"Chapter I. INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY Subchapter A. INCOME TAX Part 1. INCOME TAXES Subjgrp 2. Tax on Corporations Section 1.62-2. Reimbursements and other expense allowance arrangements.
(b)Scope. For purposes of determining “adjusted gross income,” section 62(a)(2)(A) allows an employee a deduction for expenses allowed by part VI (section 161 and following), subchapter B, chapter 1 of the Code, paid by the employee, in connection with the performance of services as an employee of the employer, under a reimbursement or other expense allowance arrangement with a payor (the employer, its agent, or a third party)."
Which then leads us to "Chapter 1. NORMAL TAXES AND SURTAXES Subchapter B. Computation of Taxable Income Part VI. ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS" which includes sections dealing with all sorts of expenses including depreciation as follows:
"Section 167. Depreciation
(a) General rule There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence)—
(1) of property used in the trade or business, or
(2) of property held for the production of income."
Accordingly, per review of above-mentioned guidance, it would seem that all properly allocable business-related costs of the home office would be reimbursable and therefore deductible by the corporation, including mortgage, interest, property taxes, and depreciation. Am I missing something here?
Another question -- if the corporation is reimbursing the shareholder for the depreciation, is there a basis adjustment for the shareholder's residence which may result in recognition of Section 1250 Unrecaptured Gain when the property is subsequently sold?
I welcome your thoughts. Thanks in advance!