Discussion:Home office in a partnership

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Discussion Forum Index --> Tax Questions --> Home office in a partnership


TaxAssistCPA (talk|edits) said:

21 September 2006

I usually steer clear of the home office deduction but have a client that insists that his partnership should pick up a prorated portion of home expenses for his home office. I know there is no home office form to go with a 1065 so I would just list with the other expenses. Do you all feel this is legitimate in a partenership context? This person's actual office is in his home.

Dennis (talk|edits) said:

21 September 2006
unreimbursed partnership expense is available Publication 587 worksheet.

CrowJD (talk|edits) said:

21 September 2006
I don't understand, is this the partnership's only office? Or is the main office somewhere else? At any rate, assuming the partnership has another office somewhere, the partnership can deducts it's reasonable business expenses. Now, it pays to be reasonable! The partnership could pay for the business phone lines at the home, fax machine, computer etc. and I mean pay them directly (note, it's not paying for the guys landscaping!). Making the same assumption, if the partner performs significant administrative duties there for the partnership, he can take the standard home office deduction (sans any items picked up by the partnership), attached to his 1040. Of course, we all know that these are (or were) an invitation to an audit. But clients tend to be quite insistent on these home office deductions. Or, as Dennis says, he can seek reimbursement for expenses, and then still take the home office deduction (making sure not to double dip).

Solomon (talk|edits) said:

22 September 2006
UPE is reported on page two of Sch E on a separate line where K-1 is reported - should require no attachment to 1040 and the worksheet in Pub 587 is simply that - a worksheet.

CrowJD (talk|edits) said:

22 September 2006
Oh, I see Dennis was talking about UPE. I meant he could actually seek reimbursment for some items,as an option, and then still take the 8829 if he performed significant administrative duties there. Am I doing this in a round about (or incorrect)way?

Death&Taxes (talk|edits) said:

22 September 2006
What I don't understand in the original question is why the client would want to split his own house expenses with his partner for he says he wants the partnership to deduct them. Pretty generous of him if you ask me, or perhaps he does not want the partnership to reimburse him for fear his partner will have a laundry list of expenses to deduct also. Usually what happens here is that each partner goes to his tax man and says he does all sorts of administrative expenses at home, blah, blah blah, and pretty soon between the partners and the partnership, three offices are being deducted!

CrowJD (talk|edits) said:

22 September 2006
Yes, I've got a case somewhat like that right now, and I'm already worried about it. Two partners just spent over 35K to refurbish their main office, yet each actually spends the major part of each day at home (they don't like to come in to their own offices). They are in the interior design field. There are three (virtually unsupervised) employees at the main office. Can you take the actual value (cost) of the "business use" space in the home as an unreimbursed partnership expense?

Solomon (talk|edits) said:

22 September 2006
Well, according to instructions, to use UPE the partnership agreement is supposed to delineate expenses that would subsequently be claimed by a partner as UPE.

CrowJD (talk|edits) said:

22 September 2006
Doh! The instructions. I stand chastised. Well, with the clients I mentioned above, I am having the LLC pay the business phone lines (they are in the business name) at the home, they are separate lines for business only. The business paid for the furnishings and office equipment. If my clients can indeed satsify the requirements for the home office deduction, might they still come out better that way? As far as taking a small portion of depreciation, utilities and so on, the preparation of the space for business and so on?

Solomon (talk|edits) said:

22 September 2006
As you describe it, seems like a wash whether on the 1065 or on Sch E as UPE. If those enumerated expenses are being deducted on the 1065, then the K-1 income is reduced accordingly. As you say, other than small depreciation (which would be unrecaptured 1250 on home sale), utilities, real estate tax,mortgage interest, and general repairs. May be UPE would be a bit better.

CrowJD (talk|edits) said:

22 September 2006
Thanks Solomon, this has been very helpful. I'd as soon avoid the 8829s, though it's probably a little late this year for them to accumulate any unreimbursed expenses under my facts (I think I can amend the operating agreement up to date of return, but they'd have few unreimursed expenses).

Susan CF (talk|edits) said:

14 February 2007
Question: I am assuming that a husband & wife partnership would handle their home office expenses in the same manner as UPE and not on the 1065? Another thought is couldn't they draw a rent from the partnership for the home office and storage space and then claim this income as well as all the home office expenses and depreciation on schedule E. But perhaps the UPE is the better deduction.

Thanks for all your input, Susan CF

Kevinh5 (talk|edits) said:

14 February 2007
Much ado about nothing, Susan. There is not much there for the taking.

Sandysea (talk|edits) said:

15 March 2007
But if the client cannot itemize deductions, does it not make more sense to have the partnership take the deduction for the home office so it is not lost? Even if the other partner gets a benefit by reducing his k-1 figure, it still would allow them both to take the deduction otherwise lost, no?


Szptax (talk|edits) said:

29 August 2010
There have been many discussions regarding a home office in the home of a partner in a partnership. I just want a sanity check here because my client (partnership) is being quite generous with his partnership checkbook. It would seem from my examination (not used in the accounting sense) of the record he provided that the partnership checkbook is used for anything that might even remotely smell of a business expense, even if it isn't. BTW its an LLC taxed as a partnership between husband & wife where he works in the business and she does not. I am getting lost in journal entries. Personal expenses I have reclassified to draw.

At the moment I am looking at the rent and the utilities. The LLC has paid 11 out of 12 bills and 8 months of rent. In the past I have used UPE where the partnership has not reimbursed his personal expenses. There is no accountable plan that I am aware of. My plan is to discuss this with him to determine whether or not there is now an accountable plan established. Hmm, I wonder what that answer will be. Generally speaking what is the best scenario in this situation?

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