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Home office Deduction in 1120, 1120S and 1065

 
 
Rashid
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      02-03-2010, 11:44 PM
I wonder how a shareholder of a S corporation or C corporation claim
home ofiice deduction in 1120S or 1120?. If this can be calimed, will
that also be considered a rental or other income to the shareholder?

How that works in partnership (1065)?

Thank you

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Bill Brown
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      02-04-2010, 12:14 PM
On Feb 3, 6:44*pm, Rashid <(E-Mail Removed)> wrote:
> I wonder how a shareholder of a S corporation or C corporation claim
> home ofiice deduction in 1120S or 1120?. If this can be calimed, will
> that also be considered a rental or other income to the shareholder?
>
> How that works in partnership (1065)?
>


For a corporation: the employer establishes an accountable
reimbursement plan and requires the employee to provide his/her own
office. The employee provides an accounting of home office costs to
the employer and the employer reimburses those costs. If reimbursement
= costs, the employee reports nothing and the corporation deducts the
expense.

For a partner: The partnership agreement calls for the partners each
to provide their own office space. Each partner deducts qualified home
office expenses on Schedule E.

Remember, the regular and exclusive use rules still apply.

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removeps-groups@yahoo.com
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      02-04-2010, 05:33 PM
On Feb 4, 4:14*am, Bill Brown <(E-Mail Removed)> wrote:
> On Feb 3, 6:44*pm, Rashid <(E-Mail Removed)> wrote:


> > I wonder how a shareholder of a S corporation or C corporation claim
> > home ofiice deduction in 1120S or 1120?. If this can be calimed, will
> > that also be considered a rental or other income to the shareholder?


You used the word shareholder. Assuming the shareholder is an
employee paid with a W2, the employee can always take the deduction
for business use of home subject to the 2% of AGI limit. If the
shareholder is a contractor paid with a 1099-MISC, they take the same
deduction, but it is not subject to the 2% of AGI limit, and is not
subject to AMT.


> > How that works in partnership (1065)?

>
> For a corporation: the employer establishes an accountable
> reimbursement plan and requires the employee to provide his/her own
> office. The employee provides an accounting of home office costs to
> the employer and the employer reimburses those costs. If reimbursement
> = costs, the employee reports nothing and the corporation deducts the
> expense.


Can the accountable reimbursement plan be used to pay for
depreciation?

Can the shareholder charge the corporation rent, with depreciation and
rental expense on the shareholder's individual Schedule E return? The
corporation will deduct the rent as an immediate expense.

> For a partner: The partnership agreement calls for the partners each
> to provide their own office space. Each partner deducts qualified home
> office expenses on Schedule E.
>
> Remember, the regular and exclusive use rules still apply.


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<< The foregoing was not intended or written to be used, >>
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<< that may be imposed upon the taxpayer. >>
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Mark Bole
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      02-05-2010, 12:51 AM
(E-Mail Removed) wrote:

> Can the accountable reimbursement plan be used to pay for
> depreciation?


I've asked the question before, still don't know the answer.


> Can the shareholder charge the corporation rent, with depreciation and
> rental expense on the shareholder's individual Schedule E return? The
> corporation will deduct the rent as an immediate expense.



Can the OIH expense be used to create (or add to) a net loss from the
activity, if covered under a reimbursable plan?


>
>> For a partner: The partnership agreement calls for the partners each
>> to provide their own office space. Each partner deducts qualified home
>> office expenses on Schedule E.
>>
>> Remember, the regular and exclusive use rules still apply.

>



-Mark Bole

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Richard Di Bernardo, CPA
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      02-05-2010, 04:46 AM
>
> Can the shareholder charge the corporation rent, with depreciation and
> rental expense on the shareholder's individual Schedule E return? *The
> corporation will deduct the rent as an immediate expense.


If you rent an "office-in home" to your employer you can't claim
deductions other than interest, taxes, and casualty losses. IRC
280A(c)(6)

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Bill Brown
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      02-05-2010, 02:24 PM
On Feb 4, 12:33*pm, "(E-Mail Removed)" <removeps-
(E-Mail Removed)> wrote:
> On Feb 4, 4:14*am, Bill Brown <(E-Mail Removed)> wrote:
>
> You used the word shareholder. *Assuming the shareholder is an
> employee paid with a W2, the employee can always take the deduction
> for business use of home subject to the 2% of AGI limit. *If the
> shareholder is a contractor paid with a 1099-MISC, they take the same
> deduction, but it is not subject to the 2% of AGI limit, and is not
> subject to AMT.
>

Sure, but why take a limited deduction from AGI when one can easily
get an effective 100% deduction that reduces AGI?

>
> Can the accountable reimbursement plan be used to pay for
> depreciation?
>


Good question and I'm not sure. I've seen the issue discussed without
resolution.


> Can the shareholder charge the corporation rent, with depreciation and
> rental expense on the shareholder's individual Schedule E return? *The
> corporation will deduct the rent as an immediate expense.
>


No. See Di Bernardo's response.

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<< that may be imposed upon the taxpayer. >>
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Richard Di Bernardo, CPA
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      02-06-2010, 03:45 AM
On Feb 5, 6:24*am, Bill Brown <(E-Mail Removed)> wrote:
> On Feb 4, 12:33*pm, "(E-Mail Removed)" <(E-Mail Removed)> wrote:
> > On Feb 4, 4:14*am, Bill Brown <(E-Mail Removed)> wrote:

>
> > You used the word shareholder. *Assuming the shareholder is an
> > employee paid with a W2, the employee can always take the deduction
> > for business use of home subject to the 2% of AGI limit. *If the
> > shareholder is a contractor paid with a 1099-MISC, they take the same
> > deduction, but it is not subject to the 2% of AGI limit, and is not
> > subject to AMT.

