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azw20
Level 2

Sole proprietor owns both business and separate office condo, no rent involved.

Hello, I have some noobie questions.


I am a single sole proprietor and file on a Schedule C. I own an office condo and operate a small, low income service business in that space. I want to keep this as simple as possible.

 

1. I'd prefer not to charge myself rent. Is that going to have undesirable consequences? It'd just be transferring funds from one account to another and I'd like to avoid the paperwork.

 

2. I understand that claiming depreciation on the condo makes financial sense, so I'm doing that. My losses won't get close to $25,000, so I'm probably fine showing my minimal losses on Schedule E.

 

3. Can I claim the deductions related to the business on my Schedule C, including property tax on that office? TurboTax has listed the condo's property tax on Schedule E. Is it okay if I move property tax to Schedule C and show all of my expenses, except depreciation, on Schedule C? I don't care about the possibility of saving a few bucks on self-employment taxes by moving some of my income to the Schedule E.

 

4. TurboTax has added a deduction of $96 for management fees to Schedule E. It appears that TurboTax created that $96 deduction when I imported business data from Quickbooks. I don't see any amount totaling $96 in Quickbooks. Plus, I don't have a "management fees" account in Quickbooks and don't believe I've paid any management fees in real life. This could be a repairs and maintenance deduction, but all of those accounts appear to total their correct amounts on Schedule C. Any idea of what the $96 management fee might be? Since I don't have documentation for that amount, I'd prefer to delete it to avoid problems if I'm audited.

 

5. Is there anything else I need to be aware of in order to handle this condo property simply?

 

Thanks in advance!!

1 Best answer

Accepted Solutions
Mike9241
Level 15

Sole proprietor owns both business and separate office condo, no rent involved.

I am a single sole proprietor and file on a Schedule C. I own an office condo and operate a small, low income service business in that space

 

1. I'd prefer not to charge myself rent.

you can't charge yourself rent.  even if you could it would likely be a wash on your return. the Schedule C deduction for the rent paid would be offset by the gross rental income.

 

2. I understand that claiming depreciation on the condo makes financial sense, so I'm doing that. My losses won't get close to $25,000, so I'm probably fine showing my minimal losses on Schedule E.

you do not have rental property, you have an office that you own and work out of. if the condo is only used for business purposes all expenses go on schedule C. 

 

3, Can I claim the deductions related to the business on my Schedule C, including property tax on that office.

as long as it's not used for personal purposes then you can deduct all the expenses on Schedule C. in addition, you are required to take depreciation and report it on Schedule C. since it's business property the condo would have a 39-year life for depreciation purposes.  any part of the cost related to land is not depreciable 

 

4. TurboTax has added a deduction of $96 for management fees to Schedule E. It appears that TurboTax created that $96 deduction when I imported business data from Quickbooks. I don't see any amount totaling $96 in Quickbooks. Plus, I don't have a "management fees" account in Quickbooks and don't believe I've paid any management fees in real life. This could be a repairs and maintenance deduction, but all of those accounts appear to total their correct amounts on Schedule C. Any idea of what the $96 management fee might be? Since I don't have documentation for that amount, I'd prefer to delete it to avoid problems if I'm audited.

 

You should be able to review a/c's and tax linkage to see what the $96 is for. but deleting it is not wrong. The IRS won't argue if you're audited. 

 

5. Is there anything else I need to be aware of in order to handle this condo property simply?

yes, don't treat it as rental property. since you are a sole proprietor there is really no differentiation between the business you own and the property you own that the business operates out of. you are complicating your tax situation needlessly.

 

 

 

if the use is not 100% for business then you would be subject to the rules for Home-Office.

further, if not 100% business use but you meet the H-O rules. you would need to set up the H-O through schedule C. but again there is no rent just a proration of expenses between business - Schedule C and personal - Schedule A to the extent deductible.

if you do not meet the H-O rules. again no rent and your mortgage interest and taxes would be reported on Schedule A. other expenses such as repairs, HOA fees, insurance would not be deductible'

 

Qualified Home Office

IRC 280A(c)(1)

to qualify for deductions, the area in the home used for business must be used regularly and exclusively

1) as the principal place of business including administrative use

2) as a place to meet with clients in the normal course of business, or

3) in connection with the business if it is a separate structure not attached to the taxpayer's personal residence

regular use - the area used for business is used on a continuing basis. Occasional or incidental business use does not meet the regular use test 

exclusive use - a specific part of a taxpayer's home is used for business purposes only. there is no requirement that the business portion of a room be physically separated from the rest of the room by a wall, partition or other demarcation. but any personal use of the space, no matter how small, means the exclusive use test is failed.

