S-CORP and OWNER SHAREHOLDER EMPLOYEE OF COMMERCIAL BULDING

[HOPE2]

Hi to all and greatly appreciated it if anybody can help me.

Shareholder employee is owner of commercial building and also has an S-corp business in that blading.

Building has no loan.

Can he use accountable plan for reimbursement of rent from S-corp so he will not have to have Sch E in his 1040?

[Jim-from-Ohio]

should have a Schedule E

[sjrcpa]

If he owns the building, he's not paying rent. How can the S Corp reimburse him for rent?

[IRonMaN]

It must be one of those net-net-net-net-net-net-net-net-net-net-net-net-net leases. 

[qbteachmt]

"Can he use accountable plan for reimbursement of rent"

Accountable plan means that a person paid, personally, for a business expense owed by their employer, and owed to the party which is owed the amount typically for goods and services, and that is a reasonable and customary expense for that business, and can be proven (shown to be accurate and incurred).

You seem to want the shareholder-employee to pay themselves (as landlord) a rent, then turn in the receipt to themselves (as employer) to be repaid?

What typically is done, is the S Corp has a lease agreement with the LLC or individual who owns the building, and the S Corp pays rent to the landlord (as usual) and would issue a 1099-Misc for Rent expense. The landlord has Rental Income to report personally.

There is no need to bring a circular process into it, as Accountable Plan.

But self-rental rules come into play here. You can google:

self-rental S Corp

[HOPE2]

Thanks but I did not understand was very short.

[HOPE2]

@qbteachmt, it was an awesome explanation, thanks a lot.

[HOPE2]

As I understood since the place is commercial building and owner is shareholder employee should have Sch E on his individual tax return.

I searched for the home office expenses, at this case: The S corporation can pay you for the costs of a home office under an "accountable" plan for employee business expense reimbursement and do not need to file Sch E, and but should consider Sch A to be prorated for real estate tax and Mortgage interest.

If it is, hard to find mortgage interest monthly since every month the rent expense should be reimbursed. How to find it?

Am I right? please correct me, thanks.

[HOPE2]

He owns commercial building and every month S-Corp is paying rent for .

[sjrcpa]

He picks up the rent on his Schedule E and deducts the applicable expenses on his Schedule E.

You are confusing me by bring up home office.. You said this is a commercial building.

That's not a home office.

[qbteachmt]

I'm a bit confused by this: "hard to find mortgage interest monthly since every month the rent expense should be reimbursed. How to find it?"

Nothing should be reimbursed. That's the point. A landlord/owner has costs. They might or might not also have income.

The company has rent expense. It isn't reimbursed. If he is paying rent out of pocket (because the company doesn't have the money), then something else is wrong here. Perhaps he needs to put money into the corporation to bridge lean times (loan from shareholder or additional paid in capital)?

There should be some respect paid to the separation of entities. The corporation isn't his own piggy bank from taking money out, and it isn't his spouse or sibling for his payment of business costs. There should be a bit more formality in the movement of funds between two independent entities: self and corporation. Otherwise, why did he incorporate?

[HOPE2]

Sorry about that, I wanted to know about home office expenses so lead me step by step as well.

[HOPE2]

I think my questions was not clear let me clarify

1-If S-Corp pays rent to owner for building, the owner should file Sch E even he is a shareholder-employee? 

2- next question, When shareholder-employee uses home-office expenses, based on accountable plan he/she should file 8829 monthly and find out mortgage interest and real estate tax for each month that I mentioned in my previous post which hard to find numbers for each month specially for mortgage interest and reduce Sch A for those above items. am I right till now? 

[qbteachmt]

1. You need to consider the building owner as the landlord. Being a shareholder-employee has nothing to do with whether or not the person owns any property or that this specific property is what they own. But, since your person is party to both entities (ownership and also his own corporation) you need to read the self-rental considerations; these matter to the tax preparation.

2. Is this even the same person? Because your shareholder-employee doesn't have a home office. His employer has rented office space.

[HOPE2]

Thanks@qbteachmt

For question 1 , he should file Sch E and consideration PAL for self-rental. Is it ok?

for question 2, this is not the same person. The other one, has S-Corp and work in home and as I mentioned .......Sch A ....and reimbursement what would  it be the S-Corp side and individual side?

[qbteachmt]

For 1, I don't know if he has other property, if he is grouping activities, if he has passive or non-passive income/expense other than this rent, other units in that same building, etc. You will want to get up to speed on the matrix that applies to this person.

For 2, since this person is an employee to their S Corp, so there is no Home Office provision for them (a W2 person can take that as deductible expense in certain States, but not Fed). That's when an accountable plan would be used. And when you are reimbursed for something, you would reduce your reportable expense by the amount you already got repaid.

Google:

s corp home office deduction accountable plan

Only read after-TCJA articles, such as:

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

https://molentax.com/wp-content/uploads/2022/08/Home-Office-with-Corp.pdf

[HOPE2]

Thanks again.

One of articles says:
-On the S corporation tax return, report the total reimbursement of the home office in the other deductions
category in a line item labeled “office space” or something similar.
-On your personal tax return, reduce your itemized deductions by the dollar amounts you received as
reimbursements from the S corporation for the home-office mortgage interest and property taxes.
In the permanent file that you maintain for your personal taxes, make sure to track the straight-line
depreciation that the corporation reimburses to you for the home office. You need to treat this depreciation
as if you claimed it personally. This means the depreciation reduces your basis in the home. This also means
that at the time of sale, the straight-line depreciation reimbursed to you is subject to taxation of up to 25
percent as unrecaptured Section 1250 gain.

That is why I asked you guys this question: this reimbursement can be monthly or annually? if it is annually I can find all info from 1098 of lender include mortgage interest and property tax. But 1098 will be received after DEC 31  and for Depreciation of property in what category can be considered( years of dep) rental income or residential home owner. And if this reimbursement should be monthly how can calculate mortgage interest and .... please lead me though the steps, I would greatly appreciated it!

[qbteachmt]

I recommend this is a new subject: home office and S corp office in the residence. The title here is S Corp and Shareholder with commercial building.

Also, this seems like maybe Tax Practice, not Pro Series, for the, "how do I, please lead me through it" part. It's not a, "where do I" issue.