Tax Rules For Rental of Home Office Space to Employer
In certain situations, an employee may rent a portion of their home to their employer. When this occurs, particular IRS tax rules apply.
An employee who rents a portion of their home to their employer doesn’t qualify for a home office deduction if the employee uses the office to perform employee duties. The same rule applies to an independent contractor. The only deductions allowed are those which would be deductible regardless of business use—i.e., mortgage interest, real estate taxes, and casualty losses (disaster losses 2018-2025).
Example – Rental of Home to Employer - Penny Prim owns a two-story building. She rents the ground floor to her solely owned corporation and lives on the upper floor. Penny is an employee of the corporation. Result: According to LR 8819009, Penny should get no deduction for the portion of the building she rents to a corporation in which she is the sole shareholder. However, the corporation can deduct the rent it pays to Penny. Penny should be allowed to deduct the property taxes, interest and casualty losses, regardless of how the building is used, if she itemizes deductions.
-