Home Office Deduction??

[Lauren Keen Aumond]

I'm using a CPA for the first time since 2017 was my first year having a rental property. He's my parents' CPA and they have one rental. He told me I can't take any home office deduction (I'm interested in the "simplified one" $5/sf) because I'm not a Real Estate Professional (750 hours spent or half my regular business time). In Amanda and Matt's book, Tax Strategies for the Savvy Real Estate Investor, they say if your home office is "your primary place of business" for real estate activities, then you can deduct it. This is definitely true for me, however, I can't find if Amanda and Matt mention the Real Estate Professional definition as a requirement for that or not.

If I can take the deduction, can you send me some collateral I can forward to my CPA? 

(And I already know I need to find a different CPA because I came with more ideas than he did. This is a DIFFERENT discussion.)

[Logan Allec]

@Lauren Keen Aumond I am not sure one way or the other if you can take the deduction since I don't have all the facts, but I can tell you that the real estate professional designation is not a requirement to take the home office deduction with respect to a rental activity.

There is nothing in §280A (the home office section in the tax code) that mentions being a real estate professional is required in order to take the home office deduction for your rental activity.

However, in addition to the rules regarding the space itself, there is the requirement that the taxpayer's rental activities rise to the level of a trade or business, which the Treasury has conveniently never defined for us.

But it seems that rental activities would rise to the level of a trade or business if the activities are substantial, regular, and continuous.

However, there is a case, Curphey v. Commissioner, where the Tax Court held that a dermatologist (who would likely not have qualified as a real estate professional by our current definition of real estate professional) was in fact engaged in a trade or business of managing his six rental units.  Note that this case was enacted before the passive activity rules were enacted in the 1986 tax reform bill and likewise before the 1993 creation of the real estate professional designation.

But at the end of the day, if you're looking for primary authority in the code or regs saying, "You don't need to be a real estate professional to claim the home office deduction for rental activities," you're not going to find it.

Your best bet would be to challenge the CPA as to why he believes the real estate professional designation is necessary.  Ask him for the citation to support his position, and if he can't find it, then ask him why he believes what he believes.  If he's coming up with a rule that's not in the tax code, I would say the burden's on him to prove himself right!