Home Office Deduction - Sch. E or Sch C for Rental Property

Tax, SDIRAs & Cost Segregation
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Home Office Deduction - Sch. E or Sch C for Rental Property

Colin W.
Glen, NH · Member since 2012 · 5 posts · 0 votes

For my rental properties I maintain a home office. Should this deduction be taken on Schedule E along with my other rental expenses? I ask because Turbo Tax lists the home office deduction on Schedule C.

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    14y

    If your a RE investor you should have a CPA who is RE familiar to be doing your taxes unless your a licensed CPA. Using Turbo Tax is not a suggested choice for doing your taxes. Hire professionals. Good luck.

    Curt Davis - KAIZEN Realty538 Reviews
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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    14y

    Colin W.,

    I represent people before the IRS. The first thing I ask is how much time do you spend using it. Turbo Tax is extremely sub par for preparing any return with extensive investments and/or self employment income.

    A big determination is justification of the home office. The IRS states it must be used regularly and exclusively. The issue I come into is how often is it used and how many rentals do you have that are requiring that much paperwork.

    Curt Davis and Colin,

    You do not necessarily need a CPA; however, you need someone who can represent you and knows what questions the IRS will ask. You must use someone qualified. The tax law is way to vast to multitask.

    -Steven the Tax Guy

    Your guide to IRS laws, rules and regulations.

    [email protected]224-381-2660
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  • Colin W.
    OP
    Glen, NH · Member since 2012 · 5 posts · 0 votes
    14y

    Thanks for the responses. Curt, yes, a CPA can certainly be beneficial to those with complex returns or little understanding of the tax provisions. Turbo Tax is sufficient for most people, especially those with a background in tax which I have. This question can be answered by someone who prepares tax returns on a regular basis which I do not do.

    Steve,

    I have three rental units. I'm not too concerned upon defending my position as I feel its defendable with support and documentation. The annual deduction is not that material.

    With that aside, now I'm just curious where other real estate investors take their Home Office Deduction. If your rental income is all reported on Schedule E, you will have no rental income on Schedule C to make the Home Office Deduction worth taking.

    Thanks.

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  • Mark Yuschak
    Residential Real Estate Broker · Grand Blanc, MI · Member since 2008 · 885 posts · 316 votes
    14y

    I am a full time investor and run my business from a home office. The office is exclusive to the rest of the house, and nothing else is kept in that area. Even with a portfolio of rental properties, and multiple rehabs going at any given time, I do not claim the home office exemption.

    Based on discussions I've had with my tax preparer (who is not a CPA, by the way, but is very well versed in tax prep and representing clients in IRS audits) and other tax professionals, the home office deduction is one of the leading flags the IRS uses for potential audits. Since an audit is not something I'd like to deal with, I forgo that deduction.

    If you have only three rental properties and maintain other employment, you might want to carefully think using the home office deduction.

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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    14y

    Colin W.,

    I have to ask what your tax background is out of curiosity. Not too many people can brave the world of Tax.

    The material factor is important. One of the things the IRS looks at is the income brought in via the home office as well as the regular use of the office. For three properties depending upon the number of units they may ask some questions. I'm not here to audit you though. My job is just to educate everyone so they may rake advantage of everything available to them.

    You can apportion the home office among each of the properties or you may create a "General Expenses" Item that you can include all of you non specific expenses on. This would include tools, mileage, licenses and property used to work on all of the properties.

    @Colin & Mark Yuschak,

    No matter whether you think it will be audited the home office should be taken since it is allowed in the correct situation.

    Mark,

    Is your person an Enrolled Agent or Attorney?

    -Steven the Tax Guy

    Your guide to IRS laws, rules and regulations.

    [email protected]224-381-2660
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  • Colin W.
    OP
    Glen, NH · Member since 2012 · 5 posts · 0 votes
    14y

    Thanks Steve. I figured it out, the deduction taken on Schedule C flows to Schedule E. MST with corporate tax experience.

    My personal income tax knowledge is purely academic, and of course my own personal returns.

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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    14y

    Colin W.,

    Be sure that it does carryover. I have seen all too many that do not. I actually just came across one today.

    -Steven the Tax Guy

    Your guide to IRS Laws, Rules and Regulations.

    [email protected]224-381-2660
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