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Home Office deduction for rental income. How are you guys doing it? If at all...

Discussion in 'Real Estate Investing' started by Striver, Feb 10, 2019.

  1. Striver
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    Striver Bronze Contributor Read Millionaire Fastlane

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    Since the IRS views this as passive income, you don't get to deduct a home office. Can I just put all the income on the Schedule C, instead of the Schedule E?

    A lot of property upkeep and office work goes into this, so it's not passive at all. According to the IRS publications I've read, it seems like I meet the "active business" aspect of filing, therefor should be able to deduct a home office. Which is exclusively used for the business...
     
  2. Scot
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    Scot Ductus Exemplo Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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  3. Striver
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    Striver Bronze Contributor Read Millionaire Fastlane

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    Well, it looks like I would then have to pay self-employment tax (15.2%), which would greatly offset my lowly home office deductions. Hmmm...
     
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    I wouldn't make any effort to put it on a Schedule C due to the self-employment taxes you mentioned.

    Rentals are always* Schedule E, so passive. I imagine the home office doesn't offer massive tax savings, so I wouldn't spend too much time worrying about it.

    * There are always exceptions. That's what makes taxes fun!
     
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  5. Striver
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    Striver Bronze Contributor Read Millionaire Fastlane

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    Thanks! Yeah, after reading for two straight days on the matter, it then dawned on me that we would never be able to "out deduct" the difference for the SE tax anyway.

    Regarding the passivity, though, we have definitely deducted the home office in the past. Looking back, I don't think we should have because of the SE tax.
     

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