Home Office deduction on Schedule E

[MKS_97]

I have some rental properties that I self manage (this is a business for me). I meet all the qualifications for availing an Home Office deduction. All my rental income and expenses are declared on schedule E.  Since I do not file Schedule C (and hence form 8829 does not come into play), where should I place my Home  Office expense? Should this be in "Other Expenses on Schedule E"? Do I need to break out all the different home office expense items (i.e. %of home used, utils, depreciation, property taxes etc?)

[PatriciaV]

Unfortunately, passive income from Schedule E does not qualify for the home office deduction, and the IRS considers rental property income as passive. To qualify for a home office deduction you would need to have a trade or business (Schedule C), a farm/ranch (Schedule F), or be an employee who is required by the employer to maintain a office in their home.

Here's a link from the IRS website with more information regarding tax deductions for your home office: http://www.irs.gov/publications/p587/index.html

[Carolyn51]

Oh, how important knowledge is: There has been a court case and ruling. The Tax Auditor argued that INVESTMENT PROPERTY was PASSIVE INCOME, Dr. Edwin Curphey argued that he participated in the business and so it was considered A TRADE.  Unh Unh, said the Tax Auditor! So to court when Dr. Curphey in Curphey v. Commissioner. The Doctor won, 100% deduction was awarded Dr. Curphey for his Home Office where he conducted business and stored rental related supplies. Google it!  Terms are bantered around, like: exclusively and regularly, but this simply means that you can't have your lounge chair and TV in the room you call an office. That room/ HOME OFFICE, must really be an office...occupied by filing cabinets, computers, telephones, printers and the like, so that it is really a dedicated room for BUSINESS.  Again, REGULARLY means that regularly you must conduct business there, but you could also use your computer on occasionally for private use, just like you could use your telephone for private use and so forth. 

How to record your Home Office on Schedule E? Go to PAGE 1, Line 19 under OTHER EXPENSES. Enter HOME OFFICE and then the amount.  This will be OPTIONAL METHOD and limits you to 300 sqft at $5 per sqft or $1500.   I have a 10x10 bed room dedicated as a HOME OFFICE and 10x20 area in my garage for supplies and tools. This equals 300 sqft. Use De Minimis Safe Harbor for the $1500 charge, unless your Home Office is smaller...then use $5 per square foot for the size of your home office. The IRS is clear, you need to PROVE that your HOME OFFICE meets the IRS guidelines.  As if you are claiming a TRADE, you need to show that you are cleaning, repairing, painting, the properties you own. (Just a warning, if you own only one rental house, the IRS may not consider your MATERIAL PARTICIPATION as a TRADE or BUSINESS.  The Dr. had 4 properties. So you would need to show that you are REALLY operating a BUSINESS.)  Good Luck, Educate yourself, do a search of Dr. Curphey. 

[MMGsDaddy]

If I work from home on call; can I write my home office, phone, printer, off? Where do I deduct it?  Thank you*

[QuickRick]

I think you also need to be mindful of the limitations of the simplified method, i.e., there needs to be a profit from the trade or business, the home office deduction cannot create or increase a loss. The doctor's case was decided a long time ago, before the simplified method was introduced, and it dealt with the law in existence at that time. However, it was noted in his case that he had a net loss from his rental activity. 

[MarilynG1]

@MMGsDaddy Click this link for more info on How to Enter a Home Office Deduction. 

If you report your income on Schedule C as Self-Employment Income, type 'schedule c' in the Search area, then click on 'Jump to schedule c' to get to Business Expenses. 

If you are a W-2 employee, the tax law changes no longer allow you to deduct job-related expenses, except in certain circumstances. 

Click this link for more info on Job-Related Expenses. 

[Carolyn51]

Note by IRS: "However, you may be classified as an "active participant" in your rental properties, which gives you a limited ability to claims some loss. If you actively participated and you have a modified adjusted gross income of $100,000 or less, you may be able to claim as much as $25,000 of rental property losses on your your taxes. 

This was the HEART of the Dr. Edwin Curphey case against the IRS, which he won. The court ruled that an investor collects money without having to perform any work (passive income) and that a business owner actively works with a property. That means to be considered a business, you need to show the IRS that you do more than simply handle money. Look at the article by Kim M. Larsen ES CTFS.  See cases:Neill v Commr., 46 BTA._ and Curphey v Commr., 73 TC 766._ and Reg. Section 1.1402(a)-4(c)(2)._ and Hamacher v Commr., 94 TC 348.