Per Diem business expense

[gdndns]

We are in a partnership with property in another state. Last year, we spent 9 months working on those properties and living in an RV. Is there a limit on the number of days of per diem for "Meals & Incidental Expenses" that can be charged as business expense? 250 days of per diem for two people adds up to a significant business expense. Will this raise red flags with the IRS?

[PatriciaV · Accepted solution]

It depends. If you received Form 1065 Schedule K-1 and you were required to pay these expenses under the partnership agreement, you may report your expenses on Schedule E (Partnership Income) as "Unreimbursed Partnership Expenses" (UPE). In this case, TurboTax will ask you about UPE, with follow-up entry at the end of the Schedule K-1 input. There is no IRS limit, although the partnership agreement may specify otherwise.

But if the partnership agreement specifically states that the partnership has a non-reimbursement policy when expenses are incurred outside of the partnership or that it does not specifically require partners to pay for certain expenses, the deduction may be disallowed at the partner level. 

Look for the page "Describe the Partnership" during the K-1 interview. Check the box for "I am required to pay supplemental business expenses on behalf of this partnership/LLC for which I am not reimbursed."

See instructions for Form 1040, Schedule E for more info from the IRS.