Home Office Simplified Deduction error

[dtaylor5]

If I select simple home office calculation, I get the message: The net profit for your work was zero or less, which means you can't claim any home office deductions.

However,  If I opt for the actual expense calculation method I can get through it and get a deduction.  But I would get a better deduction if I use the simplified calculation so I would rather use that.

So which is the error?  That I get the actual expense deduction or that it denies me the simplified deduction?

Or is this working as intended?

Is it going to be fixed?  I'm using the online premium.

[KrisD15]

The issue with using actual expenses is that depreciation will then be involved.

When depreciation is involved, depreciation recapture will be an issue when you sell your home. 

When you sell your home, you need to adjust for the depreciation you took on the home office and "pay it back".

It can be a bit complicated. 

HERE is more information 

The simplified method is just that, simple. No depreciation, no depreciation recapture. 

Additionally, as you point out below, another difference is that the home office deduction cannot be applied if the business shows a loss. If you use the Actual/Regular Method the deduction can be carried-over to the next year whereas the Simplified Method does not carry-forward. 

[Edited 02/12/2025 I 5:51am PST]

[dtaylor5]

@KrisD15 

Thank you so much for this answer!  

I get it now.  The simplified method does not allow carry over which means  it can't pass through as losses. 

[KrisD15]

You are correct and I may add that fact to my original answer HOWEVER what I was also trying to get across is the fact that if you use Actual (or Regular) expenses for a home office, part of your house (the office part) gets depreciated. 

The idea is that when you use something to generate business income, that "thing" gets old and looses value. 

The amount of lost value that the IRS calculates each year is used to offset (lower) the business income. 

SOMETIMES this can backfire, especially with real estate and vehicles. You go to sell this "thing" and realizes that the value did not go down as much as the IRS had figured it would, so you have to "pay back" the excess depreciation when you sell. This is called Depreciation Recapture. 

Example: You could buy a business vehicle, totally depreciate it over the years to zero and then sell it for $5,000. You would need to claim $5,000 as taxable income for the depreciation recapture. 

The same is true for a home office that uses the Actual/Regular Method. When you sell your home, you may need to "pay back" some or all of the depreciation you previously claimed. 

Note: There is no option to "not claim" the depreciation in order to not pay it back. The IRS expects it "recaptured" whether you claimed it or not. 

If you opt to use the Simplified Method, depreciation is not involved. 

[dtaylor5]

Yes, understood.  Thanks again for the answers.  I don't think it is worth the extra possible complications in my case.