Here is the tax question California’s 4.5 million self-employed workers ask every year — and almost universally get a wrong or incomplete answer to: can I write off rent if I work from home in California? The short answer is yes. The longer answer is: it depends entirely on your business structure, how you use the space, and whether you understand the California-specific rules that diverge sharply from federal guidance.

Most freelancers and LLC owners either over-claim this deduction and trigger an audit, or under-claim it because a general accountant told them “it’s risky.” Neither outcome is acceptable when you could be leaving $3,000 to $12,000 on the table every single year.

This is not a gray area deduction. The rules are clear. The documentation requirements are specific. And if you follow them precisely, writing off a portion of your rent is one of the most defensible deductions in the tax code for self-employed Californians.

Quick Answer: Can You Deduct Rent When You Work From Home?

Yes — if you are self-employed (sole proprietor, single-member LLC, S Corp owner, or partnership member), you can deduct a portion of your home rent as a business expense under IRS Publication 587. The deduction applies to the space you use exclusively and regularly for business. W-2 employees cannot claim this deduction at the federal level. California follows this same rule for state purposes.

The key phrase is “exclusively and regularly.” That is not a suggestion — it is the IRS’s bright-line test. A spare bedroom with a guest bed that also houses your desk does not qualify. A dedicated room used only for work? That qualifies cleanly and survives audit scrutiny.

Who Qualifies and Who Doesn’t (The Rule Most People Misread)

The Tax Cuts and Jobs Act of 2017 eliminated the home office deduction for W-2 employees at the federal level. That change is still in effect for 2026. If your only income is from a W-2 employer, you cannot deduct your home office on your federal return — even if you work from home 100% of the time.

However, California does not fully conform to federal tax law on this point. California still allows W-2 employees to deduct unreimbursed business expenses as miscellaneous itemized deductions on Schedule CA — but only if those expenses exceed 2% of your adjusted gross income. For most W-2 workers, the math does not pencil out. The standard deduction is almost always the better choice.

For self-employed Californians — whether you file on Schedule C, own an LLC taxed as a sole proprietorship, or are a partner in a partnership — the home office deduction runs through IRS Form 8829 and flows directly to your Schedule C. This reduces your net self-employment income, which cuts both your federal income tax and your self-employment tax (the 15.3% tax that covers Social Security and Medicare).

For self-employed professionals in California, this double benefit is significant. Reducing $10,000 in home office expenses at a combined 37% federal and 9.3% California tax rate — plus self-employment tax — can generate $4,000 to $6,000 in real cash savings.

The Two-Part IRS Test (Both Must Be Met)

• Exclusive use: The space must be used only for business. Personal activities in the same room disqualify the entire space.
• Regular use: You must use the space on a consistent, ongoing basis — not just occasionally.

There is one exception to the exclusive use test: if you use part of your home for storage of inventory or product samples for a business you run, exclusivity is not required for that storage area. But for standard home office work, there are no exceptions. Exclusive means exclusive.

How to Calculate Your Rent Deduction: Two Methods

The IRS gives you two ways to calculate the home office deduction. The method you choose affects both your deduction size and your documentation burden.

Method 1: The Regular Method (Form 8829)

This is the more powerful method. You calculate the percentage of your home used for business and apply that percentage to your total allowable home expenses — including rent, utilities, internet, and renter’s insurance.

Formula: Square footage of home office / Total square footage of home = Business use percentage

Example: Daniela is a 1099 graphic designer in Los Angeles. She rents a 900-square-foot apartment for $2,800 per month ($33,600 annually). Her dedicated home office measures 135 square feet — a spare bedroom she converted entirely to workspace.

• Business use percentage: 135 / 900 = 15%
• Annual rent deduction: $33,600 x 15% = $5,040
• Utilities deduction (15% of $2,400/year): $360
• Internet deduction (15% of $1,200/year): $180
• Total home office deduction: $5,580

At Daniela’s combined 35% effective tax rate (federal + California), that $5,580 deduction saves her approximately $1,953 in taxes — every single year.

Method 2: The Simplified Option

The IRS simplified option allows you to deduct $5 per square foot of your home office, up to a maximum of 300 square feet — giving you a maximum deduction of $1,500. No receipts are required, and you do not need to file Form 8829.

This method is easier but almost always produces a smaller deduction. Using the simplified option for Daniela’s 135-square-foot office yields: 135 x $5 = $675. Compare that to her $5,580 under the regular method. The simplified option makes sense only when your rent is very low or your home office is tiny.

