According to the ANSI voluntary Standard Z765-1996…

Finished Area

Finished area is defined as "an enclosed area in a house at is suitable for year round use, embodying walls, floors, and ceiling that are similar to the rest of the house." Furthermore, "above-grade finished square footage of a house is the sum of the areas on levels that are entirely above grade. The below-grade finished square footage of a house is the sum of the areas on levels that are wholly or partly below grade."

Suitable for year round living requires permanently installed heat with a continuous power source (electricity, natural gas, permanently installed propane tank, or heating oil). Through the wall heating units meet the requirement, but window units and portable space heaters do not.

The walls and ceiling must be finished. The floors must be completely covered with an installed covering (carpet, vinyl, wood, tile, laminate or stamped or stained concrete). Exposed or painted concrete, or exposed or painted plywood is considered a finished floor.

The finished space must be contagious and directly accessable.

Stairs and landing are included on each level. Stairways are included in the level from which they decent even if they are unfinished and/or unheated.

Attics, Lofts and Low Ceilings

Level ceilings must be at least 7 feet high, and at least 6 feet 4 inches under beams, ducts and other obstructions. There is no height restriction under stairs. If a room has a sloped ceiling, at least one-half of the finished floor area must have a ceiling height of at least 7 feet. Otherwise, omit the entire room from the floor area calculations. If a room with a sloped ceiling meets the one-half-of- floor-area- over-7-feet requirement, then include all the floor space with a ceiling height over 5 feet.

Lofts and finished attics must be accessible by a conventional stairway or other access to be counted. If you can only reach the loft by climbing a ladder, it’s not part of the finished floor area regardless of the ceiling height.