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S-Corp officer home office deduction

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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!

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Level 12

@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.

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Level 11
Level 11

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.

 

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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.

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Level 12

@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.

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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!

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Level 13

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-...

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.

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@qbteachmt wrote:

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/

 


 

I definitely disagree with the author of that article and some of their reasoning is flawed.  Depreciation certainly can be a reimbursement.  

Whether or not it is beneficial or not to allow reimbursement of depreciation is another matter.  It very well may be extra work for little to no benefit, so in some cases it might be wise to set up the Accountable Plan to only reimburse other expenses, and not depreciation.

 

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Level 11
Level 11

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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