>
> Sure, but why take a limited deduction from AGI when one can easily
> get an effective 100% deduction that reduces AGI?
>
>
>
> > Can the accountable reimbursement plan be used to pay for
> > depreciation?

>
> Good question and I'm not sure. I've seen the issue discussed without
> resolution.
>
> > Can the shareholder charge the corporation rent, with depreciation and
> > rental expense on the shareholder's individual Schedule E return? *The
> > corporation will deduct the rent as an immediate expense.

>
> No. See Di Bernardo's response.
>
>


Bill,

I believe my post applies to those attempt to circumvent the OIH
requirements to get related deductions as rental expenses by renting
their dwelling to their employer. This code provision does not
disallow a rental deduction to the employer/corporation. It limits
the employee's deduction to those previously mentioned, thereby
invalidating any tax savings from the arrangement .

In a OIH arrangement, there is no landlord-tenant relationship, lease
or rental agreement. The employer has no contract right to occupy the
taxpayers dwelling. I would not consider the employees use of a his/
her dwelling as a rental arrangement.

The first requirement of a accountable reimbursement plan is that the
reimbursement be for a allowable expense that the taxpayer could
otherwise deduct. I don't know of an exception that would preclude a
OIH under the the accountable reimbursement plan rules.

I think an accountable reimbursement plan would work for a OIH.

Richard Di Bernardo, CPA

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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
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Richard Di Bernardo, CPA
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      02-06-2010, 03:46 AM
On Feb 5, 6:24*am, Bill Brown <(E-Mail Removed)> wrote:
> On Feb 4, 12:33*pm, "(E-Mail Removed)" <(E-Mail Removed)> wrote:
> > On Feb 4, 4:14*am, Bill Brown <(E-Mail Removed)> wrote:

>
> > You used the word shareholder. *Assuming the shareholder is an
> > employee paid with a W2, the employee can always take the deduction
> > for business use of home subject to the 2% of AGI limit. *If the
> > shareholder is a contractor paid with a 1099-MISC, they take the same
> > deduction, but it is not subject to the 2% of AGI limit, and is not
> > subject to AMT.

>
> Sure, but why take a limited deduction from AGI when one can easily
> get an effective 100% deduction that reduces AGI?
>
>
>
> > Can the accountable reimbursement plan be used to pay for
> > depreciation?

>
> Good question and I'm not sure. I've seen the issue discussed without
> resolution.
>
> > Can the shareholder charge the corporation rent, with depreciation and
> > rental expense on the shareholder's individual Schedule E return? *The
> > corporation will deduct the rent as an immediate expense.

>
> No. See Di Bernardo's response.
>

Bill,

I am sorry, I misread your post. Please ignore my response.

Your prior post accurately and intelligently explains the OIH.

Richard Di Bernardo, CPA

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<< that may be imposed upon the taxpayer. >>
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removeps-groups@yahoo.com
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      02-10-2010, 05:07 PM
On Feb 4, 8:46*pm, "Richard Di Bernardo, CPA" <(E-Mail Removed)>
wrote:

> > Can the shareholder charge the corporation rent, with depreciation and
> > rental expense on the shareholder's individual Schedule E return? *The
> > corporation will deduct the rent as an immediate expense.

>
> If you rent an "office-in home" to your employer you can't claim
> deductions other than interest, taxes, and casualty losses. *IRC
> 280A(c)(6)


Section 280(A) is really difficult to read. But I found this IRS
letter ruling that explains the issue well, and the letter also says
why the rule exists, which is to avoid arrangements where part of the
employee's compensation is through rent. I have difficulty absorbing
that idea because an S corporation with one shareholder still seems
just like a sole proprietorship for practical purposes.

http://www.irs.gov/pub/irs-wd/0121070.pdf

<Quote>

Accordingly, 280A(c)(6) will bar E-2 from deducting otherwise
allowable
162 trade or business expenses, 165(c)(1) business casualty
losses, and 167
depreciation. That statutory bar, in turn, explains why there is no
place on the forms to
deduct those expenses.

</Quote>

What forms are they talking about? One would still use Schedule E,
but depreciation allowable and other fields would be blank.

So the effect of this ruling is this. If the property tax, mortgage
interest is $300, the employer should pay rent of $300. The
employee's Schedule E page 2 will be zero (rent $300, deductions
$300). The itemized deductions on the employee's personal return will
be reduced by $300 (because they have moved from Schedule A to
Schedule E page 2), but the corporation will deduct $300, and the
employee's Schedule E page 1 income from K-1 will be reduced by $300,
and thus the employee's AGI will be reduced by $300.

Depreciation not being allowed: not a big deal because you have to
recapture it anyway, although you deduct it at your marginal tax rate,
at recapture at the long term capital gains rate.

Trade expenses. Would these be things like the pro-rated portion of
condo fees, gas/electricity, repairs on the business part of the house
(things like painting, fixing water pipes in that area, fixing the
windows in that area, etc)?

Business casualty losses. What are these?

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Gene E. Utterback, EA, RFC, ABA
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      02-17-2010, 07:22 PM

<(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
> On Feb 4, 4:14 am, Bill Brown <(E-Mail Removed)> wrote:
>> On Feb 3, 6:44 pm, Rashid <(E-Mail Removed)> wrote:

>

SNIPPED

> If the shareholder is a contractor paid with a 1099-MISC, they take the
> same
> deduction, but it is not subject to the 2% of AGI limit, and is not
> subject to AMT.


MORE SNIPPED

OK, I'll bite - HOW would you justify a shareholder of a corporation (S or
C) to get paid as a contractor?

Gene E. Utterback, EA, RFC, ABA

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