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jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3095
Experience:  I've prepared all types of taxes since 1987.
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I am paid rent for an office space in my home from my company.

Customer Question

I am paid rent for an office space in my home from my company. How much of the rent can I expense out?
Submitted: 6 years ago.
Category: Tax
Expert:  jgordosea replied 6 years ago.

Greetings,

 

Are you an employee of the company?

 

Do you have any ownership (shareholder, partner,etc.) and if so what is it?

 

Thanks for the additonal information.

Customer: replied 6 years ago.
I am the only full time employee from my nonprofit. I am president. They give me $1300 per month for office space. I have one room dedicated to only office and another large storage area
Customer: replied 6 years ago.
I don't see where to click "accept for payment
Customer: replied 6 years ago.
I don't see where to click "accept for payment

Expert:  jgordosea replied 6 years ago.

Greetings,

 

There is a code section that disallows, in general, deductions by an employee for any office rental of their dwelling unit.

 

Sec. 280(A)(c)(6) provides that:
Treatment of rental to employer. Paragraphs [c](1) and [c](3) shall not apply to any item which is attributable to the rental of the dwelling unit (or any portion thereof) by the taxpayer to his employer during any period in which the taxpayer uses the dwelling unit (or portion) in performing services as an employee of the employer

 

Congress added Sec. 280A(c)(6) expressly to overturn the Tax Court's decision in Feldman, 84 TC 1 (1985), aff'd, 791 F2d 781 (9th Cir. 1986). In enacting Sec. 280(A)(c)(6), Congress observed that the Tax Court's interpretation of Sec. 280A in Feldman could lead to the circumvention of statutory restrictions on the deduction of home-office expenses. In particular, Congress was concerned that (1) employers and employees could arrange sham transactions (by which a portion of salary was paid in the form of rent) and (2) the employer-employee transactions would not be negotiated at arm's length, but would provide added tax deductions for the employee at no additional cost to the employer. Accordingly, Congress provided that no home-office deductions were allowable (other than expenses such as home mortgage interest and real estate taxes that are deductible absent business use) if an employee rents a portion of his home to his employer

 

This section bars you from deducting what would otherwise be deductible trade or business expenses.

 

The bad news is that you may not deduct any expenses for rental payments (unless it is for a separate structure). The work around would be for the company to reimburse you; and you would not have to include the reimbursement in your income if done under an accountable plan.

 

See Rentals to an employer. for more discussion and IRS Provides Guidance on Employee Rental of Home to Employer for the IRS Letter Ruling (TAM)NNN-NN-NNNN/em>

 

I hope this helps even though it is very likely not the answer you wanted to hear.

 

Best wishes.

 

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3095
Experience: I've prepared all types of taxes since 1987.
jgordosea and 5 other Tax Specialists are ready to help you
Customer: replied 6 years ago.
"The work around would be for the company to reimburse you; and you would not have to include the reimbursement in your income if done under an accountable plan."

currently I get a paycheck from my company and Paychex includes the rent of my home office.

What makes an "accountable plan"?
Expert:  jgordosea replied 6 years ago.

Hello again,

 

Is the rent subject to FICA and Medicare on your check or not ?

 

Is the FICA 6.2% of the amount including the rent or only of the other compensation?

 

Is the Medicare 1.45% of the amount including the rent or only of the other compensation?

Expert:  jgordosea replied 6 years ago.

Hello again,

 

To be an "accountable plan", the reimbursement program must have these characteristics:

  • Business connection of expenses;
  • Proper substantiation of expenses;
  • Written plan requiring that employees return to the employer reimbursed amounts in excess of actual expenses incurred;
  • The actual return by employees, within a reasonable time, of reimbursed amounts in excess of actual expenses incurred; and
  • Any advance made by an employer to an employee must be reasonably calculated and must not be expected to exceed the amount of reasonably anticipated expenditures to which such advance relates.

The Accountable Plan requirements are located at Internal Revenue Code Sec. 62(c) and IRS regulations 1.62-2.

 

The result of not meeting the requirements of an accountable plan is that the money that is paid to the employee is taxable compensation to the employee.

 

See Accountable Plans on irs.gov for more details.

 

I hope this helps.

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jgordosea
jgordosea
Enrolled Agent
2840 Satisfied Customers
I've prepared all types of taxes since 1987.