Client is an S corporation and pays rent to himself for a Home Office which is deducted on the S corporation tax return. When he reports the rental income on his 1040 can he take deductions prorated for his home office - like property taxes, utilities, and depreciation? Note the client will be taking the standard deduction and not itemizing.
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Yes on Schedule E. -
No. IRC 280A prevents this.Comment
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I have a client who did this last year. This is a tax-free reimbursement to your client if he sets up an accountable plan. Search the client handouts for more information. Basically, with an accountable plan, he, as the S Corp employee, would submit a reimbursement form to his S Corp that still gets the deduction. However, the S Corp would then reimburse said employee for the use of his home office. The key is setting up the accountable plan properly. I did a YouTube video on it if you want to see how it's done. It's in two parts because I'm an amateur video maker...lol...but, it's about 17 mins together: https://youtu.be/IaDXdNY6_nE
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AngieT. Nice informative and educational videoOriginally posted by Angie T View Post
additional reference:
Always cite your source for support to defend your opinionComment
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Have you tried doing a “search” on the website for this issue?Originally posted by Florida_EA View Post
Always cite your source for support to defend your opinionComment
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Originally posted by rbynaker View Post
Rick why do you say that? I'm not aware of 280A limiting it.Comment
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280A(c)(6):Treatment of rental to employer
Paragraphs (1) and (3) shall not apply to any item which is attributable to the rental of the dwelling unit (or any portion thereof) by the taxpayer to his employer during any period in which the taxpayer uses the dwelling unit (or portion) in performing services as an employee of the employer.
Paragraphs 1 & 3 are the exceptions to the general rule in (a):Except as otherwise provided in this section, in the case of a taxpayer who is an individual or an S corporation, no deduction otherwise allowable under this chapter shall be allowed with respect to the use of a dwelling unit which is used by the taxpayer during the taxable year as a residence.
So all you're left with is (b) which allows mortgage interest and taxes. If the taxpayer doesn't itemize then those are not allowable, so (b) is out too.
Moral of the story, use Angie T's approach with reimbursement under an accountable plan.
RickComment
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Good to know. I've always suggest Accountable Plans, but I've 'heard' that some people do the rent arrangement. I guess I didn't realize (or remember) that the rent arrangement was so restrictive. Maybe that is why I got Accountable Plans as the way-to-go, but forgot about why I went that route. :-)
I'm also apparently blind because before I asked you "why", I looked through 280A and completely missed (c)(6). :-)Comment
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