Rental depreciation and home office deduction

[HJSTAXSTOP]

I have a new client, who in 2004 began a 50% interest in a cabin rental and depreciated that half. In 2005, he obtained the remainder interest. I would think the increased basis would have to be deprecated separate. But being the same property, is there a better way to handle this? Also, he wants to claim a home office deduction for managing the rental. Is there any scenario that this could be done? And, could a loss from this trigger a NOL. I have never seen this before. Any input from the experts? Thanks to you.

[JG EA]

I'll answer one

I have a new client, who in 2004 began a 50% interest in a cabin rental and depreciated that half. In 2005, he obtained the remainder interest. I would think the increased basis would have to be deprecated separate.

Since the depreciation would start at different years, the best thing to do is clearly reflect this on the depreciation. So, it may be cumbersome, but it'll be much easier to figure out at a future date.

[rosieea]

I have a new client, who in 2004 began a 50% interest in a cabin rental and depreciated that half. In 2005, he obtained the remainder interest. I would think the increased basis would have to be deprecated separate. But being the same property, is there a better way to handle this? Also, he wants to claim a home office deduction for managing the rental. Is there any scenario that this could be done? And, could a loss from this trigger a NOL. I have never seen this before. Any input from the experts? Thanks to you.

Let me see if I have this right - He has a cabin for rent and he is going to set aside a portion of his home to be regularly and EXCLUSIVELY used to manage this rental? If he could qualify as a real estate professional, perhaps. But in his case? No way.

[OldJack]

But in his case? No way.

• Exclusively and regularly as your principal place of
business (defined later),
• Exclusively and regularly as a place where you meet
or deal with patients, clients, or customers in the
normal course of your trade or business,
• In the case of a separate structure which is not
attached to your home, in connection with your trade
or business,
• On a regular basis for certain storage use (see Storage
of inventory or product samples, later),
• For rental use (see Publication 527), or
• As a daycare facility (see Daycare Facility, later).

It would appear that he might.

[jainen]

weirder

You think he might use his home office as a rental? This thread started off base and just got weirder.

[OldJack]

You think he might use his home office as a rental? This thread started off base and just got weirder.

If he has an office in his home where he manages rental properties and otherwise meets all requirements what would keep him from claiming office in the home deduction?

[HJSTAXSTOP]

Pub 527 Rental

Thanks for the input guys. I can't find any info in Pub 527 to support the in home office deduction and if you could, wouldn't it have to go a Sch C, as I don't know of a way for it be be used on a Sch E? Do any of you? If part of the rent was earmarked for services rendered, i.e. cleaning and such, the home office might work for SS earnings on that part. But, this is a little too much for me. I've decided to forgo the home office and the client if he insists. Why does all new clients bring baggage ? Thanks again, HJ

[Armando Beaujolais]

Thanks for the input guys. I can't find any info in Pub 527 to support the in home office deduction and if you could, wouldn't it have to go a Sch C, as I don't know of a way for it be be used on a Sch E? Do any of you? If part of the rent was earmarked for services rendered, i.e. cleaning and such, the home office might work for SS earnings on that part. But, this is a little too much for me. I've decided to forgo the home office and the client if he insists. Why does all new clients bring baggage ? Thanks again, HJ

Pub 587 sure seems to give business use of the home to rental, but I think it's just terrible wording in the publication. It says "For rental Use (see Publication 527)."

I think they're just referring people to 527 because rental of a personal residence falls under section 280A, the same code that limits deductions for business use of the home.

Also on page 3 of Pub 587:

"Trade or Business Use. To qualify under the trade-or-business-use-test, you must use part of your home in connection with a trade or business. If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use."

[Bees Knees]

TTB, page 5-14, second coloumn, Court case - taxpayer worked 40 hours per week as an employee. In addition, he also owned six rental units. He managed the units himself.

IRS said no way on office in home for his rental activity. The court gave him the office in home deduction for the rental activity.