible business expenses, claimed on Schedule C, line 25 and not as part of the home deduction.
• Repairs that relate to your business are deductible, but permanent improvements are not; they are capital costs.
• If you claim the standard deduction, the Form 8829 instructions say you do not enter mortgage interest or real estate taxes on lines 10 and 11 and instead claim the business-use portion on lines 16 and 17. If you itemize, the instructions explain a different route through lines 10 and 11. Follow those instructions or ask a preparer.

The deduction limit and carryover

If gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), the publication says you can deduct all the home expenses. If it is lower, the deduction of insurance, utilities and depreciation and similar items is limited, with depreciation taken last. Unallowed amounts carry over to the next year in which you use actual expenses. Form 8829 does the arithmetic, and Part IV tracks the carryover.

Depreciation for homeowners

If you own your home and qualify, you can claim depreciation on the business part. Land is not depreciable. The publication says a home first used for business in 2025 is depreciated as nonresidential real property under MACRS, straight line over 39 years. As a rough illustration only, if the building (excluding land) had an adjusted basis of $300,000 and 10 percent of the home were business space, the depreciable amount would be $30,000 and a full year would be about $769 ($30,000 divided by 39), before the IRS tables adjust the first year. The publication also says you must keep records that prove the home's depreciable basis, including purchase price and improvements.

5. A cost that comes later: selling the home

Publication 587 explains that home-sale exclusions (up to $250,000, or $500,000 for certain married persons filing jointly, if ownership and use tests are met) do not cover everything. If you were entitled to deduct depreciation on the business part of your home, you cannot exclude the part of the gain equal to any depreciation you deducted or could have deducted for periods after May 6, 1997. The publication adds that you must adjust the home's basis for allowable depreciation even if you did not claim it. For a room inside the home, it says you do not need to allocate the gain between business and personal parts or report the sale of the business part on Form 4797, but the depreciation rule still applies. A separate structure, such as a detached workshop, has its own rules. For the simplified method, the publication treats depreciation as zero for each year it is used. The sale rules are detailed and worth a conversation with a preparer before you sell.

6. Simplified versus regular, side by side

7. A worked example

The figures are illustrative. A renter has a 1,500 square foot apartment and a 150 square foot room used only for the business: a desk, shelving and a packing table. The business percentage is 150 divided by 1,500, which is 10 percent.

Regular beats simplified by $1,146 here. Now the limit. If the business has a tentative profit before the home deduction (Schedule C, line 29) of $12,000, both methods are allowed in full. If it is only $1,000, the regular method is capped at $1,000, with the remaining $896 carried to the next year in which actual expenses are used. The simplified method gives the smaller of $750 and $1,000, which is $750, and creates no carryover.

What does the extra $1,146 save? The home deduction reduces Schedule C net profit, which feeds Schedule SE, so it lowers self-employment tax as well as income tax. At the 2025 Schedule SE rates (15.3 percent applied to 92.35 percent of net profit), $1,146 less profit is $1,146 x 0.9235 = $1,058.33 of net earnings and $161.92 less SE tax. The income tax effect depends on your bracket. Our self-employment tax guide shows that mechanism with worked numbers.

Whether the extra $1,146 is worth the record-keeping is the real choice. In this example it is a modest sum for a year of receipts and a Form 8829. A bigger home office, higher rent, or a high-cost area changes the answer, and so does ownership with depreciation.

8. Records and mistakes

Publication 587 says you do not have to use a particular method of recordkeeping, but your records must show the part of your home you use for business, that you use it exclusively and regularly (or meet the storage exception), and the depreciation and expenses for the business part. It says to keep canceled checks, receipts and other evidence. You must keep records for as long as they are important for any tax law, usually the later of 3 years from the return due date or filing date, or 2 years after the tax was paid. A practical set: a floor plan with measurements, dated photographs of the space, your lease or deed, utility and insurance bills, and a note of the method chosen.

Common mistakes:

• Claiming a shared space. The den example in the publication is exactly this.
• Using more than 300 square feet with the simplified method. The cap is firm.
• Deducting rent or utilities twice. A home expense taken through the home office cannot also sit in the ordinary expense lines.
• Forgetting that homeowners depreciate. Depreciation allowed or allowable reduces the excludable gain on sale.
• Including inventory-cost expenses in the home area. The Form 8829 instructions say to leave them out of line 1.
• Treating the first phone line as business. It is a personal expense.
• Claiming it as an employee. The IRS flowchart ends in "no deduction".

For the rest of the form this feeds into, see our Schedule C guide, and for the bigger picture of what an online seller owes, our overview of eBay seller taxes. If you want to see what a listing really earns once fees are out, the eBay fee calculator does the sums.

Sources and how we checked

Facts in this guide were checked against these official pages in October 2026. Rules and figures change, so confirm anything that affects a decision. This is general information, not legal or tax advice. The IRS publications cited are the 2025 editions, the latest available when we checked.

• Publication 587, Business Use of Your Home (IRS)
• Instructions for Schedule C (Form 1040), 2025 (IRS)
• Instructions for Form 8829, Expenses for Business Use of Your Home (IRS)
• Topic no. 509, Business use of home (IRS)
• Schedule SE (Form 1040), 2025 form (IRS)
• How long should I keep records? (IRS)

Questions people ask