AI agents for business finance: what they can and can't do
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The short answer
A self-employed freelancer in the US can deduct part of the home if a specific area is used regularly and exclusively for the business and is the principal place of business; where the clients are, Lagos or Lansing, makes no difference. The IRS simplified method allows $5 per square foot for up to 300 square feet, so at most $1,500 a year, while the regular method on Form 8829 uses actual costs and allows depreciation.
If you design, code, write or consult from a spare room in Houston or Atlanta for clients in Nigeria, the US tax rules for that room are the same as for a freelancer with clients down the road. The IRS does not ask where your customers are. It asks how you use the space, whether the home is where the business is run, and how much the business earns. This guide sets out those tests from the IRS's own pages, then the two ways to work out the figure. It is information, not tax advice.
The two tests your home office must pass
The IRS home office page (last reviewed September 2024 and marked historical, so read it alongside Publication 587 for 2025) sets two requirements that apply whichever method you use.
- Regular and exclusive use. A specific part of the home is used only for the business, and used regularly. A spare room that is an office every weekday and nothing else qualifies. A dining table where you also eat does not.
- Principal place of business. The home must be the main place the business is run. Publication 587 says an office can still qualify if you use it exclusively and regularly for the administrative or management activities of the business, such as invoicing, bookkeeping and scheduling, and have no other fixed place where you do much of that work.
A separate structure, such as a detached studio or converted garage, can qualify if it is used regularly and exclusively for the business, even if it is not the principal place of business. The IRS also says that if using your home is merely appropriate and helpful to your work, that is not enough.
Simplified method or regular method
| Simplified method | Regular method (Form 8829) | |
|---|---|---|
| How it is worked out | $5 per square foot of qualifying space | Business share of actual costs: rent or mortgage interest, insurance, utilities, repairs, depreciation |
| Space limit | 300 square feet | No square-foot cap; the share is the office's percentage of the home |
| Most you can claim | $1,500 (300 x $5) | Limited by the business's gross income from the home |
| Depreciation | None, and no depreciation recapture when you sell | Allowed for the business share; recapture applies on sale |
| Excess over the income limit | Cannot be carried over | Carried over to the next year you use actual expenses |
| Mortgage interest and property tax | Claimed in full on Schedule A if you itemise | Split between Schedule A and Schedule C |
Figures are from the IRS simplified option page (reviewed 2 March 2026) and Publication 587 (2025). You can choose either method each year, but you choose by using it on a timely filed original return and cannot change for that year later. If you move from simplified to regular in a later year, depreciation is worked out from the IRS optional tables.
Worked example (illustration only)
- The office
- A 150 sq ft room in a 1,500 sq ft rented apartment, used only for freelance work for Lagos and Abuja clients
- Simplified
- 150 x $5 = $750
- Regular
- Office share 150 / 1,500 = 10%. Annual rent $21,600, renter's insurance $240, utilities $2,160: total $24,000. 10% = $2,400
- Income check
- Net freelance income before the home office is $30,000, so either figure fits within the gross income limit
- Read it as
- Here the regular method gives $1,650 more, at the cost of keeping full rent and utility records. For a renter there is no depreciation to recapture later.
The income limit matters when Nigerian clients pay late
Publication 587 says the deduction is limited to the gross income from the business use of the home, after other business expenses. Freelancers with Nigerian clients often see uneven years: a large retainer one year, then a client whose budget is squeezed by the naira the next. In a thin year, the regular method lets you carry unused home office costs forward. The simplified method does not, so anything above the limit is lost.
Income counts in dollars on the return whether you were paid in naira or dollars. The IRS publishes no naira row in its yearly average exchange rate table, so use a posted rate consistently and keep a note of it. See converting naira invoices to dollars for Schedule C.
Records to keep
- A floor plan or simple measurement of the office and of the whole home.
- Photos showing the room set up as an office, with no bed, television or family use.
- For the regular method: lease or mortgage statements, insurance, utility bills, and repair invoices.
- Invoices and payment records showing the business, including those from Nigerian clients, so the gross income figure can be supported.
- A note of which method you used each year.
The IRS keeps a general three-year rule for income tax records but longer periods for property used to work out depreciation. Our recordkeeping guide for freelancers paid in naira and dollars covers the periods.
What to check first
- Is the space used only for the business? If not, stop: no method rescues mixed use.
- Are you self-employed for this work, reporting on Schedule C, rather than an employee?
- Measure the space. Under about 300 sq ft with low rent, the simplified method may be close enough; with high rent or a mortgage, run both.
- Check your net business income covers the figure, or that you are using the method that carries the excess forward.
- Remember self-employment tax is separate; see self-employment tax on income from Nigerian clients.
Where Pryme fits
The deduction depends on proving income and costs. A Pryme Business Account, which can be opened from the US, keeps naira and dollar receipts from Nigerian clients in their own currencies with dated records, and invoicing ties each payment to the invoice it settles. The Finance agent can prepare a year-end list of business income and expenses for your preparer; it prepares, and you approve.
Questions people ask
Can I claim a home office if my clients are all in Nigeria?
Yes, if you are self-employed and the space meets the regular and exclusive use test and is your principal place of business. The location of clients is not part of the IRS test.
What is the most I can claim with the simplified method?
$1,500: $5 per square foot for up to 300 square feet, per the IRS simplified option page reviewed March 2026.
Can I deduct my kitchen table if I work there every day?
No. The space must be used exclusively for business. A table that is also used for meals fails the test.
I have a W-2 job and freelance on the side. Can I claim?
Only for the freelance business and only for space used for it. Publication 587 gives no deduction for space used as an employee.
Sources
- IRS: Home office deduction (marked historical, last reviewed 11 Sep 2024) · accessed Oct 2026
- IRS: Simplified option for home office deduction (reviewed 2 Mar 2026) · accessed Oct 2026
- IRS Publication 587 (2025), Business Use of Your Home · accessed Oct 2026
- IRS: Yearly average currency exchange rates (reviewed 17 Sep 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.