USA Staying overnight in own rental property and being reimbursed by company

[jwander14]

My permanent residence and tax home is several thousand miles away from our company's headquarters, however I own a rental property near the HQ. I have rented it out for the past 15 years and now it is vacant and I would like to understand if I may stay there and also be reimbursed by my company when I'm required to travel to the HQ for work.

Part of the reason is I'd like to update the bathroom and kitchen and this could potentially happen while the property is vacant since I would be occasionally staying there 4-6 nights a month. The HQ location is a very expensive major metro area and the cost I would request from my company for the nightly reimbursement would be less than the typical hotel rates, but enough for me to offset some of my monthly mortgage, HOA, etc. while the renovations occur.

A few questions, if this is even possible:

1. I presume I would be issued a 1099-MISC at the end of the year, correct?
2. Would there need to be any agreement in place either with the company or could a nightly reimbursement memo suffice if they were ok with this approach?
3. Would I be able to deduct any of the normal rental expenses mortgage interest, HOA, etc. or would that then be considered a self-rental?
4. If so, would the 1099-MISC be active?
5. Would any potential deductions be passive or not recommended?
6. Anything else to consider???

Thank you for any and all advice. Take care!

 

[Andrew312]

Interesting fact pattern. Could you do the following:

(i) Ask BigCo HQ to pay you per diems
(ii) BigCo will take a tax deduction for the payments
(iii) You will exclude the payments from income
(iv) You will be staying at your own rental apartment so the days you spend there will be counted as personal use under IRC section 280A. However, to the extent you perform repairs and maintenance while there, those days are not counted.
(v) The proportion of personal use days to tenant rental days will be used to calculate the disallowance of deductions for HOA, interest, property taxes, etc.

Best,
Andrew

 

[jwander14]

Thanks Andrew. That's an awesome suggestion and one I did not even think of.

If they use the high-low substantiation method, it would be $287 per day. Would I still need to show receipts under this method? If receipts are needed, would my mortgage on the second property count as lodging expenses taking the total divided by days of the month or days in a year? Thanks again and look forward to your thoughts and will run by my accountant for final review.

 

[Andrew312]

The idea behind per diems is to do away with the burden of receipts. The only thing you need to substantiate is that you were out of town in the city for which you are claiming the per diem.

The section 280A calcs can get tricky. We have a workpaper that we use for our clients (who have rental properties that they also use personally, so similar situation to yours). The tricky part is how you allocate an expense to rental versus personal use. PM me if you need help with that. But, it sounds like this is quite prospective so you may not be doing the tax return for a while : )

 

[jwander14]

Unfortunately the company said they couldn't mix per diem and actuals.

"Reimbursement for travel expenses requires consistency. Our company policy is to reimburse actual substantiated expenses and we do not use the per diem reimbursement method. We can’t just use the per diem rates for one situation, and there would be significant impact to other employees if we adopted a per diem policy. Unfortunately, the proposal doesn’t seem to be a scenario that would work for us."​

Thanks for the suggestion and let me know if there are other ideas from the group.

 

[Andrew312]

Well...you could think about the following:

- put your apt up for rent on VRBO, AirBnB, or some such, and rent it to yourself.
- you control whether to accept the tenant, and presumably, you, qualify : )
- the third party (VRBO, AirBnB, etc.) issues the invoice that you submit for reimbursement to BigCo.
- the third party takes a cut, but that's the price you pay to give this arrangement the air of legitimacy.
- you could of course try to collect the entire BigCo payment by setting up your own leasing company an an S corp for example but that may not be worth the trouble (and expense).
- BigCo presumably has limits on the maximum reimbursable amount for a night's stay.
- if you set the price for your apartment within BigCo's reimbursement policy but above the market rate for the unit then you could be accused of committing a fraud on BigCo.
- in fact, not being completely transparent with BigCo about this arrangement carries a risk of repetitional harm to you if it's later discovered that you were staying at your own place and collecting reimbursements for it.