Your question only asks regarding can you write off use of your home for business. There are limitations to writing off a business use of a home. The most important is that the write off cannot exceed the profit after all other expenses. That said, you can carry unused write off forward. Whether you can write it off also depends on whether it really makes sense to an objective third party. You have to be able to affirmatively answer questions such as, is this a real business? Do you have no other office outside of the home that is your real place of business? Is the write off not going to so negatively affect your home mortgage interest deduction so much that it makes no economic sense for you to claim a business use of home write off? Because the list of test questions is not short, and you should get tax advice whenever you open a business, I suggest you talk to an enrolled agent or CPA. This includes the other part of your question regarding the construction costs. Frankly, I doubt permits matter and legality matters to the IRS, but again, a tax adviser would help answer this question far better than a realtor
I've had Catherine Cochrane as my enrolled agent for years. She has advised my wife and me for our multiple businesses, with offices in our home, for years. She is well respected by the IRS which has kept the auditors away from us whenever we have used her. We have not been so lucky when we have not used her. Her fees are reasonable and her advice is easier to understand than most advisers. Her work phone number is 408-996-7543. If you call her, please say Mitchell and Maggie say Hi.
I wish you prosperity in your new endeavor!