Excert from Money Magazine 6/03

The home office deduction is the cause of much taxpayer teeth gnashing. In a nutshell, if you are self-employed you can deduct certain costs (including taxes, interest, utilities, insurance, depreciation and repairs) if your home office is your principal place of business or where you meet clients.

If you are an employee, you face a different set of tests. (If you have an office available to you, you're out of luck.) Thanks to recent clarifications by the Treasury Department, the deduction has become more taxpayer-friendly. Many workers have been skipping the deduction because previously when you sold your home you could owe taxes on the portion of your gain allocated to your office. No more. Generally, the change is retroactive for three years, so you can amend your return.