Pro Tip: If your rent and utilities are significant — which they almost certainly are in California — always run the regular method calculation. The simplified option is a shortcut that costs you money.

Want to see how this deduction interacts with your total self-employment tax picture? Run your numbers through this self-employment tax calculator to estimate your overall liability before and after the home office write-off.

The California-Specific Trap That Catches Most LLC Owners

Here is where California’s rules create a compliance problem that most tax software and generic accountants miss entirely.

California has its own franchise tax and LLC fee structure through the Franchise Tax Board (FTB). When you operate as a single-member LLC in California, you owe at minimum an $800 annual franchise tax, plus an LLC gross receipts fee if your revenues exceed $250,000. These fees are separate from your income tax — and they are not affected by your home office deduction.

More critically, California does not conform to all federal depreciation rules. If you own your home instead of renting it, and you take depreciation on the home office under the regular method, California requires separate depreciation schedules. For renters, this issue does not apply — rent is simply expensed, not depreciated. This is one reason the home office deduction is cleaner and more defensible for renters than for homeowners in California.

Our tax planning services include a full California-federal conformity review for every LLC and 1099 client — because missing these divergences is where the real tax errors happen.

What the FTB Looks for During Home Office Audits

The California Franchise Tax Board audits home office deductions at a higher rate than the IRS for one primary reason: California taxpayers claim this deduction incorrectly more often than the national average. The FTB has issued specific guidance requiring:

• Documented floor plan or measured sketch of the office space
• Lease agreement showing total square footage of the rental unit
• Copies of rent payments (bank statements or checks) for the tax year
• Utility bills showing your name and address for the residence
• Business records demonstrating regular business activity at that address (client emails, contracts, invoices)

The FTB can request documentation going back four years. Build and maintain a home office file from day one — not the day before an audit notice arrives.

KDA Case Study: 1099 Consultant in San Jose Recovers $4,200 in Overlooked Deductions

Marcus is an independent software consultant based in San Jose, California. He operates as a single-member LLC and has been filing his own taxes using TurboTax for three years. When he came to KDA, he had never claimed a home office deduction despite working from a dedicated home office 50+ hours per week.

His situation: 1,100-square-foot apartment, monthly rent of $3,400, dedicated office of 165 square feet. He also paid $180/month in utilities and $90/month for internet.

Here is what KDA calculated using the regular method:

• Business use percentage: 165 / 1,100 = 15%
• Annual rent deduction: $40,800 x 15% = $6,120
• Utilities: $2,160 x 15% = $324
• Internet: $1,080 (100% deductible as a business expense on Schedule C, separate from the home office calculation)
• Total additional deductions: $7,524

At Marcus’s effective combined rate of 41% (federal income tax + self-employment tax + California income tax), those $7,524 in deductions generated $3,085 in federal and state tax savings. We also amended his prior two tax years, recovering an additional $1,140 in taxes already paid. Total first-year impact: $4,225 recovered. KDA’s fee: $1,200. Return on investment: 3.5x in year one alone.

Ready to see how we can help you? Explore more success stories on our case studies page to discover proven strategies that have saved our clients thousands in taxes.

Common Mistakes That Get California Freelancers in Trouble

Red Flag Alert: The most common audit trigger for home office deductions in California is claiming 100% of rent as a business expense. Unless your entire residence is used exclusively for business — which is essentially impossible if you sleep there — this number is always wrong and always flagged.

Here are the mistakes KDA sees most frequently:

Mistake 1: Using the Kitchen Table or Living Room

Open-plan spaces, kitchen tables, and living room couches do not qualify as home offices. The space must be a dedicated, identifiable area used exclusively for business. Even if you work there every day, shared-use spaces fail the IRS exclusive use test.

Mistake 2: Forgetting to Separate Direct vs. Indirect Expenses

IRS Form 8829 distinguishes between direct expenses (painting only the home office, a separate phone line for the office) and indirect expenses (rent, utilities, internet that serve the whole home). Direct expenses are 100% deductible. Indirect expenses are deductible only at the business use percentage. Mixing these categories generates miscalculations that can trigger a correspondence audit from the IRS.

Mistake 3: Claiming the Deduction When Income Is Lower Than Expenses

The home office deduction under the regular method cannot exceed your net business income. If your Schedule C shows $8,000 in net income and your calculated home office deduction is $10,000, your deduction is limited to $8,000 for the current year. The remaining $2,000 carries forward to the next tax year. The simplified option does not allow carryforwards.

