Home Office Deduction: What Records You Need (Free Worksheet for CRA & IRS)

If you're a self-employed sole proprietor who works from home, the home office deduction can be one of your largest write-offs — but it's also one of the most commonly claimed incorrectly. The rules are different depending on whether you file with the CRA or the IRS, and both require you to have specific numbers on hand before your accountant can calculate anything.

This guide breaks down exactly what each tax authority requires, then gives you a free worksheet to fill in the numbers before your appointment.

Who can claim a home office deduction?

In both countries, this deduction is available to unincorporated, self-employed individuals — sole proprietors, freelancers, and independent contractors — who use part of their home regularly for business. It generally is not available to regular employees.

To qualify, the space typically needs to be used:

• Regularly for business activities, and
• As your principal place of business, or a space where you regularly meet clients or customers.

A spare room used exclusively as an office is a clear case. A kitchen table used occasionally for invoicing generally is not.

What the CRA requires (Form T2125, Part 7)

Canadian sole proprietors claim home office expenses on Form T2125, Statement of Business or Professional Activities, in the "Calculating business-use-of-home expenses" section.

The CRA wants two numbers to calculate your business-use percentage:

• The total square footage of your home
• The square footage of the space used for business

From there, you report your total annual home expenses, prorated by that percentage. The categories on the actual CRA form are:

• Heat
• Electricity
• Insurance
• Maintenance
• Mortgage interest
• Property taxes
• Other expenses

One detail that trips people up: the home office deduction cannot create or increase a business loss. If your business-use-of-home expenses would push you into a loss, the CRA has you carry the unused portion forward to claim in a future year, rather than deduct it now.

What the IRS requires (Form 8829 or the simplified method)

U.S. sole proprietors report business-use-of-home expenses on Schedule C, line 30, using either of two methods.

Simplified method. You claim $5 per square foot of office space, up to a maximum of 300 square feet — a maximum deduction of $1,500. No expense tracking is required, just the square footage.

Regular method (Form 8829). You calculate your business-use percentage the same way as the CRA — office square footage divided by total home square footage — then apply that percentage to your actual annual home expenses:

• Mortgage interest
• Real estate taxes
• Insurance
• Rent (if you rent your home)
• Utilities
• Repairs and maintenance
• Other direct expenses

The regular method usually produces a larger deduction if you have significant home expenses, but it requires you to have the receipts and totals ready. The simplified method is faster but caps out quickly for anyone with a larger office space or higher home costs.

What to gather before your appointment

Whichever country you file in, having these ready will save your accountant time — and save you money on their invoice:

• Total square footage of your home
• Square footage of your dedicated office space
• Whether you own or rent your home
• Annual heat/utilities cost
• Annual home insurance premium
• Annual mortgage interest or rent paid
• Annual property taxes (or real estate taxes)
• Annual maintenance and repair costs
• Any other home expenses tied to the space

Common mistakes to avoid

• Estimating square footage instead of measuring it. A rough guess is a common audit flag in both countries.
• Including a space used for both personal and business purposes. The space generally needs to be used regularly for business to qualify.
• Forgetting the loss-carryforward rule (Canada). If your business had a small profit or a loss, the CRA math changes.
• Mixing up the simplified and regular method (U.S.). You can't combine elements of both in the same year.
• Not keeping receipts. Even with the simplified method, keep records of your square footage measurement in case of a review.

Get organized in one page

Our free Home Office Details Worksheet covers both the Canadian and U.S. versions of this deduction in a single fillable PDF. Fill it in on your computer or print it and write by hand, then hand it to your accountant or tax preparer along with your other records.

Frequently asked questions

Can I claim a home office deduction if I also have another office?

Generally, the space needs to be your principal place of business, or a space you use regularly to meet clients. Having another workspace elsewhere may affect your eligibility — check with your accountant.

Do I need receipts for the simplified method (U.S.)?

You don't need to track individual expenses, but you should be able to support your square footage measurement.

What if I rent instead of own my home?

You can still claim a home office deduction. Rent replaces mortgage interest and property taxes in your expense categories.

Can this deduction create a tax refund?

In Canada, the deduction cannot create or increase a loss — any unused amount carries forward. In the U.S., similar limitations can apply depending on your business income; ask your accountant.

How Heightly fits in

Heightly is built for unincorporated sole proprietors in Canada and the U.S. who want their bank and credit card statements organized into a Tax Prep Report — without paying for a full bookkeeping subscription. Upload your statements, and Heightly categorizes your transactions and aligns them to CRA Form T2125 or IRS Schedule C, flagging anything that needs your input along the way.

The home office worksheet above is a companion to that process: a place to capture the details Heightly's report can't pull from a bank statement, so your finished report is that much more complete when it reaches your accountant.

See how Heightly works or try a free preview with your own statements.