Do not lease a portion of your home to your S corporation. You must report the income but cannot get an offsetting deduction for expenses other than the business portion of mortgage interest and taxes. Rather, have your S corporation (this prohibition is not applicable to C corporations) reimburse you personally for a pro-rata share of cash expenditures. Except for the inability to claim depreciation, you achieve the same result. Alternatively, you may qualify for the office-in-home deduction regarding the portion of your home that you use for business as an employee of your S corporation.