Discussion:Home office deductions
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| 6 January 2006 | |
| Oops, hit enter before I typed. I have a couple of S corps and LLCs where the shareholder/member operates the business in their home. I recall reading some time long ago and can't find it now, that the S corp cannot pay rent to the shareholder, does anyone know if this is correct? I know that an employee who receives rent from their employer cannot deduct home office expense but that the S corp could reimburse for business use portion of certain expenses, not including real estate taxes, mortgage interest or depreciation. The latter would certainly be simpler that some kind of rent situation.LJACPA 10:53, 6 January 2006 (CST) | |
ConservativeDC (talk|edits) said: | 6 January 2006 |
| There is a great deal of doubt here. The rules are you explain them are correct. However, the use of 100% owned businesses paying rent (deductibly), and then that employee taking rental expenses (depreciation, real estate tax, mortgage interest, utilities, cleaning and maintainence, etc.) is so widespread, it's almost never challenged.
One way of getting around it if you want to stick to the letter of the law is to set up a separate C-corp. The active business would then pay a deductible fee for something or other to the separate C-corp. This C-corp would then pay rent to the non-employee 100% shareholder, who would claim all Schedule E expenses. | |
| 24 January 2007 | |
| Is the rule the same for an S Corp owner and a C Corp owner, i.e., owner reports rental income on Schedule E but with no deductions? It sounds like the deduction of expenses is so widespread that it's almost never challenged anyway but I would like ot know the right way of doing it with a C Corp owner who has office space in his house that he used for business purposes in running his C Corp business. | |
Death&Taxes (talk|edits) said: | 24 January 2007 |
| If you are governed by Circular 230, 'never challenged' is not an option. Or in the words of today, 'what part of Sec. 280A(c)(6) is not being understood.
"6) Treatment of rental to employer. Paragraphs (1) and (3) shall not apply to any item which is attributable to the rental of the dwelling unit (or any portion thereof) by the taxpayer to his employer during any period in which the taxpayer uses the dwelling unit (or portion) in performing services as an employee of the employer." Note that it does not say S Corp or C Corp. There are many threads on this board about setting up an accountable plan; just which expenses are covered can be debated, but I recall in our last discussion, it comes down to deducting part of utilities and insurance for the most part. | |
| 24 January 2007 | |
| So, rent income from corp reported on schedule e less portion of utilities and homeonwer's insurance equals net income. real estate taxes and interest not reported on schedule e but can be deducted on schedule a if taxpayer itemizes?? | |
Death&Taxes (talk|edits) said: | 24 January 2007 |
| Only the interest, taxes and casualty loss are deductible against the rent. | |
Death&Taxes (talk|edits) said: | 24 January 2007 |
| In other words, it is a way to get money out of a corporation without paying FICA....little other benefit. | |
| 24 January 2007 | |
| We have had some thoughts suggesting a net lease arrangement with the corp paying its share of expenses directly could work. 280A
does not forbid rental, only deductions. Not a position I endorse, but it is out there. ♫ | |
| 31 March 2007 | |
| While a literal reading of 280A does indeed include C corp shareholders renting their corps portions of their residence, it seems to me that the intention of this employee/employer language was actually with regard to a third-party employer due to the inclusion of the 'convenience of the employer' language, which would be somewhere between irrelevant and a given in the case of a corp shareholder renting to his corp of which he is an employee. Possible inartful drafting, or, of course, possible my opinion is entirely wrong... | |
