Farm Partnership Question

[Koss]

Multi-member LLC owns and operates a farm. It is taxed as a partnership and files Form 1065.

The farmland includes a farmhouse. The farmland and the farmhouse are owned by the LLC.

One member of the LLC lives in the farmhouse, and actively works on the farm. He does not pay rent to the LLC.

Is the FMV of the rent considered income to the member?

Are expenses of the house, such as property tax, utilities, and repairs and maintenance, deductible for the LLC?

Can the LLC depreciate the house? If so, over how many years? What asset class?

BMK

[Roland Slugg]

Lodging furnished to an employee (and his immediate family) is nontaxable to the employee if: (1) the lodging is furnished for the convenience of the employer, and (2) the employee is required to accept the lodging as a condition of his employment (i.e. to properly perform his duties). See Code §119 and Regs §1.119-1(b).

If the above conditions are met for the resident employee, then it follows that most costs of maintaining the house would be deductible as ordinary and necessary business expenses.

The value (not the cost) of lodging that fails to meet these tests is income to the employee. See Regs §1.61-2(d)(3) and Regs §1.119-1(a)(1).

[Koss]

Lodging provided to partner

Roland Slugg wrote:

Lodging furnished to an employee (and his immediate family) is nontaxable to the employee if...

This is kind of what I was thinking, after reading a similar reference in IRS Publication 225.

But I wasn't sure if this would be applicable, because a partner who is working for the partnership is not an employee. He gets a K-1, not a W-2, and the compensation is considered self-employment income.

BMK

[New York Enrolled Agent]

Roland Slugg wrote:



This is kind of what I was thinking, after reading a similar reference in IRS Publication 225.

But I wasn't sure if this would be applicable, because a partner who is working for the partnership is not an employee. He gets a K-1, not a W-2, and the compensation is considered self-employment income.

BMK

You might want to look at an article from April, 2015 in the Tax Adviser. Citations given both pro and con.

[Koss]

Employer-provided meals and lodging

New York Enrolled Agent wrote:

You might want to look at an article from April, 2015 in the Tax Adviser. Citations given both pro and con.

Thank you! This definitely answers the question. Apparently the courts are split on whether the exclusion can be applied to a partner working for a partnership.

I'm surprised that this is not a settled issue. I suspect that such arrangements are very common, and not just on farms.

BMK