Real Estate Professional Home Office

[josh70]

I own and manage 11 rental properties and qualify as a real estate professional.  I do all my properties on Schedule Es.  Do I do my home office for my management of my properties on a Schedule C?  Would I just show zero income on my Schedule C since I'm showing all of my income on the Schedule Es? Thanks

[AmeliesUncle]

The home office expenses would go on Schedule E, divided between the rental properties.   You will need to manually calculate the allowable deduction.

[Mike9241]

Turbotax has again messed up the depreciation worksheets.  there should be a code M for Home Office that you can select. it is currently gone. hopefully, they will have a fix by tomorrow.  also Turbotax is not currently computing the HO deduction correctly. it is using 100% of the cost of the property not the pro-rata portion allocable to the home office. 

by the way have you made the IRC 460(c)(7)(A) election to aggregate your rental activities

(7)Special rules for taxpayers in real property business

(A)In generalIf this paragraph applies to any taxpayer for a taxable year—

(i)

paragraph (2) shall not apply to any rental real estate activity of such taxpayer for such taxable year, and

(ii)

this section shall be applied as if each interest of the taxpayer in rental real estate were a separate activity.

Notwithstanding clause (ii), a taxpayer may elect to treat all interests in rental real estate as one activity. Nothing in the preceding provisions of this subparagraph shall be construed as affecting the determination of whether the taxpayer materially participates with respect to any interest in a limited partnership as a limited partner.

(B)Taxpayers to whom paragraph appliesThis paragraph shall apply to a taxpayer for a taxable year if—

(i)

more than one-half of the personal services performed in trades or businesses by the taxpayer during such taxable year are performed in real property trades or businesses in which the taxpayer materially participates, and

(ii)

such taxpayer performs more than 750 hours of services during the taxable year in real property trades or businesses in which the taxpayer materially participates.

In the case of a joint return, the requirements of the preceding sentence are satisfied if and only if either spouse separately satisfies such requirements. For purposes of the preceding sentence, activities in which a spouse materially participates shall be determined under subsection (h).

(C)Real property trade or business

For purposes of this paragraph, the term “real property trade or business” means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business

The aggregation of rentals (that is only applicable to real estate professionals) is not supported by TurboTax.

if you haven't made the election the default rule is that each property is treated as an independent activity for which the taxpayer must satisfy the material participation requirement

The IRS has set up several criteria that a taxpayer can use to see if he has materially participated in a business. Some of these criteria are:

The taxpayer worked at least 500 hours in the business during the tax year; or

The taxpayer did nearly all of the work in the activity; or

The taxpayer worked more than 100 hours in the activity and no one else worked more hours; or

The taxpayer has materially participated in the activity in any 5 of the last 10 years.

without aggregation you just spend 500 hours on each property otherwise you are subject to Passive Activity Rules.

[josh70]

Thanks for the explanation.  So where would things like internet service/cell phone service be reported?  Under utilities expense for the property on Schedule E?  And what about assets that are under $2,500 and can qualify as expenses (computers, printers, etc).  Or should all go under miscellaneous expenses?

[AmeliesUncle]

1. Manually fill out a 'mock' Form 8829.  Note that if your 'net' rentals show a loss (line 8), the home office deduction may be suspended.  https://www.irs.gov/pub/irs-pdf/f8829.pdf
2. Divide the end result between each rental.  Enter it as an 'other' expense.

[josh70]

Thanks, but that form says "file with Schedule C" which I'm no longer filing as you said these expenses should be included with Schedule E.  Also - I need a place to report home office expense as well as other common business expenses that would traditionally go on a Schedule C.  Thank you!

[AmeliesUncle]

As I said above, you are filling out a MOCK 8829 to calculate the amount of the home office deduction.

As I also said above, you take those total expenses, and divide it between each rental and enter it as an 'other' expense for each rental.

[josh70]

Got it.  Thank you!

[polimnia]

Schedule E doesn't show any place where to enter the home office expense for the rentals.

[LeonardS]

Yes,  Schedule E instructions not only fail to provide any explanation about where to put your home-office deduction, but they also do not even mention a home office.  However,  the instructions do say that you can deduct ordinary and necessary business expenses and your home office expenses are ordinary and necessary.

The issue is how to account for those expenses.  The most accurate way would be to use Form 8829 to calculate your deductible expenses and enter those expenses on Line 19 Other expenses.

The following TurboTax link has information on how to prepare Form 8829.  You will have to complete a "mock" Schedule C to generate Form 8829 with your home office deduction.    Print out a copy of Form 8829 for your records to support your home office deduction then delete the "mock" Schedule C.

https://Where do I enter the home office deduction for my business?

@polimnia

[lkng67re]

I am a real estate professional. I talked with a Lawyer/CPA last year and he agreed that I can use my rental house as a business office for real estate sales for 5 months out of the year and then have the house available for rent the otlher 7 months out of the year. It advertise for rental while marketing and working on real estate in the summer so that fall/winter and spring get booked. Last year real estate income was really low because this property is in a new area but the rental did well in the fall/winter/spring.  

I spent a lot on real estate ads and marketing during that 5 months as well as networking and meeting people to generate business and when I go to my primary property in Scottsdale for 7 months, I try to sell there as well. I have a big loss in real estate and little income.

I keep my rental funds for the 7 months it is rented in a separate account and have a separate spreadsheet as a real estate professional.

I am already stuck at the business income page. Should I enter my real estate low income and all its expenses there and my rental on a Schedule E? Where will it ask for the Schedule E?

As a real estate agent on some of the listings (sometimes VRBO) of most of the rentals I only act as a landlord with all of the tenants. 

Can you advise which area of the program I need to use to enter each of the incomes keeping rental separate from real estate? 

[lkng67re]

What if I have a business office as a real estate agent at the rental house and work 5 months on advertising, sales, etc. and advertise the property for rental and then have rentals October or November to April 30? I also do a lot of maintenance on the house in the summer while I am there for the rental side to keep it ready for the fall through spring rentals.

I am confused as to whether I need a schedule C for the real estate work and a schedule E for the rental work. I spent a lot more hours than stated on both the real estate and the rental side.

Your help is appreciated 

[ThomasM125]

Income you earn from property management work and real estate sales would be reported on a schedule C as self-employment income. Income you receive from rents and expenses associated with rental activities would be reported as rental income on a schedule E. @ikng67re