Thank you for providing clarity on this topic. The information makes it easier for us to practice discernment in each situation. I have been recently spending some time reading about the transient basis rules. Under these rules the rental is considered non-residential and the class life for depreciation is 39 years. But how does that interact with QIP bonus depreciation? Each of these rental situations can get tricky. I like to write about each situation to organize my thoughts and concerns.
Happy New Year to you. I look forward to your writings and courses in 2022.
Question on different subject. Client runs a plumbing biz, has his home in AL and his home is also the S-Corp's business office. There isn't another fixed business location. He needs to travel to WA to oversee the crews and do project estimates which total up to about 2 months out of the year. He does see his daughter when he is in WA but his primary reason for travel is for work. Question is air travel between AL and WA deductible as a travel expense or is it a commuting non-deductible expense? If deductible any recommendations on how to stay out of the danger zone.
I can see how nonpassive rental income could be subject to self-employment tax or not, but passive income cannot possibly be self-employment, right? So, if the taxpayer contracts with the lodge, or HOA to fulfill the requirements of self-employment income, the income is passive and therefore NOT subject to SE. So, it seems to me that being passive DOES have bearing on whether it’s SE or not.
Hi Barbara, whether income is passive or nonpassive is completely separate from whether it is subject to SE tax. When you say "the income is passive and therefore NOT subject to SE" - you can't say one leads to another. Each is an independent assessment as they each have separate rules. Passive income can be subject to self-employment tax. The former is governed by §469 and the latter by §162. A passive activity is subject to SE tax when the owner fails material participation but the activity is a trade or business activity. In fact, if you read the Schedule C instructions, it states you may have a passive Schedule C activity several times. Have a happy new year.
Thank you for providing clarity on this topic. The information makes it easier for us to practice discernment in each situation. I have been recently spending some time reading about the transient basis rules. Under these rules the rental is considered non-residential and the class life for depreciation is 39 years. But how does that interact with QIP bonus depreciation? Each of these rental situations can get tricky. I like to write about each situation to organize my thoughts and concerns.
Happy New Year to you. I look forward to your writings and courses in 2022.
This is a good question I may discuss in the next Ask Tom Anything article. Thanks!
Question on different subject. Client runs a plumbing biz, has his home in AL and his home is also the S-Corp's business office. There isn't another fixed business location. He needs to travel to WA to oversee the crews and do project estimates which total up to about 2 months out of the year. He does see his daughter when he is in WA but his primary reason for travel is for work. Question is air travel between AL and WA deductible as a travel expense or is it a commuting non-deductible expense? If deductible any recommendations on how to stay out of the danger zone.
I can see how nonpassive rental income could be subject to self-employment tax or not, but passive income cannot possibly be self-employment, right? So, if the taxpayer contracts with the lodge, or HOA to fulfill the requirements of self-employment income, the income is passive and therefore NOT subject to SE. So, it seems to me that being passive DOES have bearing on whether it’s SE or not.
Hi Barbara, whether income is passive or nonpassive is completely separate from whether it is subject to SE tax. When you say "the income is passive and therefore NOT subject to SE" - you can't say one leads to another. Each is an independent assessment as they each have separate rules. Passive income can be subject to self-employment tax. The former is governed by §469 and the latter by §162. A passive activity is subject to SE tax when the owner fails material participation but the activity is a trade or business activity. In fact, if you read the Schedule C instructions, it states you may have a passive Schedule C activity several times. Have a happy new year.