Square footage is common, but the requirement is that your formula must make sense and be defensible. I would not count the shared space; space that is shared is generally considered personal use.
From IRS Publication 527: Renting Part of Property
"If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property.
You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040 or 1040-SR). You can also deduct as rental expenses a portion of other expenses that are normally nondeductible personal expenses, such as expenses for electricity or painting the outside of the house.
There is no change in the types of expenses deductible for the personal-use part of your property. Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040 or 1040-SR).
You can’t deduct any part of the cost of the first phone line even if your tenants have unlimited use of it.
You don’t have to divide the expenses that belong only to the rental part of your property. For example, if you paint a room that you rent or pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. If you install a second phone line strictly for your tenant’s use, all the cost of the second line is deductible as a rental expense. You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes.
How to divide expenses.
If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. You can use any reasonable method for dividing the expense. It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home.
Example.
You rent a room in your house. The room is 12 × 15 feet, or 180 square feet. Your entire house has 1,800 square feet of floor space. You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. If your heating bill for the year for the entire house was $600, $60 ($600 × 0.10) is a rental expense. The balance, $540, is a personal expense that you can’t deduct."
However, if your designated rental space has personal use for more than 14 days per year or more than 10% of rental days, the dwelling is considered to be used for both rental and personal, and your deductions are limited.
See IRS topic 415:
“If you use the dwelling unit for both rental and personal purposes, you generally must divide your total expenses between the rental use and the personal use based on the number of days used for each purpose. You won’t be able to deduct your rental expense in excess of the gross rental income limitation (your gross rental income less the rental portion of mortgage interest, real estate taxes, and casualty losses, and rental expenses like realtors’ fees and advertising costs). However, you may be able to carry forward some of these rental expenses to the next year, subject to the gross rental income limitation for that year.”
Also be aware that your property tax and mortgage interest expense deduction for the space must also be reduced to reflect the value of land vs. building, which you can pull from your property tax assessment. If you take depreciation on the building, start with the building proportion from the property tax assessment, not the entire value of the real estate. Land cannot be depreciated. You can depreciate land improvements, such as a new driveway.
There are many avenues to fully expense, rather than depreciate over time, a capital improvement (e.g., gut and renovate bathroom) or purchase (e.g. new stove) in year one – Section 179, bonus depreciation, and de minimus safe harbor. Consult with your tax advisor.
It is correct that audit risk may be low, but the downside impact of getting sideways with the IRS is large. Audit risk increases if there is potential for a disgruntled neighbor to report your business. Rare, but it happens.
The above is not tax advice; it is for discussion purposes only.