Roommate in a house?

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BeautifulDisaster
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Roommate in a house?

Post by BeautifulDisaster » Thu May 31, 2018 8:19 am

My SO and I decided to move in together as we see a future together in the long term :beer

It makes most sense that I would move out of my apartment when the lease ends into her house. We agreed on a price (splitting everything in half) but don't understand how this affects taxes. For this example lets say everything (bills and groceries) equaled $1000 month.

Our thoughts are that I would cover the bills directly (water, electric, internet, etc.) typically ~$500 per month and she would cover the mortgage payment. Can we do this?

1 - When it becomes tax season how does she file her taxes as it concerns the rental income.

2 - In the eyes of the IRS would me paying for bills and her paying for the mortgage suffice since she's isn't getting extra income from me?

Thank you in advance!
Last edited by BeautifulDisaster on Thu May 31, 2018 10:03 am, edited 1 time in total.

BuckyBadger
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Re: Roommate in a house?

Post by BuckyBadger » Thu May 31, 2018 8:24 am

In what way would anything have to do with taxes? I'm not sure I understand the question.

If you're not married, you still file individually. You follow whatever lease agreement and payment you decide on as if you were regular roommates and not a couple.

ETA Technically she should declare the rental income, but other than that, you're just paying her to live in her house like a normal roommate.

ETA2 My husband moved in with me while we were in grad school - I can't honestly remember if it was before or after we were engaged. Before, I think. I charged him rent. I did not claim it on my taxes (sorry, everyone). Nothing about my taxes changed.

BeautifulDisaster
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Re: Roommate in a house?

Post by BeautifulDisaster » Thu May 31, 2018 8:34 am

BuckyBadger wrote:
Thu May 31, 2018 8:24 am
In what way would anything have to do with taxes? I'm not sure I understand the question.

If you're not married, you still file individually. You follow whatever lease agreement and payment you decide on as if you were regular roommates and not a couple.

ETA Technically she should declare the rental income, but other than that, you're just paying her to live in her house like a normal roommate.
It's her house.

1 - When it becomes tax season how does she file her taxes as it concerns the rental income.
2 - In the eyes of the IRS would me paying for bills and her paying for the mortgage (since they're roughly equal) suffice since she's getting extra income?

BuckyBadger
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Re: Roommate in a house?

Post by BuckyBadger » Thu May 31, 2018 8:36 am

BeautifulDisaster wrote:
Thu May 31, 2018 8:34 am
BuckyBadger wrote:
Thu May 31, 2018 8:24 am
In what way would anything have to do with taxes? I'm not sure I understand the question.

If you're not married, you still file individually. You follow whatever lease agreement and payment you decide on as if you were regular roommates and not a couple.

ETA Technically she should declare the rental income, but other than that, you're just paying her to live in her house like a normal roommate.
It's her house.

1 - When it becomes tax season how does she file her taxes as it concerns the rental income.
2 - In the eyes of the IRS would me paying for bills and her paying for the mortgage (since they're roughly equal) suffice since she's getting extra income?
Does she use turbo tax? I'm pretty sure they walk you through rental income.

You do nothing - you're not getting any income.

mortfree
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Re: Roommate in a house?

Post by mortfree » Thu May 31, 2018 9:18 am

you pay the bills directly.

then she doesn't have "rental" income to report...?????

seems unnecessarily complicated

BeautifulDisaster
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Re: Roommate in a house?

Post by BeautifulDisaster » Thu May 31, 2018 9:31 am

mortfree wrote:
Thu May 31, 2018 9:18 am
you pay the bills directly.

then she doesn't have "rental" income to report...?????

seems unnecessarily complicated
Would love to hear your recommendations on how you would handle this both from the renter and tenant side :)

JGoneRiding
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Re: Roommate in a house?

Post by JGoneRiding » Thu May 31, 2018 9:35 am

Yes. Pay the bills directly.the irs doesn't really care about two single people living together and splitting bills. Amd umless you tell them they wont know. They have more important things. They do care about people with multiple roommates doing boarding houses.

Technically she could claim rent and then losses but trust me it isn't worth the hassle

roamin survivor
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Re: Roommate in a house?

Post by roamin survivor » Thu May 31, 2018 9:45 am

JGoneRiding wrote:
Thu May 31, 2018 9:35 am
Technically she could claim rent and then losses but trust me it isn't worth the hassle
I think this was probably the idea. Why do it is another story as this probably wouldn't have much of an impact for deductions with one person. Unless the SO is claiming renter's credit and need to dot the i's and cross the t's.

