If he paid her rent for the use of a room for an office, could he deduct the rent as a business expense? She would then need to claim the income as rental income and set up a schedule E and depreciate the business use room in her home.  If he paid for utilities, etc.  could the amount be prorated on his schedule C? For example, if the total electricity and gas was $1,000 and he uses the room that is 10% of the total house, could he deduct $100 as long as he paid that amount to her?  I know that he would not get to prorate mortgage interest or property taxes, but could she on her schedule E?