How do I deduct a portion of my property in addition to my home office for construction business?

[domingo5]

We have a construction company.  Last  year I deducted my home office but we have 2 acres and use a little less then half of it to store construction materials and our vehicles. We also have a building we bought for storage. Can I deduct this also or just the home office?  If so, how?.

Thank you!

[Carl]

we have 2 acres and use a little less then half of it to store construction materials and our vehicles.

Land is not a depreciable asset. So there's nothing to deduct on land, and therefore nothing to recapture later on land.

[domingo5]

Can I rent that portion to my business? If so, then would I have to claim the income on my personal taxes?  We do sch. C

[Carl]

Can I rent that portion to my business?

Yes. It would be reported as a business expense on SCH C, and as personal income on SCH E. You're basically taking money out of your left pocket, and putting it in your right pocket.

The main thing, is that the rental income will be passive and will not count towards Medicare and Social Security. Therefore, you will not pay the additional 15.3% self-employment tax on the rental income.

Additionally, since you'll only be renting land, you will still not depreciate it.

[domingo5]

That is good news and makes sense.   Would I have to do a second sch. C for the rental business?  Also, how do I determine what is reasonable?

[Anonymous_]

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@Carl wrote:

The main thing, is that the rental income will be passive.......

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Except you run into the self-rental rule, in which case net income is nonpassive while net losses are still considered to be passive losses.

[Carl]

Would I have to do a second sch. C for the rental business?

Maybe. As an "active participant" in the business you own, you could make the rental a SCH C business. In that case, the land will still not be depreciated and you *WILL* pay the additional 15.3% self-employment tax on the income. So you gain/lose nothing other than creating additional work/paperwork for yourself with no actual gain.

Reporting it on SCH E means that you don't pay the additional 15.3% self-employment tax. The downside is:

 - The income does not count towards your social security or medicare

- The income does not count when figuring the maximum contribution you can make to an IRA/401(k)

So basically, either way all you're doing is taking money out of your left pocket, and putting it in your right pocket with no real gain. It basically serves no purpose.

[Anonymous_]

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@Carl wrote:

As an "active participant" in the business you own, you could make the rental a SCH C business. In that case, the land will still not be depreciated and you *WILL* pay the additional 15.3% self-employment tax on the income.

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Only real estate dealers pay self-employment tax on income from rental real estate per Section 1402.

Also, those operating lodging, such as a hotel, and/or providing services to guests.