Oh, how important knowledge is: There has been a court case and ruling. The Tax Auditor argued that INVESTMENT PROPERTY was PASSIVE INCOME, Dr. Edwin Curphey argued that he participated in the business and so it was considered A TRADE. Unh Unh, said the Tax Auditor! So to court when Dr. Curphey in Curphey v. Commissioner. The Doctor won, 100% deduction was awarded Dr. Curphey for his Home Office where he conducted business and stored rental related supplies. Google it! Terms are bantered around, like: exclusively and regularly, but this simply means that you can't have your lounge chair and TV in the room you call an office. That room/ HOME OFFICE, must really be an office...occupied by filing cabinets, computers, telephones, printers and the like, so that it is really a dedicated room for BUSINESS. Again, REGULARLY means that regularly you must conduct business there, but you could also use your computer on occasionally for private use, just like you could use your telephone for private use and so forth.
How to record your Home Office on Schedule E? Go to PAGE 1, Line 19 under OTHER EXPENSES. Enter HOME OFFICE and then the amount. This will be OPTIONAL METHOD and limits you to 300 sqft at $5 per sqft or $1500. I have a 10x10 bed room dedicated as a HOME OFFICE and 10x20 area in my garage for supplies and tools. This equals 300 sqft. Use De Minimis Safe Harbor for the $1500 charge, unless your Home Office is smaller...then use $5 per square foot for the size of your home office. The IRS is clear, you need to PROVE that your HOME OFFICE meets the IRS guidelines. As if you are claiming a TRADE, you need to show that you are cleaning, repairing, painting, the properties you own. (Just a warning, if you own only one rental house, the IRS may not consider your MATERIAL PARTICIPATION as a TRADE or BUSINESS. The Dr. had 4 properties. So you would need to show that you are REALLY operating a BUSINESS.) Good Luck, Educate yourself, do a search of Dr. Curphey.
