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fkhalilz
Level 3

Home Office Deduction Requirements

Hello,

My wife and I manage day to day operation of our rentals in Texas and California. We have been doing this for several years, but never deducted for use of our home as office. We do not have a registered business for this passive activity. We simply declare our income & expenses under our name as married filing jointly. I have couple of questions:

1) Must we have a registered business in order to deduct home office expenses, or can we take this deduction even without having a business entity?

2) We have been using TurboTax Premier to do our taxes. Will this software help enter home office deductions, or do we need to upgrade to a higher Turbotax version that supports businesses?

4 Replies
soultax09
Level 5

Home Office Deduction Requirements

Home office deductions for rental property is a tough sell because you need a trade or business to take that deduction and rentals mostly produce passive income. There is an argument that can be made for taking the deduction under certain facts but audit chances increase a lot.

fkhalilz
Level 3

Home Office Deduction Requirements

We manage several properties and this business takes a lot of time and effort. Are you saying that the best way to claim this deduction is thru registering a business?

 

Could you please also answer my 2nd question about Turbotax Software package needed to make this claim?

 

Thanks

Farid

Vanessa A
Employee Tax Expert

Home Office Deduction Requirements

No, you cannot take the Home Office Deduction in Premier, you will need to use Home and Business or Self-Employed to generate the interview questions for the Home Office deduction as these expenses are reported on Schedule C.  This will only work if you are able to report your rental income on Schedule C as well.  

 

If you have been using Premier, it sounds like you report the rental activity as investment activities instead of business activity. These are handled differently.

 

Registering the business as an LLC will not necessarily make your rental activity rise to the level of nonpassive.  You are still doing the same activities.  

 

You may want to contact a local professional to help you determine if you are conducting a business activity or an investment activity. 

 

https://www.irs.gov/taxtopics/tc414

 

 

 

Critter
Level 15

Home Office Deduction Requirements

 This is a case of "cutting off your nose to spite your face" ... in other words to get a few $$ of home office deduction you have to convert a passive activity reported on a Sch E to a business reported on a Sch C and then pay SE taxes on the profits on top of the federal  & state.  If the rentals are already running at an overall loss then the home office deduction is useless.  

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