When completing Federal Form 8829 Expenses for Business Use of Your Home, direct expenses are those you can specifically identify as being derived from or of benefit to the business part of your home. Direct expenses would include painting or repairs to a specific area of your home used for business. Enter 100% of your direct expenses in the appropriate field.
Indirect expenses are those paid for keeping the entire home up and running and cannot be specifically associated with just the business area (i.e. painting the entire house). They benefit both the business and personal areas of your home. Generally, enter 100% of your indirect expenses in the appropriate field and they will be allocated to the business portion using the ratio of your business square footage to the total square footage of your home. Examples of common indirect expenses are rent, mortgage interest and real estate (property) taxes.
For more information please refer to IRS Instructions for Form 8829, page 2.