This paper models and evaluates reliability of a smart home system considering phased-mission, functional dependence and standby behavior in its physical layer, and probabilistic competing failure behavior with random propagated time in its communication layer. The proposed methodology encompasses a multi-valued decision diagram based method for the physical layer, and a combinatorial procedure based on total probability law for the communication layer. A detailed case study of an example smart home system is provided. The method is applicable to arbitrary types of component time-to-failure distributions.