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There are a couple of issues here. The first thing is that if the money that your partner is paying to you is because he lives in the home, then he really should not be deducting those expenses as business expense. Even though he may be conducting his business from home, since he is not the homeowner, he is not allowed a business deduction for those payments. First of all, deductions for business use of home are limited to only the actual percentage of your home that is used for business. Just using a simple example, if you own a 5 room home and have one room that is dedicated as an office which you use for business, then you could claim 20% of certain home expenses as being business related, but you could not claim the entire amount of your expenses. When you rent property, which is basically what your partner is doing here since he is not the homeowner of record, the most he could deduct would be a percentage of what he pays you for rent and utilities, and he would have to be using one area in your home exclusively for business, or the deduction is not allowed.
As far as the money you are receiving from him from rental, you are correct in reporting this as income on your own tax return.
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I should have said that he only takes a percentage of the "rent" payment. He has 1 room dedicated as his office and has done all the calculations.
Thanks for the quick response! I appreciate the help