For home office expenses/deductions, where and how to I enter the cost of a new water heater that cost $885?

The replacement of a water heater would be a depreciable asset but you can choose to expense it.  Since it is only $885, depreciating it would result in a very very small benefit.

You would enter the water heater cost in the Home Office section under Repair Expenses 

To do this click the following

• Business
• I'll Choose what I work on
• Update next to Business Income and Expenses
• Edit next to your business
• Start next to Home Office Expense under Business Expenses
• Walk through all the questions until you come to the Repair Expense question.  
• You may not see this question if you are choosing the simplified method.  You will see it if you are taking the actual expense method.