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Re: Roommate in a house?

Post by LarryAllen » Thu May 31, 2018 9:58 am

I would focus on the non-financial side of things. Yes it's important to discuss money, be aware of the issues, etc... but not boglehead every issue to death. Spend time together, decorate rooms, cook meals, etc.... Don't count pennies. You can thank me later for this good advice.

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Smorgasbord
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Re: Roommate in a house?

Post by Smorgasbord » Thu May 31, 2018 10:00 am

At one point, a friend and my (now) wife were living in a house that I owned. We just split things up with a bit of rent collected under the table since I was the one covering the PITI. One year, the friend decided to take the state's renter's credit on her taxes and I distinctly remember having to spend the better part of a Saturday tracking down receipts and statements for my taxes as a result. After several hours of paperwork, my tax bill moved less than $20. :oops:

clydewolf
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Re: Roommate in a house?

Post by clydewolf » Thu May 31, 2018 10:04 am

Here is some information from the IRS: https://www.irs.gov/businesses/small-bu ... e-tax-tips

It sounds like you SO owns the house so she can also take some depreciation.

Will you beproviding services such as lawn mowing, snow shoveling? Your services in lieu of rent are income to her and also an expense

mortfree
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Re: Roommate in a house?

Post by mortfree » Thu May 31, 2018 10:34 am

BeautifulDisaster wrote:
Thu May 31, 2018 9:31 am
mortfree wrote:
Thu May 31, 2018 9:18 am
you pay the bills directly.

then she doesn't have "rental" income to report...?????

seems unnecessarily complicated
Would love to hear your recommendations on how you would handle this both from the renter and tenant side :)
Guess you'll need a rental agreement then...

Otherwise, as explained here you are not directly paying the landlord any money.

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Tamarind
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Re: Roommate in a house?

Post by Tamarind » Thu May 31, 2018 10:44 am

Agreed with most of the advice above. It's likely not worth it to her to claim rental depreciation.

Do you earn equal incomes? If not, why split the bills 50/50? It's up to y'all too decide what works for you, but I think it avoids fights about "fair share" to split according to income. Plus then you'll have to start talking about your finances together, which will be good for the long term health of your relationship.

tesuzuki2002
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Re: Roommate in a house?

Post by tesuzuki2002 » Thu May 31, 2018 10:48 am

BeautifulDisaster wrote:
Thu May 31, 2018 8:19 am
My SO and I decided to move in together as we see a future together in the long term :beer

It makes most sense that I would move out of my apartment when the lease ends into her house. We agreed on a price (splitting everything in half) but don't understand how this affects taxes. For this example lets say everything (bills and groceries) equaled $1000 month.

Our thoughts are that I would cover the bills directly (water, electric, internet, etc.) typically ~$500 per month and she would cover the mortgage payment. Can we do this?

1 - When it becomes tax season how does she file her taxes as it concerns the rental income.

2 - In the eyes of the IRS would me paying for bills and her paying for the mortgage suffice since she's isn't getting extra income from me?

Thank you in advance!

there is nothing to report.... don't complicate your life.

BeautifulDisaster
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Re: Roommate in a house?

Post by BeautifulDisaster » Thu May 31, 2018 10:57 am

Tamarind wrote:
Thu May 31, 2018 10:44 am
Agreed with most of the advice above. It's likely not worth it to her to claim rental depreciation.

Do you earn equal incomes? If not, why split the bills 50/50? It's up to y'all too decide what works for you, but I think it avoids fights about "fair share" to split according to income. Plus then you'll have to start talking about your finances together, which will be good for the long term health of your relationship.
We're very transparent with our finances already and she earns about $40k more than I do. With the larger income, she has more student debt. Seeing this is a long commitment - I think the 50 / 50 split will help us bring her debt down to zero and we'd revisit the conversation to see if we want to change the 50 / 50 split to a income based split.

This post was more so to understand if:

1) I was being kosher with the IRS by living there and seeing if I could pay for the bills so we wouldn't need to worry about more tax paperwork

and

2) If she did need to file more tax paperwork (i.e. rental income, etc) how we would go about doing it.

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dm200
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Re: Roommate in a house?

