Home Office Deduction: Schedule E VS Schedule C

6 Replies

I've sort of got this question floating out on another thread, but I want to directly ask:

As a landlord with 3 rental properties I maintain a dedicated home office. This is the first year I will be claiming the deduction. I'm not a SP, an LLC, and agent, or a broker. I'm simply a landlord that is actively involved in managing these rentals as a business. I'm confident in my ability to take the deduction; I'm just confused about where/how to take it.

Every Landlord's Tax Deduction Guide says to claim it on line 18 of my Sch E as an "other" expense and say "Business use of home".

Others I've spoken to say to use Schedule C, but since my rental income is all on Schedule E, how will that work?

I'm working with a net operating loss for my rentals this year, so putting the deduction in Sch E doesn't seem right because the home office should not offset ordinary income.  Help?
Thanks!

So @Lisa Mason it sounds like you are now trying to justify taking a deduction that you shouldn't. The short answer is you only have rental income. The IRS says your rental income is "passive income". Passive income does not require a home office. You dont have a business on record. No LLC, no sole proprietorship...you do not qualify to take the home office deduction.

Rob, 

I am definitely only trying to take deductions I am entitled to.  I believe you are incorrect in saying that landlords with "only" rental income cannot take the home office deduction.  A landlord can be considered to run a business if the work they do is regular and they actively participate in managing their rentals.

Every Landlord's Tax Deduction Guide has an entire chapter dedicated to the home office deduction for individual landlords, and with 5 star reviews on Amazon and updates every year, I find it hard to believe the book is 100% wrong about this.

I am not trying to be argumentative; I'm simply trying to get to the bottom of this and figure out how to enter this home office deduction. Indeed, when I got H&R Block advice, they said I could not take the deduction. However, that goes against what is in the book I have, and against what lots of information I've found out there says. I definitely actively participate in my rentals, and if I need to become a SP or LLC to prove it, I can work towards that too.

Because you don't have Active Income, no matter you put it on Schedule E or C , you still can not off from your passive Income, you will carry over to next year till you have Active Income, then you can really deduct it at that time. 

If you want to carry over the Home office deduction, you have to use standard Home office deduction, the Simple Home Office can not carry over to next year.

Hope this will help you.

Thanks for the input Gary.  I was planning to use the standard (not simple), but I wasn't aware that you couldn't do a carry-forward with the simple.  Good to know.

Is it standard practice to enter a home office deduction on a Schedule C when my properties are on Schedule E?  Or should I just enter it as an "other" expense on Schedule E like the NOLO book suggests?  Anyone know?

I am not a tax consultant. I am in the same situation you are in! I use turbo tax specifically for this reason. The Nolo book says to take home office deduction if you are the active property manager/landlord. Its not considered passive income if you are actively managing the property yourself. Please refer to this linked page for exact information regarding the deduction! https://turbotax.intuit.com/tax-tools/tax-tips/Small-Business-Taxes/The-Home-Office-Deduction/INF12067.html Hope that helps!

@Lisa Mason @Rhonda Blue

The main question landlords have to ask themselves is: do my rental activities qualify as a business, or are they viewed as an investment? Better yet, how will the IRS view your rental activities?

Whether or not you are in business is determined by the facts and circumstances surrounding your rental activities. Are you regularly, systematically, and continuously involved in your rental activities? Are you managing the rentals yourself or did you hire help? If you hired help, how often is that person involved in YOUR rental activities? How many properties do you own? Are you leasing on a short-term or long-term basis? How many hours are you devoting to your rental activity and are you logging these hours?

When you have solid tenants in place and own only a few rentals, you may not be able to prove you are regularly, systematically, and continuously involved in your rental activities and therefore may not be able to qualify them as a business.

Get with a real estate savvy CPA as they will look at the entire picture and use their judgment/experience in determining whether or not you are in business and eligible for business deductions like the home office.

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