This guide reflects the rules for the tax year ending December 31, 2025.
It applies to individuals filing their 2025 tax return in 2026.
If you are self-employed and work from home, you may be eligible to deduct a portion of your home expenses. This deduction — known as business-use-of-home expenses — can significantly reduce your taxable income. This deep-dive guide explains eligibility, calculation methods, allowable expenses, and CRA rules for the 2025 tax year.
🧭 1. What Are Business-Use-of-Home Expenses? #
Business-use-of-home expenses allow you to deduct a portion of your home costs when you use part of your home to earn business income.
You can claim these expenses on Form T2125.
🏠 2. Who Is Eligible? #
You can claim home office expenses if:
✔ You use your home workspace exclusively to earn business income #
OR
✔ You use the space regularly and continuously to meet clients, customers, or patients #
Most freelancers, contractors, and online service providers qualify under the first rule.
📐 3. How to Calculate Your Home Office Percentage #
CRA requires you to calculate the percentage of your home used for business.
There are two methods:
✔ Method 1 — Square Footage (Most Common) #
\[ \text{Workspace area} \div \text{Total home area} \]Example:
- Home: 1,200 sq ft
- Office: 120 sq ft
✔ Method 2 — Time-Based (If Shared Space) #
If your workspace is also used personally (e.g., kitchen table), you must prorate based on time used for business.
\[ \text{Space percentage} \times \text{Time percentage} \]Example:
- Workspace: 20% of home
- Used for business 40 hours/week
- Total weekly hours: 168
🧾 4. Eligible Home Office Expenses #
You can deduct a portion of:
✔ Utilities #
- Heat
- Electricity
- Water
✔ Internet #
Business-use portion only.
✔ Rent #
If you rent your home.
✔ Property taxes #
If you own your home.
✔ Home insurance #
Business-use portion.
✔ Mortgage interest #
Interest only — not principal.
✔ Maintenance and repairs #
Only for the workspace or shared areas.
✔ Cleaning services #
If they cover the workspace.
❌ 5. Expenses You Cannot Deduct #
You cannot deduct:
- Mortgage principal
- Capital improvements (unless CCA applies)
- Furniture (unless CCA applies)
- Home renovations not related to the workspace
🧮 6. Full Example: Home Office Calculation #
Your home office is 150 sq ft in a 1,500 sq ft home.
\[ 150 \div 1,500 = 10\% \]Your annual home expenses:
- Rent: $18,000
- Utilities: $2,400
- Internet: $1,200
- Home insurance: $900
Total expenses:
\[ 18,000 + 2,400 + 1,200 + 900 = 22,500 \]Business-use portion:
\[ 22,500 \times 0.10 = 2,250 \]You can deduct $2,250 on your T2125.
🔄 7. Carrying Forward Unused Expenses #
If your home office expenses create or increase a business loss, CRA does not allow you to use them to reduce other income.
Instead, unused expenses are carried forward to future years.
You can claim them when:
- Your business becomes profitable
- You have enough income to absorb the deduction
🧹 8. Repairs and Maintenance Rules #
You can deduct:
✔ 100% #
If the repair is only for the workspace
(e.g., repainting your office)
✔ Prorated #
If the repair benefits the entire home
(e.g., furnace repair)
❌ Not deductible #
If the repair is personal
(e.g., bedroom renovation)
🧾 9. Recordkeeping Requirements #
CRA requires:
- Bills and receipts
- Floor plan or measurements
- Calculation worksheets
- Time-use logs (if shared space)
Digital copies are acceptable.
🧮 10. Example: Shared Space Calculation #
You work at your dining table:
- Space is 15% of home
- Used 40 hours/week for business
- Total weekly hours: 168
If your annual home expenses are $20,000:
\[ 20,000 \times 0.0357 = 714 \]You can deduct $714.
❓ 11. Frequently Asked Questions #
Can I deduct rent if I work from home? #
Yes — prorated based on workspace percentage.
Can I deduct mortgage interest? #
Yes — interest only.
Can I deduct renovations? #
Only if directly related to the workspace.
Can I claim home office expenses if I have a loss? #
No — but you can carry them forward.
Do I need a dedicated room? #
No — but shared spaces must be prorated by time.
🔗 12. Related Guides #
- Self-Employment Expenses
- Self-Employment Tax Deductions
- T2125 Step-by-Step Guide
- Business Use of Vehicle (Deep Dive)
