The IRS allows you deductions for the portion of your house that you use to operate your stock photo business. However, if you are a salaried person working at your “main job,” and your stock business is a part-time venture, you cannot use your office-in-the-home expenses to create a net operating loss. If the total of your other business expenses (not including home-office expenses) is greater than your income, giving you a loss, that is allowable. If your office-in-the-home expenses, when added to the total of your other business expenses, take you over the top to give you a loss, that’s not allowable. Only that portion of your home-office expense that takes your total of expenses up to the amount of your gross business income can be deducted each year (there is a carry-forward provision). If the total of your home-office expenses added to the total of your other business expenses comes to less than your gross income, the full amount of your home-office expenses is deductible.
Here’s how that works. Let’s say your stock photography business, operated out of your home, has a gross income (receipts before expenses) of $12,000. Your business incurs home-office expenses of $1,500 (percent of utilities, mortgage interest, roof repairs, and so on). Your normal business expenses, such as office supplies, postage, travel, film, memory cards, etc. total $11,500. Since your gross income was $12,000, you can use only $500 of your $1,500 office-in-the-home expenses as a deduction. However, you may carry forward the disallowed $1,000 to subsequent tax years; these carried-forward home-office expenses, though, are subject to the same restriction each subsequent year– i.e., they are not allowable if the addition of their total creates a net loss from the business activity.
The room(s) in your home where you conduct your photomarketing business must be used exclusively and regularly for your photomarketing operations. The IRS won’t approve the room as a deduction if it’s also used as a sewing room or a part-time recreation room or if it’s part of your living room. If you’ve made a room or large closet into a studio consider that room also as tax-deductible. Measure the square footage of your home (don’t include the garage unless it’s heated or air-conditioned), and then measure the square footage of your working space. Divide the latter by the former, and you’ll determine what portion of your home is used for “profit-making activity.”
For example, if your working area is a fourteen-by-eleven-foot room (used exclusively and regularly for your photomarketing business), and the total square footage of your home is 1,232 square feet, you are using one-eighth of your home for business.
“Business Use of Your Home” is the title of IRS Publication 587. It’s a clear explanation of what you can and cannot deduct. Also check out Booklet 529, “Miscellaneous Deductions.” Write, log on, or phone the IRS for a free copy at (800) TAX-FORM.
From the IRS: "What You Need to Know about the Home Office Deduction"
IRS Tax Tip 2010-53