Post by dm200 » Thu May 31, 2018 2:44 pm

No legal or tax expert - but I suspect there are several ways to do this.

One way would be for her to treat the house as 1/2 her residence and 1/2 rental property. Declare your rent as income and deduct 1/2 of the expenses. She can also depreciate (and deduct) 1/2 of the house just like it was a separate rental property.

A friend of mine did this years ago with his house and 2-3 other housemates.

If she and you do not care about her ownership of the house and do not want to complicate tax records and filing - then I suspect do nothing and agree on how much of the expenses you pay.

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rob
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Re: Roommate in a house?

Post by rob » Thu May 31, 2018 2:50 pm

I'm lost on a number of posts above that say there is no income?? Whether flatmate pays bills instead of (or partially) rent or cash in little brown bags, does not change the fact there is income. That income should be reported.
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dm200
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Re: Roommate in a house?

Post by dm200 » Thu May 31, 2018 2:59 pm

rob wrote:
Thu May 31, 2018 2:50 pm
I'm lost on a number of posts above that say there is no income?? Whether flatmate pays bills instead of (or partially) rent or cash in little brown bags, does not change the fact there is income. That income should be reported.
In my opinion, it depends on the details. Sharing expenses does not mean income. Neither does a gift.

if you go to dinner with a friend and you actually pay the $100 check - and the friend hands you a $50 bill - is that income? I don;t think so. if you are married and your spouse owns the home in his/her name and you help with the bills - is that income?

The OP and the homeowner have a relationship.

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Re: Roommate in a house?

Post by LadyGeek » Thu May 31, 2018 4:28 pm

BeautifulDisaster wrote:
Thu May 31, 2018 10:57 am
...We're very transparent with our finances already and she earns about $40k more than I do. With the larger income, she has more student debt. Seeing this is a long commitment - I think the 50 / 50 split will help us bring her debt down to zero and we'd revisit the conversation to see if we want to change the 50 / 50 split to a income based split.

This post was more so to understand if:

1) I was being kosher with the IRS by living there and seeing if I could pay for the bills so we wouldn't need to worry about more tax paperwork

and

2) If she did need to file more tax paperwork (i.e. rental income, etc) how we would go about doing it.
You are asking: "Are shared expenses considered rental income?" in a home that is lived in by both of you for personal use only.

The "official" answer comes from the IRS: Publication 527 (2017), Residential Rental Property, Chapter 5.

The answer in a more readable format: Are shared living expenses considered reportable and taxable inc... - TurboTax Support
Not if it's just a cost sharing relationship. You would not really be renting space to him and he's just paying his share of expenses.
So, no additional paperwork is needed. She should not file any "rental" type tax returns.
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legio XX
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Re: Roommate in a house?

Post by legio XX » Thu May 31, 2018 4:54 pm

Tamarind wrote:
Thu May 31, 2018 10:44 am
Agreed with most of the advice above. It's likely not worth it to her to claim rental depreciation.

Do you earn equal incomes? If not, why split the bills 50/50? It's up to y'all too decide what works for you, but I think it avoids fights about "fair share" to split according to income. Plus then you'll have to start talking about your finances together, which will be good for the long term health of your relationship.
+1 and +1 again. Few regrets, but believe me, if there's something I would go back and edit if I could this would be close to the top of the list.

Don't know the rules for owners, but as an apt renter any income I get from a roomie is not declared as income, perfectly legal. Setting oneself up as a landlord when the tenant is a sigother might draw some unwanted official attention. Like are you a legitimate landlord if your only ever tenant is . . . KIS folks.

Sandi_k
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Re: Roommate in a house?

Post by Sandi_k » Thu May 31, 2018 5:06 pm

She still gets all deductions - the interest deduction, and the property tax deduction. You get no deductions.

She *should* claim any cash you pay her as rent on her tax forms for the year.

We went through this ourselves - when we first had a house, DH and I rented out a room to his cousin. Since we had no interest in claiming depreciation, figuring out what percentage of the house he used (common vs. private spaces) we simply claimed the rental income paid as "miscellaneous income," and paid taxes on it. We figured if we were ever audited, the worst the IRS could do was tell us we'd OVERPAID taxes, since we had not claimed allowable depreciation.

The flip side is that we didn't have to recapture that depreciation when we sold the house 15 years later, either.

So that scenario worked for us - we paid taxes on the income, because we felt it was the right thing to do.

