OIH Sch C client changes to 2106 New Activity

[mactoolsix]

Client previously had Sch C with Office in Home.

Now client is W2 employee with Office in Home (qualifies due to employer's convenience) so now has 2106 business expenses.

Can we carryover the previous Sch C OIH losses to the new 2106 activity?

Tried looking in various pubs for this, but no luck - any cites would be appreciated.

Mike

[TaxGuyBill]

I would.

§280A(c)(1) allows office expenses for BOTH self employed and employee. §280A(c)(5) is what restricts the loss and carries it to future years, and that applies to (c)(1) [home office for both self employed and employee].

I don't see anything that says it can't be done.

[CAErinB]

OIH Carryforward

I don't see how this would work. The 8829 is linked to the Sch C, isn't it? I was under the impression that if the taxpayer ceases filing a Sch C, any 8829 carryforward is lost along with any other carryforward expenses belonging to that business. How does it make sense that one should be able to use prior-year self-employment losses to offset current-year employment wages?

I'm not at all opposed to the idea, I just don't understand how it could be possible.

[Rapid Robert]

I don't see how this would work. The 8829 is linked to the Sch C, isn't it?

If you follow the IRS instructions (which are not authority), you will not be able to apply the carryover from SE activity to employee unreimbursed expense. The carryover for the former comes from Form 8829, while the carryover for the latter comes from the IRS worksheet in Pub 587, and neither one (form, worksheet) calls for carrying forward an unallowed amount from the other. They (form, worksheet) are each self-contained when it comes to carryforwards, the instructions are very clear that 8829 applies only to Schedule C, while the worksheet applies only to Sched F and employees.

I would further argue that for an employee, the business use of home must be for the "convenience of the employer". None of the prior carryover from the business activity (Form 8829) was tied to "convenience of the employer", therefore not allowed on Form 2106 as a deduction in the current year.

Sec 280A(c)(1): "In the case of an employee, the preceding sentence shall apply only if the exclusive use referred to in the preceding sentence is for the convenience of his employer."