Mistake 4: Ignoring the Deduction Entirely Out of Fear

This is the most expensive mistake. Qualified home office deductions are 100% legal, specifically authorized under IRS Code Section 280A, and fully supported by IRS Publication 587. The fear of triggering an audit has cost California’s self-employed population hundreds of millions in unclaimed, legitimate deductions over the past decade.

S Corp Owners: Your Home Office Strategy Is Different

If you have elected S Corp status for your LLC, the home office deduction works differently — and more powerfully in most cases.

As an S Corp owner-employee, you cannot claim a home office deduction directly on your personal Schedule C (because you no longer file a Schedule C — your business income flows through on a K-1). Instead, you have two options:

Option 1: Accountable Plan Reimbursement

Your S Corp sets up an accountable plan under IRS Publication 535 that allows the corporation to reimburse you for home office expenses. You document the expenses, submit them to the company, and the S Corp writes a check to reimburse you. The reimbursement is a deductible business expense for the S Corp — which reduces its net income and your pass-through taxes. You receive the reimbursement tax-free.

This is the most tax-efficient approach for S Corp owners and is far cleaner than trying to claim the deduction on the individual return.

Option 2: Rental Agreement

Some S Corp owners enter into a formal rental agreement between themselves personally and their S Corp, where the S Corp pays rent to use the home office space. This must be at fair market value, documented with a written lease, and reported as income on Schedule E (subject to the 14-day rule under Section 280A). This approach is more complex and should only be implemented with professional guidance.

What If I Rent and Have a Roommate?

This scenario is increasingly common in California’s high-cost rental market. The answer: your calculation is based on your proportionate share of the total rent, applied to the business use percentage of your personal space.

Example: You share a 1,200-square-foot apartment with one roommate. Each of you pays $1,800/month. Your portion of the home is considered to be 600 square feet (your half of the unit). You have a 90-square-foot home office within your half.

• Business use percentage of your space: 90 / 600 = 15%
• Your annual rent contribution: $21,600
• Home office rent deduction: $21,600 x 15% = $3,240

This approach is defensible and properly allocates expenses to your actual share of the home. Always document it clearly in your records.

Frequently Asked Questions About the California Home Office Deduction

Does claiming the home office deduction increase my audit risk?

Claiming a properly calculated and documented home office deduction does not meaningfully increase audit risk. The IRS and FTB flag returns with disproportionate deductions relative to income — not returns with legitimate, supported home office claims. Maintain your documentation and file with confidence.

Can I deduct 100% of my internet bill if I work from home?

Internet is handled differently from rent. If you use your internet exclusively for business, it is 100% deductible as a direct business expense on Schedule C — not through Form 8829. If it is shared between personal and business use (which is the norm), you deduct only the business-use percentage, which many tax professionals estimate at 50-80% depending on documented usage. Do not fold internet into the home office percentage calculation — report it separately for maximum deduction.

What if I just started my LLC this year? Can I still claim it?

Yes. The deduction applies from the date your business begins operations. If you started your LLC in March and have used a dedicated home office since then, you calculate the deduction for the months your business was active. Prorate the annual expenses accordingly.

Do I need receipts for every month of rent?

Bank statements showing rent payments are sufficient documentation. If you pay by check, cancelled checks work. If you pay through an online portal, download and save the confirmation records for each payment. Your lease agreement provides the base documentation for the rental amount.

This information is current as of February 27, 2026. Tax laws change frequently. Verify updates with the IRS or FTB if reading this later.

The mic drop truth about home office deductions: the IRS did not hide this write-off from you — the fear of getting it wrong did.

Stop Leaving Your Home Office Deduction on the Table

If you are a California 1099 worker, freelancer, or LLC owner working from a dedicated home office and you are not claiming this deduction, you have overpaid your taxes by thousands of dollars. The rules are clear. The documentation is straightforward. And the savings are real — whether that is $1,500 or $8,000 per year depending on your rent and income level.

KDA’s strategy team has helped hundreds of California self-employed professionals claim this deduction correctly, defend it under audit, and integrate it with broader tax planning strategies that reduce their overall liability by 20-40% annually. Book a personalized consultation with our team and walk away with a clear home office calculation, a documentation checklist, and a full tax strategy tailored to your situation. Click here to book your consultation now.