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Re: Roommate in a house?

Post by emoore » Thu May 31, 2018 5:15 pm

I don't understand all the talk about claiming rental income and depreciation and all of that. I don't think the OP qualifies as a renter as defined by the IRS. I thought there were different rules when you are in a spouse like relationship vs. a roommate relationship. If the OP was truly a roommate then I would agree with all the talk of rental income and such. But the OP in a spouse like relationship and I believe that is different according to the IRS.

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Re: Roommate in a house?

Post by Sandi_k » Fri Jun 01, 2018 12:00 am

emoore wrote:
Thu May 31, 2018 5:15 pm
I don't understand all the talk about claiming rental income and depreciation and all of that. I don't think the OP qualifies as a renter as defined by the IRS. I thought there were different rules when you are in a spouse like relationship vs. a roommate relationship. If the OP was truly a roommate then I would agree with all the talk of rental income and such. But the OP in a spouse like relationship and I believe that is different according to the IRS.
In a "spouse-like" relationship, they'd be splitting the deductions. I assume she's unwilling to allow that, since all of the legal obligations are hers.

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Re: Roommate in a house?

Post by golfCaddy » Fri Jun 01, 2018 1:46 am

emoore wrote:
Thu May 31, 2018 5:15 pm
I don't understand all the talk about claiming rental income and depreciation and all of that. I don't think the OP qualifies as a renter as defined by the IRS. I thought there were different rules when you are in a spouse like relationship vs. a roommate relationship. If the OP was truly a roommate then I would agree with all the talk of rental income and such. But the OP in a spouse like relationship and I believe that is different according to the IRS.
I don't think the IRS recognizes a spouse like relationship. You are either married or you're not, as far as the IRS is concerned. There might be some exceptions for someone who entered into a civil union or the like, but no one is alleging that here.

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Re: Roommate in a house?

Post by golfCaddy » Fri Jun 01, 2018 1:56 am

dm200 wrote:
Thu May 31, 2018 2:59 pm
I don;t think so. if you are married and your spouse owns the home in his/her name and you help with the bills - is that income?

The OP and the homeowner have a relationship.
Except the OP and SO are not married. There's nothing in the tax code that creates special treatment for people who are sleeping together, but not married.

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StevieG72
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Re: Roommate in a house?

Post by StevieG72 » Fri Jun 01, 2018 2:36 am

LadyGeek wrote:
Thu May 31, 2018 4:28 pm
BeautifulDisaster wrote:
Thu May 31, 2018 10:57 am
...We're very transparent with our finances already and she earns about $40k more than I do. With the larger income, she has more student debt. Seeing this is a long commitment - I think the 50 / 50 split will help us bring her debt down to zero and we'd revisit the conversation to see if we want to change the 50 / 50 split to a income based split.

This post was more so to understand if:

1) I was being kosher with the IRS by living there and seeing if I could pay for the bills so we wouldn't need to worry about more tax paperwork

and

2) If she did need to file more tax paperwork (i.e. rental income, etc) how we would go about doing it.
You are asking: "Are shared expenses considered rental income?" in a home that is lived in by both of you for personal use only.

The "official" answer comes from the IRS: Publication 527 (2017), Residential Rental Property, Chapter 5.

The answer in a more readable format: Are shared living expenses considered reportable and taxable inc... - TurboTax Support
Not if it's just a cost sharing relationship. You would not really be renting space to him and he's just paying his share of expenses.
So, no additional paperwork is needed. She should not file any "rental" type tax returns.
Thanks for doing the legwork, my head starts to hurt when people start bickering about IRS laws.
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Re: Roommate in a house?

Post by BolderBoy » Fri Jun 01, 2018 5:58 pm

BeautifulDisaster wrote:
Thu May 31, 2018 8:19 am
1 - When it becomes tax season how does she file her taxes as it concerns the rental income.

2 - In the eyes of the IRS would me paying for bills and her paying for the mortgage suffice since she's isn't getting extra income from me?
Are you signing a lease with her as the landlord? If not then you are splitting expenses and she isn't earning rental income.

IANAL.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

golfCaddy
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Re: Roommate in a house?

Post by golfCaddy » Fri Jun 01, 2018 6:08 pm

This sounds like tax evasion to me. The way to think about this is suppose the SO decided to rent out their basement for the extra income. Could the SO then tell the potential renter, I will charge you zero rent, but you are responsible for 100% of the utilities and internet and cable for the whole house? Then could the SO report zero rental income to the IRS? It seems like the answer would clearly be no.

