Office in home for Rental Activity

[YesYouMustPay]

As I look through past returns for this new and deceased client, I see that he had been taking an office in home deduction, presumably a place to manage his fourteen rental units.

Best I can tell, that is not allowed, because a rental activity is not a trade or business, and one must be in a trade or business to qualify to deduct business use of home. Is that right?

[joanmcq]

Yep, definitely NOT allowed.

[GeorgeM]

I disagree running 14 rentals is a business in itself. It is not easy.

[joanmcq]

No Sch C or F, no OIH. Unless he has a rental management business, no OIH.

[RoyDaleOne]

http://www.submityourarticle.com/articles/...eturn-26088.php

Why can you not take the office in home deductions on Schedule E?

[taxperson]

http://www.submityourarticle.com/articles/...eturn-26088.php

Why can you not take the office in home deductions on Schedule E?

http://www.completetax.com/taxguide/text/c60s10d375.asp

Pretty good explanation at the bottom of the article.

[RoyDaleOne]

OK I read almost of the discussion about rental property and I am wondering what I was to realize about the office in home deduction on Schedule E.

I did not see a discussion about that item.

I also check Pub 587 and I saw nothing that would prevent a deduction for office in home on Schedule E, provided that you meet the tests.

Please note that one rental property is considered by the courts to be a trade or business.

I do understand that sometimes rental property is not consider on equal footing with a Schedule C activity as far as a trade or business definition, however, that must be specifically prohibited.

http://www.forbes.com/2006/07/13/IRS-landl...l_0714nolo.html

[mcb39]

OK I read almost of the discussion about rental property and I am wondering what I was to realize about the office in home deduction on Schedule E.

I did not see a discussion about that item.

I also check Pub 587 and I saw nothing that would prevent a deduction for office in home on Schedule E, provided that you meet the tests.

Please note that one rental property is considered by the courts to be a trade or business.

I do understand that sometimes rental property is not consider on equal footing with a Schedule C activity as far as a trade or business definition, however, that must be specifically prohibited.

http://www.forbes.com/2006/07/13/IRS-landl...l_0714nolo.html

Thank you for that article, which is printer friendly. I have several clients with multiple rental properties. Just recently a 23 year old young man who put himself through College by working parttime and buying two rental properties on land contracts, approached me. He said they told him in Business classes that multiple rentals should always be protected by LLC status. He has a degree in Business Management and one in Accounting.; just graduated in Dec. Quite a remarkable client.! Hence, I have been closely watching all of the recent discussions re Rental Properties and LLC as well as OIH.

[TAXBILLY]

I would think that if you qualified as a real estate professional you would be able to take OIH on Schedule E.

taxbilly

[joanmcq]

If you qualify for RE Pro, you would be taking your OIC on your Sch C, for your real estate BUSINESS, if you had a qualifying OIH for that biz. All RE pro does for rentals is make them non passive for income and losses. And unless you elect to treat them as one activity, it is pretty difficult to make RE pro. What the CCH article referred to was that if your RE activity was to the point where it would be a trade or business, it goes on the C. RE rental is a passive activity, not a trade or biz in the sense of a Sch C activity, and does not qualify for OIH.

[YesYouMustPay]

I posed this question because the form 8829 does not flow income from Sch E, Only Sch C, to Part II line 8, the test for enough income to absorb the OIH deduction.

I find there is usually a reason for such things. which is why I asked. I think the answer is that rental activities are not considered a trade or business, unless you are a real estate pro, as pointed out by others.

I have read both articles above, one by a tax attorney, and one by a tax professor, and both articles say the same thing, that you can take the OIH on sch E. What is unclear to me, is which author is the plagiarist, because they are the same article word for word.

I would like to find court cases referenced to by RoyDaleOne, that rule on this matter. Any citations would be much appreciated. So far, I can't find anything.

[OldJack]

Truth is that the OIH deduction is usually so small that it is not worth the time and effort in taking.

[RoyDaleOne]

Renting out even a single property can be a trade or business. Hazard v. Commissioner, 7 T.C. 372 (1946), acq.,

There are a bunch, however, I selected this one because it deals with 1 (one single etc) property.

I agree the amount is normally so little it is not worth the time and effort to have the records and figure the deduction. However, alot of people want to know.

Because rental properties are excluded from self-employment income and the definition most talked is for self-employment income is part of the confusion. Plus the IRS is in the business of collecting as much as it can. Also, the law changed in 1997 to allow more people to qualify. You still must meet the tests.

[jainen]

>>the OIH deduction is usually so small that it is not worth the time and effort<<

That's the basic reality. At least with Schedule C you can save some SE tax, but what do get from Schedule E? 1/10 of utilities? Can you believe any landlord truly sets aside part of his own inner sanctuary for exclusive use without a dime of revenue? And works regularly and continuously at "managing," whatever that means? There's a reason rentals are called a "passive activity."

[joanmcq]

I agree. You would have to own a huge amount of properties; large apartment complexes or commercial buildings that required a significant amount of time. I've had as many as 6 rentals at a time, with one of them a duplex and one a 4-plex apartment (in a bad neighborhood; that one required a lot of work and attention), and never spent more than an hour a month on them.