Mortgage Interest, Property Taxes, and Home Office Deductions: Homeowner Rules Explained

Homeowners who run a business from home have access to the largest potential home office deductions available — but also the most complex ones. Mortgage interest, property taxes, depreciation, and furniture all work differently for self-employed homeowners than for renters, and mixing up the rules is one of the most common errors the IRS catches.

Here's how each category actually works.

Mortgage Interest: Business Portion vs. Personal Portion

If you use the regular (actual expenses) method on Form 8829, you can deduct the business-use percentage of your annual mortgage interest. This is an indirect expense — you multiply your total mortgage interest paid during the year by your business-use percentage.

Example: Annual mortgage interest of $18,000. Business-use percentage: 10%. Business portion deductible on Form 8829: $1,800.

The critical rule: the $1,800 you claim on Form 8829 as a business expense cannot also appear on Schedule A (Itemized Deductions) as mortgage interest. The remaining 90% — $16,200 — goes to Schedule A as personal mortgage interest, where it may be deductible if you itemize.

This is a genuine double-claiming trap. The IRS cross-references Form 8829 against Schedule A. If the mortgage interest lender statement (Form 1098) shows $18,000 paid and your Schedule A also shows $18,000, but Form 8829 also claims $1,800, the IRS sees $19,800 claimed from $18,000 paid. Automated flags catch this consistently.

Note about the simplified method: If you use the simplified method ($5/sq. ft.), you don't claim any mortgage interest on Form 8829. You can claim 100% of your allowable mortgage interest on Schedule A without any reduction. This is one concrete advantage of the simplified method for homeowners who itemize.

Property Taxes: Same Split as Mortgage Interest

Property taxes follow identical treatment to mortgage interest under the regular method. You apply your business-use percentage to your annual property tax bill, claim that portion on Form 8829, and deduct the remainder on Schedule A.

Example: Annual property taxes of $6,000. Business-use percentage: 10%. Business deduction: $600 on Form 8829. Personal deduction: $5,400 toward Schedule A.

Under the One Big Beautiful Bill Act (2025), the SALT (state and local tax) deduction cap on Schedule A has increased to $40,000 per household ($20,000 for married filing separately). For most homeowners, this means the personal portion of property taxes is now fully deductible on Schedule A — reducing the significance of the split, but not eliminating it.

For homeowners in high-tax states, the planning question becomes: does the business-use allocation of property taxes reduce my Schedule A SALT enough to cause me to lose otherwise-deductible SALT? With the $40,000 cap, this is less of a concern than it was under the prior $10,000 limit.

Depreciation: The Mandatory but Often Misunderstood Expense

If you use the regular method, you must calculate and claim depreciation on your home office's share of the building. This isn't optional — it's required. And even if you choose not to claim it, the IRS reduces your home's adjusted basis by the "allowed or allowable" depreciation, creating a future tax liability you didn't benefit from today.

The calculation:

1. Take the lesser of your home's fair market value on the date the office was placed in service, or your adjusted basis (purchase price + improvements)
2. Subtract the land value (use tax assessor data; if unavailable, a 20% estimate is reasonable)
3. This is your depreciable building basis
4. Multiply by your business-use percentage
5. Multiply by 2.564% (the straight-line rate over 39 years under MACRS)

At a $400,000 depreciable building basis and 10% business-use percentage:

• Home office depreciable basis: $40,000
• Annual depreciation: $40,000 × 2.564% = $1,025.60

Over 10 years, you accumulate $10,256 in depreciation deductions. When you sell, that amount is taxed as unrecaptured Section 1250 gain at up to 25% — a $2,564 future tax bill in exchange for roughly $2,256 in current-year tax savings per year (at a 22% marginal rate). The math favors claiming depreciation, especially over longer holding periods.

The only homeowners for whom avoiding depreciation sometimes makes sense: those planning to sell in the near term with significant appreciation, where any reduction in the Section 121 primary residence exclusion ($250,000 single / $500,000 joint) from depreciation recapture would cost more than the deductions saved.

Home Office Furniture Deduction

Furniture used in your home office — desk, chair, bookcase, filing cabinet — is not a home office expense on Form 8829. It's a separate business expense deducted on Form 4562 using Section 179 expensing or bonus depreciation.

Section 179: Allows you to deduct the full cost of qualifying business equipment in the year of purchase, up to the annual limit ($1,160,000 for 2026, far more than any residential furniture purchase). The item must be used more than 50% for business; if it's used 100% for business, the full cost is deductible. If it's mixed personal and business use, only the business-use percentage qualifies.

Bonus depreciation: Similar to Section 179 but with different phase-in rules. As of 2026, bonus depreciation is available for qualifying property.

Practical implication: A $1,200 desk used exclusively in your dedicated home office is 100% deductible in the year of purchase on Form 4562. A $2,000 ergonomic chair used only in your office — same. These don't reduce the home office square footage calculation; they're separate line items on Schedule C.

One documentation point: photograph new equipment in the office space when you acquire it. A dated photograph of your desk or computer in the home office demonstrates business location and exclusive use in one image.

Home Office Equipment Tax Deduction

Business equipment — computers, monitors, printers, scanners, external hard drives, video conferencing hardware — follow the same Section 179 / Form 4562 treatment as furniture.

The business-use percentage matters: if a laptop is used 70% for business and 30% for personal use, only 70% of the cost is deductible. In practice, a computer used in a dedicated home office that passes the exclusive-use test is typically deducted at 100%, because the space itself establishes that everything in it is for business.

Internet router, UPS backup power, and dedicated office phone lines — these are typically deducted as business expense supplies on Schedule C rather than as equipment under Section 179. Small recurring costs don't warrant depreciation treatment.

The separate structure advantage: If your home office is in a detached structure (a converted garage, a backyard studio), you have greater flexibility — the building itself can be depreciated at the full business-use rate without the principal-place-of-business requirement, and improvements to the structure are direct expenses at 100%. The drawback is more severe: a separate structure used for business has no Section 121 exclusion when the property is sold. The portion of the capital gain allocated to the business structure is fully taxable regardless of how long you've lived in the main home.

The Home Office Tax Deduction Guide includes depreciation worksheets for multiple property values, expense tracking templates with the correct categorization for each item, and a homeowner-specific tax planning checklist that covers the mortgage interest split, depreciation mechanics, and the long-term capital gains tradeoffs.