Home Office or Rent

Today TaxMama hears from Leslie in the TaxQuips Forum, who is quite clever. “I am helping a friend out with her business.  She currently takes a deduction for having a home office for the company that she runs out of her home. Would it benefit her more to charge the company rent?  I know she would be able to take the rent expense as a deduction on her company’s taxes; but the rental income would then go on her personal return.  So would this approach even make sense?”

 Hi Leslie

If your friend is self-employed, filing a Schedule C, she cannot do that.

But if she files a partnership return, or is incorporated, yes, she may charge fair market rent.  You’re right. What is the benefit since she needs to report the rental income anyway? And since she can already deduct the full property taxes and mortgage interest?

Well, on the Schedule E, she can take deductions for things not otherwise deductible  – like

  • homeowners insurance
  • utilities
  • maintenance
  • perhaps gardening and landscaping
  • and depreciation

But, filing a Schedule C, she can do all that on her Form 8829, now – so there is no need to make things more complicated. You only have your business pay rent to the homeowner when you have a partnership, or are incorporated. After all, you can’t use office in home, then, at all.

And remember, you can find answers to all kinds of questions about home offices and other tax issues, free. Where? Where else? At www.TaxMama.com.

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