Does your spouse work out of your home? Do you have a home-based sideline business? If so, you might be able to deduct some of your household costs by maintaining a qualified home office.

Suppose, for example, Dan Evans lives in a 2,500-square-foot house. His wife Karen keeps one room as a home office for her business as a real estate agent; that room measures 100 square feet. Dan and Karen can deduct 4 percent (100/2,500) of their household expenses, including insurance, phone, heating oil, electricity, etc.

To qualify for the home office deduction, Karen can use that room as her principal place of business. That is, the administrative tasks of that business are performed there. In addition:

* The home office deductions, in this example, can’t exceed Karen’s revenues from her real estate business.

* The home office must be used "regularly and exclusively" for business.