In general, no. I work a lot from home, and I keep crazy hours sometimes (like right now, when we're in the midst of workshopping a show). And I often find my productivity and my mood is affected by my clothes. Even in loungewear, I like to feel pretty and somewhat pulled together.

The only thing I demote is stuff for dance class or workouts. If I have a knit top or tee that I love, but it's looking kind of worn, I don't mind sweating in it.

Not usually, but I don't work outside the home, so I don't have loungewear, just my regular clothes! Like LBD, my mood is hugely affected by my clothes and if I don't shower & put on an outfit in the morning I tend to not get much done for the rest of the day. For sleepwear I did end up 'demoting' some old silk camis that I realised weren't the most flattering colours on me for hot/in between weather and a couple thick soft wool sweaters that aren't the most flattering on me for cold weather. I suppose if I irreversibly stain any of my silk or wool I'd probably use it as pjs rather than rag pile it, but so far I've been able to launder out any problems! I don't have a super mucky life though: my walks in the woods are the dirtiest it gets & I'm pretty good at not getting stuff on my clothes. Except for little muddy pawprints if my dog jumps up! So I only wear sturdier bottoms to the woods, but that includes some of my wool skirts.

When my tees wear out I just turn them into rags. But sometimes it takes me awhile to accept they're truly worn out!

I don't demote. Once they have served their useful service, they are outta there. I have casual wear and lounging capsules.

I demote, but that has resulted in too many pj tops.

I do, but only if they're still in good shape. No holey, stained loungewear here. I did also start buying new specifically to lounge in. Having a great modal wide leg pant and cozy hoodie especially just for curling on the couch is awesome.

I definitely demote from workwear to at-home wear (which does involve leaving the house in said demotees) to lounge (will not see the light of day, hehe) to toss.

I should say that style matters to me. I won't keep on wearing things if the style no longer speaks to me, then I donate.

Oh and there's one more caveat: My style is RATE. I think if it were polished, I wouldn't demote.

I demote, but I also cull and I try not to allow too much creeping demotion. I've struggled with this a lot in the past, but I'm more ruthless now and my balance seems to work well for me.

I demote items that are very luxurious or high quality and still make me feel good and look okay. For example, I have a few very nice cashmere cardigans and silk and cashmere blends that I've demoted to lounge wear and robe duty. They look nice, but may be colors that I'm not wearing as much for a season or shapes that I feel are getting less current. Demoting lets me get more wear and enjoyment out of them.

I cull everything else. I don't allow demoted items to be any significant proportion of my casual wardrobe. I buy specifically for my casual wardrobe. If I let too much demotion occur, it clutters my closet with items that are worn out or make me feel bleh and keeps me from seeing and wearing the things that do make me feel happy. If I keep it in my closet, I feel an obligation to wear it. If I don't love it, that means that I'm wearing it instead of getting lots of good wear for items that I do love and feel happy in. So why am I doing that? It's like being on a diet and eating leftovers that you don't want and don't like while the thing you really want to eat and that is better for you slowly goes bad. What's the logic behind that?

I demote but I must confess that recently I have suffered from a severe case of 'demotion creep.' Demoting things to lounge wear or gear (cleaning, painting, yard work) and not getting rid of things that are truly awful. And I end up wearing so much of it at home because that is where I am most of the time. I recently realized this turned me into a giant schlump and I have felt awful about myself and had become rather depressed.
During a closet clean out a few days ago, I realized that there were things in my closet that I was wearing regularly that were not good for my mental state. That night shirt a former husband gave me for Christmas that I hated when he gave it to me? Why do I even still have it, let alone wear it? Yes, it is still functional (and I do not want to be wasteful) but my mental health and attitude is much more important than a cheap piece of clothing.
So I have pared down my demoted clothing quite a bit and feel much better because of it.

I demote certain things that are comfortable and are neither frumpy nor fab, if that makes any sense. I try to wear my fab stuff whenever I go out of the house, even if it's just to run a quick errand, and reserve my comfy stuff to wear at home. I don't want to look frumpy even at home, so...

This is something I need to work on, and I think this thread has just inspired me to do so! I tend to demote and to keep things around for "sloppy" clothes long after they have become stretched out or faded. In the last year or so I've been a lot better about this but I still have some things that should go.

Mom just told me to go buy myself a birthday present on her, maybe I'll go get some nicer lounge pants and throw out the pilled and shrunken yoga pants.