LLC pays member for use of home office

[JoshinNC]

If an LLC member is using a room in her home as her only office location, can the LLC rent the office space from her? If so, is the rent received reported as GP to the member or on 1099-MISC, with a deduction taken on the member's return on schedule E?

[Gretel]

More specs first.

Sch.C, 1065 or Corp.?

[JoshinNC]

sorry

1065

3 members, one of which is the business manager. Her only office is her home office, as their manufacturing facility does not have space for her to have an office. Can she lease the space to the LLC, and would it be a GP or rental income to her?

Thanks in advance!

[Bees Knees]

Since this LLC is taxed as a partnership, partnership rules would allow her to deduct unreimbursed office in home expenses on Schedule E. Or she could use an accountable plan where the LLC reimburses her for the expenses. Or, since she is not an employee of the LLC, she could have the LLC rent the space from her, where she would then report rental income minus expenses on Schedule E.

You basically have the freedom of doing just about anything with a partnership.

[OldJack]

Since this LLC is taxed as a partnership, partnership rules would allow her to deduct unreimbursed office in home expenses on Schedule E. Or she could use an accountable plan where the LLC reimburses her for the expenses. Or, since she is not an employee of the LLC, she could have the LLC rent the space from her, where she would then report rental income minus expenses on Schedule E.

You basically have the freedom of doing just about anything with a partnership.

She can deduct unreimbursed expenses only if the partnership agreement clearly requires her to incurr such expenses on 1040 Sch-E, page 2.

The LLC can reimburse her based upon the amount calculated on the worksheet in pub 587, page 24. This reimbursement is deductible (as an accountable plan) by the partnership and not taxable or reportable to the homeowner partner.

If she receives rent income from the partnership it is taxable income on Sch-E but she is not allowed any deduction of expenses allocable to the rental space on Sch-E.

[John of PA]

Why no Sch E page 1 deductions

Why can't she take any expenses on Sch E, page 1 against the rent income?

[OldJack]

Why can't she take any expenses on Sch E, page 1 against the rent income?

Well John at the time I was thinking of employee can't deduct rental expenses (pub 587) . However, that is a good question if she is only a partner I don't know off-hand if the rule still applies.

[Bees Knees]

In other words, and LLC member CAN rent an office in home to the partnership and deduct expenses. Section 280A(c)(6) applies to a taxpayer "performing services as an employee of the employer."

[JoshinNC]

thanks to all

i appreciate everyone's responses.