How and where do I claim home office deduction with K-1 income from partnership or S corp?
So I'm trying to figure out this tax situation. I work from home about 80% of the time, but I'm part owner in an S corp and receive a K-1 for my income rather than filing with Schedule C like I used to when I was self-employed. I've got a dedicated office space that's about 15% of my home that I use exclusively for business, but I'm confused about how to claim the home office deduction now. Previously it was straightforward on Schedule C, but now I'm not sure where this deduction goes since I'm not technically self-employed anymore. Does anyone know how to handle this with K-1 income? My tax software isn't being super clear about it.
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Sean Doyle
The home office deduction gets a bit tricky with K-1 income. As a partner or S corp shareholder, you generally can't take the home office deduction directly on your personal return like you would with Schedule C income. Here's why: The partnership or S corp is considered your employer for tax purposes, even though you're an owner. For a legitimate home office deduction, the business entity should reimburse you through an "accountable plan" for your home office expenses. The entity would then deduct these expenses on its tax return. This reimbursement wouldn't be taxable income to you if it follows accountable plan rules. If your entity doesn't have an accountable plan, you might be out of luck for 2024 taxes. The Tax Cuts and Jobs Act suspended unreimbursed employee business expenses for tax years 2018-2025, which is what your home office would be classified as.
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Zara Rashid
•But what if the partnership agreement specifically says partners can take home office deductions? My accountant told me I can still claim it somehow as an unreimbursed partnership expense on Schedule E? Is that different?
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Sean Doyle
•Yes, that's actually an important distinction I should have mentioned! If your partnership agreement specifically allows for partners to take certain expenses, you might be able to deduct them as "unreimbursed partnership expenses" (UPE) on Schedule E, not Schedule A. This would be reported as an adjustment to your K-1 income. S corporation shareholders, however, don't have this same option. For S corps, the accountable plan reimbursement is really the only clean way to handle it since you're technically an employee of the corporation.
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Luca Romano
I struggled with this exact issue last year when I moved from being an independent contractor to an LLC partnership. I wasted HOURS trying different things in TurboTax until I found taxr.ai (https://taxr.ai) which analyzed my situation and helped me understand how to handle unreimbursed partner expenses correctly. The site explained exactly how to report my home office as an unreimbursed expense on Schedule E by adjusting the K-1 amounts. My situation was complicated because I had both guaranteed payments and distributive income, but their guidance walked me through the whole process step by step with my specific K-1 form. Definitely worth checking out if you're stuck!
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Nia Jackson
•How does this work with their system? Do you upload your K-1 and it tells you where to put everything, or is it more general advice?
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Mateo Hernandez
•I'm skeptical about these online tax tools. Did it actually save you money compared to what you were doing before? And can it handle state taxes too or just federal?
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Luca Romano
•The system is actually pretty straightforward - you upload your forms (I uploaded my K-1 and a few other documents) and it analyzes everything. Then it explains exactly which lines and forms you need to complete in whatever tax software you're using. It definitely saved me money! I was about to give up on claiming my home office deduction entirely, which would have cost me about $3,200 in tax savings. As for state taxes, it primarily focuses on federal, but the adjustments it recommends flow through to most state returns automatically.
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Mateo Hernandez
Just wanted to update everyone - I ended up trying taxr.ai after being skeptical, and it was surprisingly helpful! I wasn't sure if my K-1 situation qualified for home office deductions since I'm in a unique position (medical partnership with both guaranteed payments and distributive income). The system identified exactly where I could claim unreimbursed expenses on Schedule E and explained the proper documentation needed to substantiate my home office claim. The guidance was way more specific than what I got from my previous accountant who just told me "you can't do that anymore." Turns out I absolutely could - just not in the way I was trying to do it before. Saved about $4,700 in taxes!
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CosmicCruiser
If you're trying to get clarification directly from the IRS about your specific K-1 and home office situation, good luck getting through to anyone! I spent 3 weeks trying to reach them before I found Claimyr (https://claimyr.com). They got me connected to an actual IRS agent in under 45 minutes who confirmed exactly how to handle my unreimbursed partner expenses. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - it's basically a service that navigates the IRS phone system for you and calls you back when an agent is available. Saved me from spending hours on hold and getting disconnected. The agent I spoke with walked me through the whole process for my specific partnership situation.
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Aisha Khan
•How much does it cost though? The IRS help is free if you can actually get through...
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Mateo Hernandez
•Yeah right... like they actually get you through to someone who knows what they're talking about. Every time I've called the IRS I get a different answer from each person. Did the person actually know about partnership tax issues?
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CosmicCruiser
•There is a fee, but honestly the time savings alone was worth it for me. I had already wasted multiple mornings trying to get through on my own. The IRS agent I spoke with was surprisingly knowledgeable about partnership taxation. She specifically addressed unreimbursed partner expenses for home offices and confirmed that if your partnership agreement allows for these expenses, you can deduct them on Schedule E as an adjustment to your income from the partnership. She even emailed me the relevant IRS publications that address this specific situation.
