All Forum Posts by: Nicholas Schommer

Congrats!!

Without more information, there isn't a lot anybody is going to be able to give you. Purchase price, terms of the deal, what is your goal in the situation, etc. The more info you can provide, the better. Right now I don't even know if your asking if you should rent this yourself, for example.

Welcome! I am just North of you in Stevens Point, WI. As I get a little further along in my investment plan, I do want a vacation home/rental in the Lake Delton/Wisc Dells area, I may need your services! haha. 

If you have not generated any income, nor purchased any properties, the only expenses you could deduct would be those that you incurred in the process of setting up your business (as an LLC, S-Corp, etc.), just be careful, the IRS expects you to make a profit in 3 out of any 5 years and they are quick to label those that do not meet this requirement as a "hobby" and then none of your losses are deductible. What kind of expenses do you have that you think would be deductible?

I would consult an attorney, for a couple hours' fee they should be able to provide you with a contract and/or review the other parties' contract to protect you and your interests... If you are selling a business, they may even work on a contingency basis if you don't have retainer fees upfront, but that will likely cost you more. Money well spent to put your mind at ease in my opinion.

 No there is not an IRS rule that dictates how many square feet a business is, that would be silly. There is, however, a calculation *based on* the square footage used for business vs that used for residential living quarters and it is a red flag item for audits, especially if you claim more than half of the total for business use and the rental is residential. 

 I agree with you in that sense, however, personally I choose to limit my exposure to audit as much as possible and in the example given by OP, they are claiming two thirds of the residential space as "business use" which is likely to trigger an audit based on square footage calculations and the property being classified as residential. If the tenant gets audited, it is likely that the landlord will too as the IRS likes to follow the paper trail. Again, that's just my personal opinion based on audits I have attended and taxes I have done for clients. Each situation is different and everyone makes their own choices, but this is exactly the reason the IRS makes you fill out a 1099 for rents in excess of $600. So there is a paper trail to follow. 

@Randall Brown I would assume it's not a whole lot different in the eyes of the IRS as improperly reported rental expense for business use of a home office, the tenant will be the one in trouble because square footage does matter when running your business out of your home. 

The problem would be an almost automatic trigger for an audit of the landlord if the tenant gets audited. I keep spectacular books and records, as do most of my tax clients. However, NONE of them ever want to be audited, nor do I wish to attend one to defend someone else's mistake. Again, not giving people information they don't need covers one's own butt, as well as the other party. 

Yes, exactly what @Matthew Olszak said, it could all still go on the schedule E in the "rents" column, no need for a separate schedule E or schedule C for a single property. The issue I see, is that they have a "home office" which is one room in the rental unit. I highly doubt that this equals a third of the total square footage of the rental, let alone two-thirds and as such, would not qualify for the businesses to pay two-thirds of the rent... Rent is an easy tax right-off for a business, but when using your home as a business location, different rules apply. Their tax professional would be better to advise them of the specifics of the situation, but they are treading on a thin line reporting things that would not line up with reality. Which is why I would find out the specifics of their situation before filling out the W9.