Smart home has evolved from exclusively referring to the centralized and semi-automated control of environmental systems. A smart home is also one of the applications of IoT. This paper presents the system architecture and methodologies used to create a new sophisticated smart home which creates user routines and predicts power consumption from the data received from the various sensors. Smart homes are those where daily household devices/ appliances can be monitored and controlled remotely. When these household devices are connected with the internet using proper network architecture and standard protocols, the system can be called as a Smart Home in IoT environment. This paper not only presents various problems and challenges in IoT and Smart Homes but also provides solutions that would help overcome those problems and challenges.