Don’t Miss the Important Point From this Home Office Tax Court Case | USTaxAid

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Don’t Miss the Important Point From this Home Office Tax Court Case

Written by Diane Kennedy, CPA on March 30, 2018

If you have a business that is run like a Sole Proprietorship, you’ll report the income and loss on a Schedule C. One of the expenses that you can take is the home office expense.

But what do you do if your business is in a corporation? How can a corporation have a “home” office? (What is a corporation’s home anyway?)

It can’t. But a corporation can rent a space. In the recent case of Christopher CL Ng MD, Inc who had taken a rental expense deduction on the C Corporation. It was reported as income on the individual’s personal return, and then offset by pro-rata indirect costs and 100% of the direct costs.

In the end, the Tax Court determined that the corporation failed to prove that its arrangement with the employee/owner was a bona fide rental arrangement. They determined that it was simply an arrangement to make mortgage payments.

Why did they make that decision? The corporation couldn’t produce evidence of a written rental agreement.

The moral of this story is to have a written rental agreement if your business is within a corporation

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