S-Corp expenses

[Max W]

Client has an S-corp and operates out of building owned by the client.  S-corp pays rent to the client for Sched E, but also pays property tax and liability insurance.

Shouldn't the tax and insurance deduction paid by S-corp be included as income to the client?  And then, can the client take the deduction on Sched E, 

I have been unable to find any definitive substantiation - except for this - "Deduction only allowed to property owner . . . Taxes are deductible only by the person on whom they are imposed. A similar rule applies to expenses and interest"

Appreciate any help.

[rfassett]

Look to what the lease says.  In situations as this, you can get into what's called single net leases, double net leases or triple net leases.

https://42floors.com/edu/basics/types-of-commercial-real-estate-leases

[Abby Normal]

Anything paid to/or on behalf of the landlord should be considered rent. Landlord should pay the taxes and insurance themselves and rebill the tenant. This makes it easier to create the 1099 to give to the landlord, because all the checks are in the landlord's name.

[Max W]

Let me clarify.  The S-corp that the client runs, is housed in buildings that the client owns. 

Client collects rent, but the S-corp, clients business, has been paying property tax and lnsurance on the building the client owns.

The previous preparer deducted the tax and insurance, but did not add it as income to Sched E.

Can the S-corp  still deduct as long as those deductions are added as income to Sch e???.

I have tried to find substantiation for this, but have not hit on any yet.  (Got to show the client something from the IRS or tax code)

 

 

 

 

[Abby Normal]

Expenses paid by a tenant – If your tenant pays any of your expenses, those payments are rental income. You may also deduct the expenses if they are considered deductible expenses.

[Abby Normal]

To clarify, both the s corp and the shareholder will deduct the taxes and insurance, but the shareholder will also include them as income. So, when the dust settles, the expenses are only deducted once. -1+1-1 = -1

[Max W]

Thanks, JM, for your explanation and the link. Exactly what I was looking for.