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S-Corp officer home office deduction

Forum|Forum|5 years ago
November 18, 2020
3 replies
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Hi all: I am working with a client who is an S-Corporation and they are setting up an accountable plan for employee reimbursements where we will be reimbursing the shareholder for their home office space, which is used exclusively and entirely for business.

My question is: It's easy to come up with the reimbursable amount using the Form 8829 as a guide, but how is everyone tracking the depreciation taken on the shareholder 1040 that will eventually need to be recaptured when the home is sold? I'm leaning towards putting it in as a "other" asset and just manually updating the accumulated depreciation taken, and pointing it to "type = land" so that no actual depreciation is being taken since the client is getting reimbursed from the S-Corp.

Curious if anyone else has the same dilemma, or if there's an easier way to do this. Thanks in advance!

Lacerte Tax

This topic has been closed for replies.

Best answer by TaxGuyBill

@Puravidacpa wrote:
how is everyone tracking the depreciation taken on the shareholder 1040 that will eventually need to be recaptured when the home is sold? I'm leaning towards putting it in as a "other" asset and just manually updating the accumulated depreciation taken, and pointing it to "type = land" so that no actual depreciation is being taken since the client is getting reimbursed from the S-Corp.

I suspect many people just conveniently forget about it. 🙂

Personally, I think it is easier to keep track of it outside of the program, such as on a spreadsheet (or even a post-it note). You just need to keep track of one number per year, so it seems easier to just write it down somewhere rather than trying to manipulate the program and manually entering it each year in the program.

T

Terry53029

Intuit Community Champion

being reimbursed under an accountable plan, provides the greatest tax savings. It is an excellent way to get money out of your closely-held corporation tax-free. The corporation can deduct the amount of the reimbursement and you do not have to report the payment on your personal income taxes. This option is "more better" than having the corporation pay you rent for the home office. While your corporation can deduct the rent paid to you, you must report the rent as income on Schedule E.

Puravidacpa Author

Level 3

Hi Terry,

My understanding is that even with the accountable plan you are required to factor in depreciation (even though we all know we're not taking that depreciation on the 1040, it is being deducted on the 1120S). Therefore, there's a little tracking issue that we need to stay on top of for the eventual sale of the shareholder's home, even with the accountable plan in place.

I agree that the old rent your home office to the corporation is archaic and most definitely not the way to go.

T

TaxGuyBillAnswer

Level 15

@Puravidacpa wrote:
how is everyone tracking the depreciation taken on the shareholder 1040 that will eventually need to be recaptured when the home is sold? I'm leaning towards putting it in as a "other" asset and just manually updating the accumulated depreciation taken, and pointing it to "type = land" so that no actual depreciation is being taken since the client is getting reimbursed from the S-Corp.

I suspect many people just conveniently forget about it. 🙂

Personally, I think it is easier to keep track of it outside of the program, such as on a spreadsheet (or even a post-it note). You just need to keep track of one number per year, so it seems easier to just write it down somewhere rather than trying to manipulate the program and manually entering it each year in the program.

Puravidacpa Author

Level 3

I agree! There is very little discussion on this topic, I bet most people tend to overlook this piece. I like the spreadsheet/action item idea each year. Thanks for your input!

qbteachmt

Level 15

Yes, I know this is called "tax practice" because of differing views; everyone is Practicing, and no one gets it perfectly.

Depreciation as a deduction but not a reimbursement as Actual Expense, is the explanation and position taken in this article:

https://wcginc.com/blog/home-office-depreciation/

This article explains using the Simplified Method:

https://www.journalofaccountancy.com/issues/2020/may/deduct-home-office-expenses-coronavirus-remote-work.html

At the bottom part of the Home Office blog, where the value of depreciation is reviewed with an example, they come up with $500 that would relate to the 150 sf office space, under Actuals + depreciation to be recaptured later. Under the Simplified Method, you have $750 that does not provide for depreciation or carry forward.

Pick your poison.

Don't yell at us; we're volunteers

T

Terry53029

Intuit Community Champion

Over the years I've not taken deprecation, because to me a reimbursement plan is to reimburse an employee for an expense, and to me deprecation is not an employee expense, but a write-off. To me it is also not a great savings after figuring all expenses in taking it (tracking, tax prep, recapture, etc.) Like @qbteachmt pointed out if you are going to take deprecation, I would use the simplified method. If you do some research, you will find tax pros on both sides of the fence. Just my two cents 😁

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