Administrative use - a H-O will qualify as a principal place of business if

1) the office is used exclusively and regularly for administrative or management activities of a trade or business and 

2) there is no other fixed location where the taxpayer conducts these activities.

 

 

 

 

 

View solution in original post

4 Replies
Mike9241
Level 15

Sole proprietor owns both business and separate office condo, no rent involved.

I am a single sole proprietor and file on a Schedule C. I own an office condo and operate a small, low income service business in that space

 

1. I'd prefer not to charge myself rent.

you can't charge yourself rent.  even if you could it would likely be a wash on your return. the Schedule C deduction for the rent paid would be offset by the gross rental income.

 

2. I understand that claiming depreciation on the condo makes financial sense, so I'm doing that. My losses won't get close to $25,000, so I'm probably fine showing my minimal losses on Schedule E.

you do not have rental property, you have an office that you own and work out of. if the condo is only used for business purposes all expenses go on schedule C. 

 

3, Can I claim the deductions related to the business on my Schedule C, including property tax on that office.

as long as it's not used for personal purposes then you can deduct all the expenses on Schedule C. in addition, you are required to take depreciation and report it on Schedule C. since it's business property the condo would have a 39-year life for depreciation purposes.  any part of the cost related to land is not depreciable 

 

4. TurboTax has added a deduction of $96 for management fees to Schedule E. It appears that TurboTax created that $96 deduction when I imported business data from Quickbooks. I don't see any amount totaling $96 in Quickbooks. Plus, I don't have a "management fees" account in Quickbooks and don't believe I've paid any management fees in real life. This could be a repairs and maintenance deduction, but all of those accounts appear to total their correct amounts on Schedule C. Any idea of what the $96 management fee might be? Since I don't have documentation for that amount, I'd prefer to delete it to avoid problems if I'm audited.

 

You should be able to review a/c's and tax linkage to see what the $96 is for. but deleting it is not wrong. The IRS won't argue if you're audited. 

 

5. Is there anything else I need to be aware of in order to handle this condo property simply?

yes, don't treat it as rental property. since you are a sole proprietor there is really no differentiation between the business you own and the property you own that the business operates out of. you are complicating your tax situation needlessly.

 

 

 

if the use is not 100% for business then you would be subject to the rules for Home-Office.

further, if not 100% business use but you meet the H-O rules. you would need to set up the H-O through schedule C. but again there is no rent just a proration of expenses between business - Schedule C and personal - Schedule A to the extent deductible.

if you do not meet the H-O rules. again no rent and your mortgage interest and taxes would be reported on Schedule A. other expenses such as repairs, HOA fees, insurance would not be deductible'

 

Qualified Home Office

IRC 280A(c)(1)

to qualify for deductions, the area in the home used for business must be used regularly and exclusively

1) as the principal place of business including administrative use

2) as a place to meet with clients in the normal course of business, or

3) in connection with the business if it is a separate structure not attached to the taxpayer's personal residence

regular use - the area used for business is used on a continuing basis. Occasional or incidental business use does not meet the regular use test 

exclusive use - a specific part of a taxpayer's home is used for business purposes only. there is no requirement that the business portion of a room be physically separated from the rest of the room by a wall, partition or other demarcation. but any personal use of the space, no matter how small, means the exclusive use test is failed.

Administrative use - a H-O will qualify as a principal place of business if

1) the office is used exclusively and regularly for administrative or management activities of a trade or business and 

2) there is no other fixed location where the taxpayer conducts these activities.

 

 

 

 

 

View solution in original post

azw20
Level 2

Sole proprietor owns both business and separate office condo, no rent involved.

Hi, Mike9241, 

Thanks for your speedy, detailed reply. That was very helpful.


I should have added earlier that this office is in a business office park, not in a home, and its use is 100% business-related. Also, there is no mortgage on the office as I purchased it with cash.

 

I'm not sure I understand this: "You should be able to review a/c's and tax linkage to see what the $96 is for."

Does that mean I should review accounts to see which might have gone been linked to Schedule D?
What is "tax linkage"?

 

You've given me great corrections! Thanks for relieving my doubts, Mike.

Best wishes! Art 

VolvoGirl
Level 15

Sole proprietor owns both business and separate office condo, no rent involved.

Hello,  are you the only one using the office condo or do you rent to other people too?  Why are you putting it on schedule E?  

azw20
Level 2

Sole proprietor owns both business and separate office condo, no rent involved.

Hello, VolvoGirl,

So far I'm the only one using the office, although there's a slight possibly that I would rent out a space in it. Perhaps that would change it into a rental?

I set it up as a rental because several accountants told me I should. In recent weeks, I've realized that it is unlikely to be necessary to use Schedule E. is that what you're asking about?

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