A home office deduction for a rental business is not generally available when rental income is reported on Schedule E. The deduction for business use of a home typically applies to qualifying self-employed taxpayers, depending on how their business income is reported.
The deduction for business use of home is available to taxpayers with net income from self-employment. This income is reported on:
- Schedule C
- Schedule F
- Schedule K-1 from a partnership (Box 14 code A)
Taxpayers generally report rental income or loss in their tax return on Schedule E, and they typically manage their rental activity from their home. However, the deduction for business use of home is not available to them for this activity because rental real estate income is not generally included in net earnings from self-employment.
Where are Expenses Business Use of Home (Home Office) Deducted?
A self-employed individual whose business is buying and selling real estate generally reports this income on Schedule C, and if their principal office is in their home they may qualify for the business use of home deduction on IRS Form 8829. They will report rental income from property that's for sale on Schedule C as well.
For a partner in a partnership that is involved in real estate, if they have self-employment income reported on their Schedule K-1 they may deduct their home office expenses as an unreimbursed partner expense on Schedule E, assuming the partnership agreement requires them to pay these expenses. In the partner's individual tax return you will figure the allowable home office deduction using the "Worksheet To Figure the Deduction for Business Use of Your Home" in Publication 587.
Additional Information:
IRS: Publication 587, Business Use of Your Home
IRS: Instructions for Form 8829
Desktop: Form 8829 - Business Use of Home