Second home for business?

[Unregistered]

Husband and Wife own a Michigan S-Corp (50/50 ownership). H also owns and operates an Illinois business. W operates the Michigan business. They say that their primary residence is in Illinois and they purchased another home in Michigan solely for the purpose of operating the Michigan business.

H lives and works in Illinios Mon-Fri and then visits W in Michigan on the weekends. W works and lives in Michigan. Kind of a weird relationship. No kids.

They would like to deduct as much as possible of the Michigan home's expenses on the Michigan S-Corp.

My initial thoughts are to set up a rental agreement. S-Corp would pay rent to H/W for appropriate business use of the home. FYI, this is an $800,000 house on Lake Michigan. Very nice, but way beyond what would be considered ordinary and necessary to run your business. So we could justify $1,000/month rental, but that's a pretty small perccentage of the total home expenses.

Can husband and wife have different primary residences? Does it make sense for the S-corp to buy the MI home? Even then, it seems like we'd have to add back personal use of their home.

Does anyone have any other thoughts on how to handle?

[jainen]

They can not deduct expenses

They can not deduct expenses related to the corporation renting an employee's home. However, it is not so uncommon for spouses to have different residences. Whether one or both offices qualify as business use of home depends on the ordinary tests, such as primary work location and convenience of the employer.

[Bird Legs]

OIH expenses

An accountable plan could possibly be set up and have the corporation reimburse
the owner, stockholder for the business portion of the expenses. The corp. could then
deduct these expenses and the owner would not have the reportable income.

[OldJack]

It sounds like the Illinois residence is the prime residence of Husband but not wife and the Michigan residence is the prime residence of Wife but not Husband. Could be a real problem on §121 gain exclusion when one of the residences are sold.

Not allowed §121 exclusion could be a major reason for the S-corp to now own a residence.

Fringe benefit as compensation could be another question on the S-corp owning the property lived in by an officer of the corporation.