IRS Home Office Deduction
November 7th, 2009
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Question: Home office deduction – does it raise a red flag to the IRS?
I own two rental properties & want to form an LLC. Is this enough homes to do this? They’re not worth but about 50k each. Is the IRS extremely picky when it comes to deducting part of your home to “manage” your business (in this case, an LLC)? I have a friend that works in sales, like me, and this friend does it every year (although, from a moral perspective, I think it’s wrong… they have a lot of personal belongings in their “office.”) Any help is appreciated.
By what percentage will forming an LLC reduce my tax rate?
I know nothing about taxes, as my wife is an accountant (she thinks the idea of setting an area of our house as “office space” is a red flag to IRS).
Answer: The IRS doesn’t even recognize an LLC, so it’s not going to lower you taxes. (One member defaults to the 1040, two or members defaults to a 1065.)
You can’t deduct a home office for managing an investment. You aren’t conducting business there, you are reviewing paperwork which you could do anywhere.
Besides, look at what you were planning to deduct, a portion of mortgage interest (already deductible), property taxes (already deductible), out of pocket expenses (still deductible), depreciation (has to be paid back when you sell and can’t be excluded with the $250K deal), and a questionable amount of utilities (the audit flag).
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My Home Office Deduction
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