Home office Expense for a Salaried W2 employee

[Anonymous]

How does the VA see this tax deduction?  It shows as an unreimbursed employee expense on 2106 because that is the only place a non-self employed person can deduct this on taxes.  I am salaried and W2.  No 1099.  No Schedule C.  No self employment income.  I am at their direction and control, which they have full right. 

We itemize deductions when we can, schedule A.

The VA pamphlet states:

Job Related Expense
Include any costs for child care, significant commuting costs, and any other direct or incidental costs associated with the applicant’s (or spouse’s) employment. Check this item if total job-related expenses are significant.

My rent, utilities and internet aren't extra costs to me associated with my employment.  I have these no matter where I work.

If they did consider this, wouldn't it be the equivalent of going down everyone's Scheudle A and deducting things? 

[Anonymous]

what exactly did you deduct?

If you claim it on taxes as a business expense then it is considered a business expense and you would not have it without the job.  You can only write off the portion of expenses that are directly related to the business and in the case of stuff that you use for both business and personal together, you have to write off the percentage that you use for business. (I believe...at least that is what I have always been told)  Basicly, if you are claiming x amount of your monthly bills as business expenses, then that money would be deducted from your gross income and you would only qualify based on your AGI after deductions (although I do believe items such as depreciation can be added back in).  As in most of the world, you can not have your cake and eat it to.  Either it was business cost and was correctly itemized (and therefore affects your income), or it was personal cost and should not have been deducted.  That is why tax professional tell you that personal office write-offs are one of the big red flags for audtis and such because they are tricky and people often either make mistakes or knowingly try to write off too much.  So, if the expenses were legitimate business expenses then you either have to deal with the lower AGI or ammend your taxes (and pay the owed balance) to get approved for the high income.

I would consult a tax professional (if you do not already have one) and see exactly what would be best for you. 

[Anonymous]

I am a regular salaried W-2 employee.  As a regular W-2 employee I will strictly claim any unreimbursed employee expenses that I have, including expenses for a home office, by filing Form 2106 for Unreimbursed Employee Expenses and then including those expenses as part of my itemized deductions on Schedule A. 

If I were a statutory employee, I could list all of my unreimbursed business expenses on Schedule C, which is a little bit of a benefit, because there are no limitations to the expenses I may claim. I am not a statutory employee and will therefore deduct my expenses on Schedule A, and expenses in that category are limited to those which exceed 2% of my adjusted gross income.   The IRS explains that as a regular employee I am not eligible to use Schedule C to report any expenses, but instead must report them on Form 2106 and Schedule A, and they are subject to the 2% limitation.

This was what I ended up with when I did the IRS flowchart:  

Do not file Form 2106. Enter expenses on Schedule A

(Form 1040), line 21 or Schedule A (Form 1040NR), line

9. These expenses include business gifts, education

(tuition and books), home office, trade publications, etc.

This is where it was deducted.  On Scheudle A line item 21.

Unreimbursed employee expenses

job education, etc. Attach Form 2106 or 2106-EZ if

required. (See instructions.)

My point is that if this was for a qualified home office, deducting a portion of rent and certain utilities, how does this factor in?

[Anonymous]

FYI 

Also, I took this deduction in 2009, but not 2008.  Same job, etc.  It just depends on if my itemizations are more than my standard deductions which dictates weather I take the deduction or not.

Also, it's an employee expense, not a business expense, which becomes an itemized deduction.

Generally, employee expenses are deductible only on

line 21 of Schedule A (Form 1040) or line 9 of Schedule A

(Form 1040NR).

[Anonymous]

Eww....  I just found this online, but am not sure if it relates to VA loans or not:

Business expenses incurred by the borrower that are not reimbursed by the employer must be included in the debt ratio calculation. A 24-month average of the business expenses reported in Schedule A and IRS Form 2106 attachments to the borrower’s signed tax return is required. This average must be subtracted from the borrower’s monthly income.  

Well.  Didn't have them in 2008, but did in 2009.

Hmm...it's only 5600.  So, spread over 2 years isn't too horrid...if it applies.

[Anonymous]

I think you found the answer, but in general, if you deduct it as an expense for business/employee costs, then that amount is always deducted from your qualifying income because by claiming it, you are stipulating that it is an expense that you would have not incurred if it was not for the job.  UW then assume that an amount of the income equal to the deduction needs to be deducted from qualifying income to account for your business/employee costs.

[Anonymous]

Yeah....I think that is the answer.  So, basically, that will put me at borderline 41% DTI or maybe 42%  No good...

[Anonymous]

So, I called the regional VA loan center for their position on this.  I was told that this would not be considered a job related expense for the purpose of completing the VA loan analysis.  If you are a salaried W-2 person, they are looking for documented reductions in income from say, your W2.  For example, uniforms or tools that you have taken out of your pay.  He said unless I was a self employed or 1099 person, that a deduction for a  home office would not even need to be considered, basically, because I am paying rent, utilities, insurance, etc anyway be survive as a human being.  It's not a cost associated with my job, it's a cost assocaited with life in general.  .  He said that that, especially, on a schedule A, this was true.

[Anonymous]

Good luck.  I would not hold my breath, since the call center people are known to not be too familiar with very specified information ro what line the actual lenders draw on these issues.  It sounds like the type of area tha is a little open to interpretation and you will likely end up at the whim of the UW as to how they interpret it.  As far as the expenses goes, by definition, you are writing off expenses that are for business/employment, so you can not argue that they would exist anyways or they are not valid write-offs.  The though is that you are writing off the portion of those bills that are above and beyone your personal expenses or writing off the percentage of these that you use for employment purposes.  So although in the real world you are correct, from a tax and lending perspective, those are now "business" expenses and not perosnal, or the taxes are filed improperly.  I think it will all depend on how the underwriter reads the law. 

[Anonymous]

Oh, I know that the lender can do whatever they want...I've seen.  Bleck.  However, it does not hurt in any way  to ask them for their position with regard to how it applies when filling out Form 26-6393.