QUESTION: I have a small business and use part of our rented home for an office. Can I deduct a portion of the house rent for office space?

ANSWER: You can, provided you meet strict IRS criteria and are willing to wade through a complicated, paperwork-heavy process. But if you're up for the challenge, a nice tax write-off might very well be in store.

In general, you can claim a deduction on your personal tax return for a home office if you use a portion of your home exclusively and regularly for business. Be warned: It's that "exclusive" part that trips people up, says Bob Scharin, editor of Warren, Gorham & Lamont/RIA's Practical Tax Strategies, a monthly journal for tax professionals. In other words, the home office can't double as a guest bedroom.

To best meet the IRS's approval, the office should be a distinct space with its own door, although even a section of a room — perhaps set up with a desk and filing cabinet that's off limits to personal or family activities — would work, Scharin says. The home office must also be the principal place where you conduct business, such as administrative activities or client meetings.

If those conditions are met, then deductible expenses include not only a portion of rent or mortgage interest, but also utility bills, home repairs, maintenance, real-estate taxes and other costs. To claim the deductions, use IRS Form 8829. The portion of your expenses that you can deduct will be based on the percentage of your home used for business. For more details on this, click here.

Because home-office deductions can be subject to abuse, the IRS watches this area closely. Fear of an audit prevents many small-business owners from utilizing the deduction — as does the time-draining nature of Form 8829, which is an arduous 42 lines long and contains the words "see instructions" 16 times.

The National Association for the Self-Employed, a small-business group in Washington, D.C., supports a simplified, standard deduction to ease the burden on home-based businesses. And perhaps someday, sweet relief will be granted: Two bills introduced in 2005 contain language for a standard home-office deduction, although neither has passed. One of the bills, the Small Employer Tax Relief Act of 2005, specifically calls for a standard home-office deduction of $2,500.

In the meantime, small-business owners have little choice other than to muddle through the form — or hire a tax adviser for help.

Still, the rewards can be substantial. The average home-office deduction based on feedback from NASE's 250,000 members falls in the range of $2,000 to $4,000, says Keith Hall, the group's national tax adviser. A small-business owner who trims taxable income by $3,000 for the expense of a home office could save roughly $1,000, depending on the tax bracket, he says.

One last note: It doesn't matter if you rent or own your home, in terms of taking a home-office deduction. Often, renters don't itemize their taxes but self-proprietors list expenses when they file a Schedule C for profit or loss from a business. Unfortunately, that still means you need to fill out the dreaded Form 8829.

For more tax advice, visit our Tax Guide.