In order to take a home office deduction, a portion of your home must be used “regularly and exclusively” as your “principal place of business.” If you run a sideline business, your home can be the principal place for that business.
Suppose one-eighth of your home is a home office. Then you can deduct one-eighth of your costs for utilities, security monitoring, homeowners insurance, etc., as well as all direct costs, such as repairs and decorating the office. However, deductions related to your home office can’t exceed the income you receive from your home-based business.
There had been some question-and an adverse Supreme Court decision–about whether you can claim a home office deduction if you earn your money elsewhere. Thanks to a recent change in tax law, as long as your home office is where you manage your business and there’s no other fixed location where you do paperwork, you can claim a home office deduction.
What’s more, if you qualify for home office deductions you may be able to write off your car expenses for trips to and from your home.