Renting Real Estate to Yourself Through Your Business

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Education & Training with Alexandria Louis Tax Solutions LLC

This week’s title is a bit misleading just like those ads trying to convince you to sign up for a class to show you how to do it.  Someone thought to monetize a way for you to save on taxes by comparing your tax situation to the likes of Jeff Bezos and Elon Musk.  The stink is in the details.  Let me save you some money on the front end and give you some free tax knowledge.    

There is a rule that allows you to rent your home for up to 14 days.  The income does not have to be reported as income, but you do not get to deduct any expenses from the rental.  Here is where things get interesting.  There are claims that your business can rent from you for up to 14 days and it is tax-free income.  In addition, the business gets to write the rental off as an expense.  Stop right there.  As I mentioned above, Jeff Bezos and Elon Musk are often used as examples for ways to save on taxes.  Both gentlemen own corporations.  This is the detail that is missing.  If your business is classified as a sole proprietorship or a single member LLC, your business cannot rent from you.  That would be like taking money out of your left pocket to put it in your right pocket.  In Cox v. Commr., 121 F.3d 390 (8th Cir. 1997), the court ruled that Mr. Cox could not claim income nor could his business write off the rent expense “paid” to rent his portion of the home he owned with his wife.  Long story short, a taxpayer may not rent property to him/herself if the business files a Schedule C.

The rental rule can be applied to separate entities such as partnerships and corporations.  Be careful.  As with any expense, you want to maintain proper records.  You want to be able to substantiate expenses in the event of an audit.  There is a buzz that the IRS is ramping up audits so be sure to always be audit ready.

Contact us if you want to learn more about how this tax topic applies to your situation.

Alexandria Louis Tax Solutions, LLC – (901)414-1751

A boutique tax firm in Memphis, TN

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