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Re: Roommate in a house?

Post by Epsilon Delta » Fri Jun 01, 2018 6:44 pm

Sandi_k wrote:
Thu May 31, 2018 5:06 pm

The flip side is that we didn't have to recapture that depreciation when we sold the house 15 years later, either.
Uh, no. You recapture depreciation that is allowed or allowable. Not taking it does not, by the letter of the law, let you off the hook.

However this is an area where the letter of the law is hard to know in practice. As far as I can see Pub 527 really does not address the issue, indeed it goes out of it's way to avoid addressing the issue.

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Re: Roommate in a house?

Post by JGoneRiding » Mon Jun 04, 2018 10:03 am

Sandi_k wrote:
Thu May 31, 2018 5:06 pm
She still gets all deductions - the interest deduction, and the property tax deduction. You get no deductions.

She *should* claim any cash you pay her as rent on her tax forms for the year.

We went through this ourselves - when we first had a house, DH and I rented out a room to his cousin. Since we had no interest in claiming depreciation, figuring out what percentage of the house he used (common vs. private spaces) we simply claimed the rental income paid as "miscellaneous income," and paid taxes on it. We figured if we were ever audited, the worst the IRS could do was tell us we'd OVERPAID taxes, since we had not claimed allowable depreciation.

The flip side is that we didn't have to recapture that depreciation when we sold the house 15 years later, either.

So that scenario worked for us - we paid taxes on the income, because we felt it was the right thing to do.
I want to point out a) you did it wrong but has stated you overpaid. B) that isn't the scenario posted. Did you has the owners SO pay rent and then count and deduct the income?

I would argue that to 90% of Americans it would never think that they should account and deduct in the case of an SO and that 100s of thousands across the U.S. are in the OP spot. Many living as default married some in sates that don't recognize common law. As relationships change who pays what when changes too.

For example at my work there are 3 such couples. Non have ever married all have been living together the all 11 years I have been there. Situations and living arrangmentns have changed several times. The one closest to the OP pays outside bills, like groceries and Internet which vary but never pays rent to her SO directly.

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Re: Roommate in a house?

Post by JGoneRiding » Mon Jun 04, 2018 11:01 am

So i read pub 527 (and i have read it before) i would argue heavily that it fails to address the OP real question.

The closest it gets is the examples where family is staying for either free or below market rent then that is personal use. And in fact can NOT be counted as rental income. Since the OP won't be paying rent and their contribution to shared expenses if imputed as Rent is still below market I am back to the irs doesn't want to involve itself in shared SO situations where unmarried persons live together and split expenses.

Does anyone that is actually a lawyer or CPA or such that has actually tax law experience believe in real life that the irs sees it a different way?

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Re: Roommate in a house?

Post by Sandi_k » Mon Jun 04, 2018 1:43 pm

JGoneRiding wrote:
Mon Jun 04, 2018 10:03 am
Sandi_k wrote:
Thu May 31, 2018 5:06 pm

We went through this ourselves - when we first had a house, DH and I rented out a room to his cousin. Since we had no interest in claiming depreciation, figuring out what percentage of the house he used (common vs. private spaces) we simply claimed the rental income paid as "miscellaneous income," and paid taxes on it. We figured if we were ever audited, the worst the IRS could do was tell us we'd OVERPAID taxes, since we had not claimed allowable depreciation.

The flip side is that we didn't have to recapture that depreciation when we sold the house 15 years later, either.

So that scenario worked for us - we paid taxes on the income, because we felt it was the right thing to do.
I want to point out a) you did it wrong but has stated you overpaid. B) that isn't the scenario posted. Did you has the owners SO pay rent and then count and deduct the income?
We were both on the title, and both claimed 50% of the deductions, even though we were not married.

Not Law
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Re: Roommate in a house?

Post by Not Law » Mon Jun 04, 2018 1:44 pm

Try to fill out the schedule E that the SO would have to file. Offsetting the rental income with with the renter's half of all the expenses. Seems to me that the arrangement would be a wash as far as the taxes go. In fact, if the mortgage interest and taxes are too small to be schedule A items, it would allow the SO to deduct half of the expenses that would not normally be deducted. Sounds like an possible audit flag.

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