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Entertainment Facilities after the TCJA Tax Reform

Imagine this: your Schedule C business buys a home at the beach, uses it solely as an entertainment facility for business, pays off the mortgage, and deducts all the expenses.

Next, say, 10 years later, without any tax consequence to you, you start using the beach home as your own.

Is this possible? Yes. Are there some rules on this? Yes. Are the rules difficult? No.

Okay, so could I achieve the same result if I operate my business as a corporation? Yes, but the corporation needs to reimburse you for the facility costs, including mortgage interest and depreciation, because you want the title to always be in your name, not the corporation’s name.

The beach home, ski cabin, or other entertainment facility must be primarily for the benefit of employees other than those who are officers, shareholders, or other owners who own a 10 percent or greater interest in the business, or other highly compensated employees. In this situation, you create

  • 100 percent entertainment facility tax deductions for the employer (you or, if incorporated, your corporation), and
  • tax-free use by the employees.

The employee facility deduction is straightforward. It has three splendid benefits for the small-business owner:

  1. You deduct the facility as a business asset.
  2. Your employees get to use the facility tax-free.
  3. You own the property and can use it personally without tax consequence once you no longer need it for business use. (Note that when you sell, you will have a gain or loss on the sale and some possible recapture of depreciation.)

December Tax-Savings Tips

2018 Last-Minute Section 199A Strategies Starting now, this year (2018), you have to consider your Section 199A deduction in your year-end tax planning. If you don’t, you could end up with a big fat $0 for your deduction amount. If your...
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