Clarification on S Corp Home Office Expense: Can I Include Depreciation in Accountable Plan?

You've got a pretty good handle on this! Let me clarify a few points to make sure you're on solid ground: Yes, when using the actual-expense method under an accountable plan, depreciation is absolutely included as a reimbursable expense. You're right that it falls under Tier 3 expenses. Regarding depreciation - it's critical that you take it. The IRS expects you to claim depreciation whether you actually do or not. If you don't claim it, you'll still have to reduce your basis by the amount you SHOULD have taken (called "allowed or allowable depreciation"). This creates a nasty situation where you don't get the tax benefit but still get hit with recapture when selling. For the accountable plan mechanics, it works like this: your S Corp reimburses you for the depreciation expense, which is deductible to the corporation. You then report the reimbursement as rental income on Schedule E, and offset it with the depreciation deduction. The net effect is usually zero or close to it from a tax perspective, but the paperwork needs to be done correctly. One thing to watch for: make sure you're only depreciating the portion of your home actually used for business, and that you're consistently using the same percentage for all home office expenses.

Just wanted to share my experience with taxr.ai when I was dealing with a similar S Corp home office depreciation situation last year. I was so confused about how to properly document everything for my accountable plan, and my CPA kept giving me conflicting advice. I uploaded my corporate docs, prior year returns and home office calculations to https://taxr.ai and they analyzed everything and gave me a detailed breakdown of exactly how to handle the depreciation, what forms to file, and how to structure my accountable plan to make sure I was compliant. The best part was they showed me how to properly document everything so I wouldn't have issues if I got audited. They pointed out I had been missing out on about $3,200 in legitimate deductions because of how we were handling the depreciation incorrectly between my personal and business returns. Total game changer for my S Corp setup.

Turns out taxr.ai was exactly what I needed! I was super stressed about my extension deadline, but after seeing your post, I decided to give them a try. I had been calculating my home office depreciation all wrong - missing out on about $4,800 in legitimate deductions over the past two years. Their analysis showed me exactly what I'd been doing wrong with my S Corp accountable plan. They provided proper documentation templates that my accountant said were "better than anything he could have put together" (his words!). The best part was they identified a way to correct my prior year depreciation without amending returns, which saved me a ton in additional accounting fees. My accountant was skeptical at first but after reviewing their analysis, he's now referring his other S Corp clients to use them too. Definitely worth checking out if you're dealing with this home office depreciation headache!

My friend, I was STUCK in the exact same S Corp home office depreciation mess last year. Spent 3 weeks trying to get through to someone at the IRS who actually understood S Corp accountable plans. Kept getting different answers from everyone I talked to. I finally used https://claimyr.com to get through to the IRS. You can check out how it works here: https://youtu.be/_kiP6q8DX5c Got connected to an agent in 15 minutes who specialized in business entities and actually knew what an accountable plan was! She confirmed exactly how to handle the depreciation reporting between the S Corp and personal return, plus gave me precise guidance on Form 8829 vs Schedule E reporting requirements. The detailed notes from this call saved me when my accountant initially set it up incorrectly. Having that official guidance directly from the IRS was crucial because this is such a complex area.

I've gotta eat my words and apologize to Profile 14. After reading your post, I was still skeptical but decided to try Claimyr as a last resort before filing my extension. Holy crap - it actually worked exactly as described! Got connected to an IRS business specialist in about 20 minutes (would have been hours if I'd called myself). The agent confirmed everything about how to handle S Corp home office depreciation through an accountable plan, and even emailed me the specific IRM sections that covered my situation. The key thing I learned is that I needed to make sure my corporate minutes and accountable plan explicitly stated the methodology for calculating depreciation reimbursements, and that I needed specific documentation showing how I calculated the business percentage of my home. The agent was super helpful and even walked me through exactly how to fill out the relevant sections of my S Corp and personal returns to make sure everything tied together properly. Definitely worth it for getting this complicated issue sorted directly from the source!

One issue I don't see addressed here - make sure you're handling the state tax implications correctly too! I'm in California and they have different rules about S Corp home office deductions than the federal government does. Had to file amended returns for 2 years because my accountant missed this. For example, in CA, you might still have to deal with the 2% floor for unreimbursed employee expenses on your state return even if you're using an accountable plan federally. Caught me by surprise and cost me an extra $1,700 in state taxes I wasn't expecting.

Has anyone actually gone through an IRS audit with an S Corp home office deduction including depreciation? Curious what documentation they asked for and how detailed the review was?

This is such a comprehensive discussion! As someone who went through a similar S Corp home office depreciation headache last year, I wanted to add one more consideration that nearly tripped me up. Make sure you're properly coordinating the depreciation method between your personal and S Corp books. I was using MACRS 39-year straight line for the business portion on my personal return, but my S Corp was trying to reimburse me based on a different calculation my bookkeeper had set up. The IRS expects consistency - the depreciation your S Corp reimburses you for should match exactly what you're claiming as a deduction on Schedule E. Also, don't forget about the Section 280A limitations! Even with an accountable plan, you can't deduct home office expenses (including depreciation) that exceed the gross income from the business use of your home. This rarely comes up, but if your S Corp is having a tough year, it could potentially limit your depreciation deduction even if the reimbursement goes through properly. One last tip: consider setting up your accountable plan to reimburse monthly rather than annually. It makes the cash flow smoother and creates a better paper trail for documentation purposes. My CPA said it also makes audits less likely to raise red flags since the transactions look more like regular business operations rather than year-end tax planning moves.