re: Building a Backyard Office

First off, I understand why you want to build something. It gives you the sense of "going to work" even though its only a few steps away.

Now to your question. If budget isn't a huge deal I would go with MIL suite. Doing a shed type deal is going to bring you nothing in terms of resale value. If you are in your forever home then you may want to do more of a shed type structure just because it will be cheaper. I would also put a bathroom in it either way. If you have to go into your house to use the bathroom there is a good chance you'll get distracted by something, especially if your kids are home.

Lastly, like someone else mentioned, I would definitely consult a CPA. I can't tell you for certain exactly how much or what you will be able to deduct/expense, but you will definitely have some.