Let's compare two neighbors, Paul and Alex, who both use an office in their home exclusively for business. Because Paul and Alex both use one bedroom of their home for an office and their homes are similar, their business use percentage is similar too: about 15 percent.
Let's assume, however, that Paul owns his home and pays a mortgage while Alex rents.
Paul's monthly mortgage payment is $800, but only $400 of that amount represents interest payments. Assuming that Paul pays $1,000 a year in property taxes, Paul gets a deduction of about $870 for his mortgage interest and property taxes [($400 x 12) + $1,000] x .15.
Alex, whose rent is $800 a month, gets to deduct the business percentage of his entire yearly rent, or $1,440. [($800 x 12) x .15]
The home office deduction is much more attractive to Alex than Paul. This is especially true in light of the fact that Paul could deduct his mortgage interest and property taxes even if he didn't have a home office. Alex could not deduct any portion of his rent without the home office deduction.
(Paul and Alex do get other deductions for things like utility expenses, but we'll assume those would be similar since their houses are so similar.)