Can a home office be treated as a rental property for tax deductions?

This answer was provided by Barry Beck, CPA, Barry D Beck, CPA, PFS, DABFA, Bedford.

Q: My husband works for a company that at one time had an office in Waltham, MA. The company closed the office but kept my husband on board. He is an employee of the CA division of the company now. He uses a home office that is dedicated completely to his work and the company pays him rent every month. It is my understanding that he cannot deduct for a home office because he receives rent from the employer to use his home office. My question is whether or not expenses that you would deduct for rental property would be applicable in this case. Can he deduct a portion of the mortgage interest, real estate taxes, utilities, etc. based on the percentage of space used in our home? --Denise, Chelmsford

A: As I understand your facts: You have rental income from the CA company. MY guess is that this income will be reported to the IRS on form 1099-MISC. The income can be offset by rental expenses. The expenses include a share heat, light, power, home-owner's insurance and depreciation. These items of income and expense are reported on IRS schedule E and form 4562, depreciation.