My husband works entirely from home for a company based out of state. He conducts conference calls and communicates via phone and email throughout the day with contacts in other locations. We really don't have space to have a separate "office" due to limited space in our home, but it IS his work space. We have never deducted anything for fear of this "space has to be used only for work" rule. Any experience with this situation?

The IRS has made it very difficut to deduct home office space, esepcially for those who are employed by others. So no - if this is not a dedicated space, he can not try to deduct its cost. See Pun 587: http://www.irs.gov/pub/irs-pdf/p587.pdf As for other potential deductions - any unreimbursed business expenses that are properly documented can be deducted - so things like telephone, printer supplies, his-speed data line, etc are all fair game, as long as the expense is purely business and not personal.