Home is owned 50%/50% between a child and parent. It is the child's primary residence and also the child takes a home office deduction. Is the unadjusted cost (for depreciation purposes) the total cost or just the child's?

[Golfer2016]

This is for the depreciation of the home office.  The dad helped the child by investing in half of the property.  This is all substantiated in the title.  However, for the unadjusted cost should I put the child's 50% or the full cost? It is the child's primary residence as well.  

[BobKamman]

Why would the kid be allowed to depreciate someone else’s property?

This reminds me of a story I read last night on CNBC, about the seven mistakes that parents make that destroy their kids’ mental strength. Check out (2) Always saving them from failure; (3) Overindulging your kids; and (5) Making sure they always feel comfortable

https://www.cnbc.com/2020/05/25/biggest-parenting-mistake-destroys-kids-mental-strength-says-therapi...

[Golfer2016]

I can't make any comment on that article haha, but it it is half owned by the child.  I feel OK about depreciating the home office percentage of the full cost, because the business is a s-corp.  So it is a reimbursement.  In theory the child should give the dad his half of the reimbursement, but that's not what happens in this case.  

[TaxGuyBill]

"Home is owned 50%/50% between a child and parent"

Point to ponder:  Are you SURE about that?

This is definitely not my area of expertise, but from what I've read, depending on exactly how the title is held and the laws of the State, both may own 100% of the property.

[Golfer2016]

I am sure it is owned 50/50.  I looked at the title and they are both listed as joint.  The transaction history is also clear because the dad put in cash.  

What do you think about what I should use for the cost?  100% or 50%?  

Another point is that the rules allow either of them to deduct property tax, for example.  The child has been as it has been his primary residence 

[qbteachmt]

I see this as a Problem: "because the business is a s-corp."

You don't get to take Home Office deduction as an employee of an S Corp. You told us this is a personal residence, not a Corporate owned office. You told us you know what it states on the title. And you don't get to take this deduction, since the tax laws changed for TCJA 2017.

Employees are supposed to submit for reimbursement to the employer under An Accountable Plan for costs. Depreciation isn't going to be any part of this.

[BobKamman]

There are those who say depreciation can be included as a reimbursable expense, and those who say it can't (or at least, shouldn't) be.  Here's one discussion of that:

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

However, even under an accountable plan, only the employee's depreciation should be reimbursed.  The employee's helicopter father's depreciation doesn't count.  

[Golfer2016]

The child's business is an s corp for which he is an employee and the 100% owner.  As long as thereis an accountable plan, the child's s corp can reimburse himself.  The property itself isn't owned by the S corp nor is the s corp trying to reimburse a non-owner.  The property is owned equally between the dad and the son.  

I have read that S corps can  reimburse depreciation. 

 https://www.journalofaccountancy.com/issues/2020/feb/employee-expenses-accountable-plan.html

Journal of Accountancy says "Home office, Including depreciation".  Thoughts?

[Golfer2016]

Thanks, Bob.  I agree with you--no Helicopter!  However, part of me thinks that this home office is a different animal and could still work.  For example, the son or the dad could take the interest expense on Schedule A.  It is the sons primary residence so the son has been taking it.  Also, since this property has only ever showed up on the son's return, that could make a difference.  Lastly, this could be argued that the dad just gave a loan which will be paid back.  If that's the case then the full cost would count.  They did it where the dad is on the title not for tax reasons but for legal reasons, for example.

Intuit references depreciation in their article that is below.  They don't overtly say it can be reimbursed, but it is implied since it is on this article

https://proconnect.intuit.com/articles/home-office-deductions-expenses/

Thoughts?

[qbteachmt]

Now you seem to be torn between Sched A and Business deduction. Your client is an Employee. Deductible as business, no matter what are the components, does not apply to your client's personal taxes, as an Employee.

The Intuit article you linked to has a mix of concepts and is poorly written. The text includes if you are an employee of a C or S Corp, then you can take home office expenses if you file Sched C, is poorly edited. It seems like an older article that has been updated. It has a listing of "expenses" which does not include Depreciation, and it has this statement, "To be clear, this only applies if you claim the home office deduction if you have your own business and use a portion of your home for your business. It is no longer allowed for employees under TCJA." Being the sole shareholder is not the same as "have your own business."

It also covers that the depreciation is not recaptured under the newer limits for exclusion of gain from sale of a personal residence. So, it is what I call a Word Salad.

"part of me thinks that this home office is a different animal and could still work"

What does that mean? It isn't any different than what the tax regulations provide for.

[Golfer2016]

I'm not torn, as I know whatever is reimbursed by the S corp (and written off by the S corp), can't be also deducted on Schedule A.  I'm just saying that I feel like the child could use the full cost of the property, and take the percentage of that for the S corp to reimburse.

Journal of accountancy seems to suggest that's possible:

 https://www.journalofaccountancy.com/issues/2020/feb/employee-expenses-accountable-plan.html

I was just trying to say that when a home is owned jointly, the joint owners can determine who write off mortgage interest, for example.

[BobKamman]

@Golfer2016   "Journal of Accountancy says 'Home office, Including depreciation'.  Thoughts?"

Some random CPA writing for the Journal of Accountancy mentions depreciation as part of a list that includes "anything that is deductible under Regs. Sec. 1.62-2." Nowhere in Regs. Sec. 1.62-2 are the words "depreciation" or "home office."  Reliance on sloppy writing results in sloppy answers.  

[TaxGuyBill]

---

@BobKamman wrote:

Nowhere in Regs. Sec. 1.62-2 are the words "depreciation" or "home office."  Reliance on sloppy writing results in sloppy answers.  

---

But §1.62-2 does very clearly refer to "part VI (section 161 and following), subchapter B, chapter 1 of the Code".  That includes depreciation.

[BobKamman]

Yes, but § 1.162-17 requires expenses to be submitted to the employer in a timely fashion, at or near the time of the expenditure or use (see reference to § 1.274-5). The question here is, “five months into 2020 we are trying to figure out how much the employee can expect the employer to pay in 2019 under an accountable plan.” It’s an interesting question: “My father owns half this office, can I claim exclusive use even if my S Corporation can’t pay him rent?”

[Golfer2016]

I agree it wasn’t timely like it should have been. However, do you think: 

1. depreciation is eligible reimbursable expense for a s corp

2 in this case can the full cost be 100% of the total cost, for which the pro rata square footage is applied

it seems that we do not have a consensus yet. 

[qbteachmt]

"it seems that we do not have a consensus yet."

There is no question as to Cost. Even a renter would qualify for Home Office, assuming their facts and circumstances qualify for Home Office, such as with a Sched C filer that rents their residence and has a dedicated home office space. Ownership does not drive the Home Office regulation. Neither does funding source for the purchase of the property.

And as a person who has enforced accountable plans, I encourage people to examine allowances, not Actuals, because that way, you avoid all debate or justifications that cannot be substantiated. The IRS already learned this lesson.