Home Office Deduction: Schedule E VS Schedule C

[Lisa Mason]

I've sort of got this question floating out on another thread, but I want to directly ask:

As a landlord with 3 rental properties I maintain a dedicated home office. This is the first year I will be claiming the deduction. I'm not a SP, an LLC, and agent, or a broker. I'm simply a landlord that is actively involved in managing these rentals as a business. I'm confident in my ability to take the deduction; I'm just confused about where/how to take it.

Every Landlord's Tax Deduction Guide says to claim it on line 18 of my Sch E as an "other" expense and say "Business use of home".

Others I've spoken to say to use Schedule C, but since my rental income is all on Schedule E, how will that work?

I'm working with a net operating loss for my rentals this year, so putting the deduction in Sch E doesn't seem right because the home office should not offset ordinary income.  Help?
Thanks!

[Brandon Hall]

@Lisa Mason @Rhonda Blue

The main question landlords have to ask themselves is: do my rental activities qualify as a business, or are they viewed as an investment? Better yet, how will the IRS view your rental activities?

Whether or not you are in business is determined by the facts and circumstances surrounding your rental activities. Are you regularly, systematically, and continuously involved in your rental activities? Are you managing the rentals yourself or did you hire help? If you hired help, how often is that person involved in YOUR rental activities? How many properties do you own? Are you leasing on a short-term or long-term basis? How many hours are you devoting to your rental activity and are you logging these hours?

When you have solid tenants in place and own only a few rentals, you may not be able to prove you are regularly, systematically, and continuously involved in your rental activities and therefore may not be able to qualify them as a business.

Get with a real estate savvy CPA as they will look at the entire picture and use their judgment/experience in determining whether or not you are in business and eligible for business deductions like the home office.