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Mateo Hernandez
OK I have to eat my words about Claimyr. After seeing the results from taxr.ai, I decided to also try Claimyr to get direct confirmation from the IRS about my home office situation. I was EXTREMELY skeptical that they could actually get me through to someone, but within about 30 minutes I got a call back and was speaking with an actual IRS agent. The agent confirmed everything I learned from taxr.ai and added some additional documentation requirements I hadn't considered. For my medical partnership, I needed to make sure our partnership agreement explicitly stated that partners are expected to maintain home offices and aren't reimbursed for them. This small detail makes a huge difference in an audit scenario. Definitely worth the time saved from sitting on hold for hours!
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Ethan Taylor
Something everyone is missing here - if you're an S-corp shareholder, you might be able to have the S-corp rent your home office space from you instead of taking it as a deduction. My accountant set up a rental agreement between me and my S-corp, and now the business pays me rent (reasonable amount based on square footage) for the dedicated office space. The S-corp deducts the rent payment as a business expense, and I report the rental income but can offset it with depreciation, utilities, etc. related to that space.
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StarStrider
•Wouldn't that create more complicated tax filings though? Would I need to file a Schedule E for the rental income? And are there any potential audit red flags with this approach vs the other suggestions?
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Ethan Taylor
•It does add some complexity because you'll report the rental income on Schedule E, but the deductions for expenses related to the rental portion often offset much of that income. The key is having proper documentation - a formal lease agreement between you and the S-corp, proof of regular payments at fair market value, and good records of expenses. As for audit risk, it's actually considered cleaner than some alternatives because there's a clear business relationship. The biggest red flag would be charging excessive rent amounts that don't reflect local market rates. Stay reasonable with the numbers and document everything, and it's a perfectly legitimate arrangement that the IRS has recognized in numerous cases.
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Yuki Ito
I'm still confused about something - if we can take unreimbursed partnership expenses on Schedule E for a partnership, why can't S-corp shareholders do the same thing? They both give K-1s, right? 🤔
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Sean Doyle
•It comes down to how the tax code treats these entities differently. In a partnership, you're considered self-employed and directly engaged in the partnership's business activities. The partnership agreement can specify that certain business expenses aren't reimbursed but are still considered business expenses. In an S-corp, you have a dual role - you're a shareholder AND an employee. The employee status is the problem. Since 2018, employees cannot deduct unreimbursed employee business expenses due to the Tax Cuts and Jobs Act (at least until 2026 when those provisions expire). The IRS views home office expenses for S-corp shareholder-employees as employee expenses, not shareholder expenses.
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Andre Moreau
This is such a helpful thread! I'm in a similar situation with my LLC partnership and was completely lost on how to handle my home office deduction. Based on what everyone's shared here, it sounds like the key is making sure your partnership agreement explicitly allows for unreimbursed partner expenses. Quick question for those who've gone through this - when you report these as adjustments on Schedule E, do you need to attach any special forms or documentation to your return, or is it just a matter of entering the amounts in the right places? I want to make sure I'm not missing any required paperwork that could cause issues later. Also, has anyone dealt with state tax implications? I'm in California and wondering if the federal treatment carries over automatically or if there are additional state-specific considerations.
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Mei Chen
•Great questions! For the federal side, you typically don't need to attach special forms - the unreimbursed partner expenses are reported as adjustments on Schedule E where you enter your K-1 information. However, I'd strongly recommend keeping detailed documentation in your files including your partnership agreement section that allows these expenses, receipts, home office measurements, and a log showing exclusive business use. For California, the treatment generally follows federal - if it's deductible as an unreimbursed partner expense federally, California usually recognizes it the same way. But California can be tricky with some partnership items, so you might want to double-check with a CA tax pro or use one of those tax analysis tools others mentioned to make sure you're not missing anything state-specific. The key is having that partnership agreement language locked down before you file. Without it explicitly stated, you're in much shakier territory if the IRS ever questions the deduction.
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Anastasia Kozlov
I went through this exact situation last year when I transitioned from sole proprietorship to an S-corp. The biggest mistake I made initially was trying to force the home office deduction through the old Schedule C method, which obviously doesn't work anymore. What I learned is that timing matters a lot here. If you're already set up as an S-corp for this tax year, your best bet is probably the rental arrangement that Ethan mentioned - have your S-corp pay you reasonable rent for the office space. I set mine up retroactively for 2024 (with proper documentation) and it worked out to about $2,100 in tax savings. But here's something to consider for next year: you might want to evaluate whether staying as an S-corp is actually the best structure for your situation. If home office deductions are significant for you (sounds like 15% of your home could be substantial), you might benefit more from converting to a single-member LLC and electing to be taxed as a sole proprietorship. That way you get back to the straightforward Schedule C treatment. The math really depends on your total income, self-employment tax implications, and other factors. Sometimes the simplicity and deduction opportunities of Schedule C outweigh the potential payroll tax savings of an S-corp, especially if you're not paying yourself a huge salary anyway.
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Isaiah Thompson
•That's a really good point about evaluating the business structure itself! I hadn't considered that the S-corp election might not be optimal if home office deductions are a big part of my tax strategy. The rental arrangement sounds interesting for this year, but I'm curious about the mechanics - did you have to set up monthly payments from the S-corp to yourself, or could you do it as a lump sum at year end? And how did you document the "reasonable rent" calculation to make sure it would pass IRS scrutiny? Also, when you mention converting back to single-member LLC taxed as sole proprietorship, wouldn't that mean going back to paying self-employment tax on the full business income instead of just the S-corp salary? I'm trying to figure out if the home office savings would offset that additional SE tax hit.
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