Ranch Housing

[equinecpa]

I have a client that has an S -corporation that operates a ranch. The ranch is rented. My client pays one check for ranch rent to the landlord and another for rent of their mobile home located on the same property in which they live in so that they can tend to the ranch.

For most of this year they also shared the mobile home with one of their employees.

Do my clients have any argument to claim part of their mobile home rent as a business expense? They live there so they can effectively run the business and be available to take care of the animals at all times. I was just reading the employer provided housing rules...must be for the convenience of the employer and must be "required". I imagine that they can fulfill those rules...they can require themselves to live on premises.....

What do you think will this fly?

[Davc]

No. If there were other shareholders then it might but not if the persons living on the premises are the only, or even controlling, shareholders. Otherwise everybody who had their business on the same premises as their house could incorporate and write off their entire residence.

[erchess]

Interesting question

Dave I don't think OP proposes to claim the entire home rent, just some of it. To my mind the term "home office" refers to any space in the home that is regularly and exclusively used for business tasks and not merely those tasks that are ordinarily done in an office. One key thing is that you have minutes of corporate board meetings spelling out the requirements that the employees do certain things and the other as I mentioned is that the "home office" space or spaces be used "regularly and exclusively", ie almost daily business use and no personal use of said spaces. Thus for example the employee's bedroom cannot have been used for any nonbusiness purpose by the taxpayer or spouse or by for example a guest. The "regular office" where ranch record keeping was done cannot have also been used for example to balance the family checkbook or make personal use of the computer. (If the computer is a laptop, personal use of it outside of the "home office" spaces would not invalidate the office and if the laptop saw at least 50% business use then the machine itself could be the basis for a deduction.) The "workshop" where ranch equipment was maintained and repaired likewise cannot have been put to personal use. Oh I also believe it is important that the purposes ascribed to the home office space or spaces not have spaces on the ranch property set up for them. Thus in this example you don't want a decent bedroom or a work bench and similar tools or a desk chair and filing cabinet set up anywhere on the ranch,

[Davc]

I was just reading the employer provided housing rules...must be for the convenience of the employer and must be "required". I imagine that they can fulfill those rules...they can require themselves to live on premises.....

What do you think will this fly?

The above sounds like fishing for a complete write off of the residence to me.

[outwest]

Yep, could work..

Code section 119(a)(2) and Reg. 1.119-1

Step one: must be employee. That's why only works for corporations.
Step two: legitimate reason the employee must accept.

Example: Manage a 24/7 livestock operation. You would want management constantly available.

Reasons everyone doesn't do it.
1. Real estate in a corporation.
2. Loss of Section 121 treatment.
3. Headaches of running a corporation.
4. Spouse doesn't want to live on the hog farm.

Okay, the last is not in the regs, but it's a practical consideration.

Welcome to the wild and wacky world of tax.

[erchess]

Dave you're rignt

The above sounds like fishing for a complete write off of the residence to me.

I don't know how I overlooked that. On the other hand I also agree with Outwest and the provided citation.

[Davc]

It's been a while but when I looked into it the only court cases where it was allowed had multiple owners with only one couple living on the premises.

[erchess]

Major Decision We All Face

Some people never claim a deduction unless they have a precisely matching case or clear statutory language that says they can. Others of us will at least consider claiming a deduction if reading sources like TTB leaves us thinking maybe it would be allowable.

[Davc]

Some people never claim a deduction unless they have a precisely matching case or clear statutory language that says they can. Others of us will at least consider claiming a deduction if reading sources like TTB leaves us thinking maybe it would be allowable.

Your statement is a gross exageration since the statutes seldom list specific tems. However, if a deduction might be questionable I strongly suggest you go beyond TTB. I've previously seen you post along the lines of "If the law doesn't say I can't, I'll take it". That shows a fundamental misunderstanding of the code.

§ 61. Gross income defined

(a) General definition
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

§ 62. Adjusted gross income defined

(a) General rule
For purposes of this subtitle, the term “adjusted gross income” means, in the case of an individual, gross income minus the following deductions:


§ 63. Taxable income defined

(a) In general
Except as provided in subsection (b), for purposes of this subtitle, the term “taxable income” means gross income minus the deductions allowed by this chapter (other than the standard deduction).

[equinecpa]

Thought I better check in and stir the pot some.

I'm just trying to decide my position on this and how I would argue the deduction to an auditor. Basically I was looking at the same cites posted by Outwest...

What I'm not sure I like is it would appear difficult to do a partial claim -the rules seem to lead to a all or nothing deduction, unless one went the way off an office in home.