A home office must be used exclusively for business (just one business and no personal activities). The dedicated area must be used regularly as the principal place for that business in administrative and management activities. Using the space for meetings or inventory is allowed and can be a separate structure.
Once the home office is established, there are two ways to deduct the expenses: Simplified Method and Regular Method.
The Simplified Method is just that, a simple way to calculate the deduction. Measure the square footage of the space (cannot be more than 300 square feet) and multiply that by $5. The expense is reported on Form 1040, Schedule C, Line 30.
The Actual Method takes into account direct expenses and indirect expenses of the space and will be calculated using a percentage of home office square footage versus the total square foot of the home. Actual expenses include property taxes, mortgage interest, home equity interest, casualty losses, homeowner's insurance, rent, repairs and maintenance, security systems, utilities, and depreciation. The expense is reported on Form 1040, Schedule C, Line 30.
When deducting actual expense, you must deduct depreciation. If you sell the home, you must add back in the depreciation previously deducted for all years the Actual Method was used.
@tmar So in regards to the camper, you may not have the exact same expenses as a house, but you probably have property taxes and some interest on the payment. Just don't forget that if you sell the camper, you must add back in the depreciation. And if the camper qualifies as a second home for mortgage interest, you want to make sure to deduct a percentage of the interest to the business and a percentage on the Schedule A so that you aren't double dipping. If you start using the camper for personal trips again, then it would no longer qualify as a home office due to the exclusivity test.
Note the home office expense cannot create a negative net income.
Edited 5/28/2024:3:55 PM PST
