Leasing to yourself?

Question

Quick question about tax implications of leasing to yourself.  I am a 60% owner of an LLC with 20 or so rental units in it.  If this LLC were to buy a property and rent it to me, would this be a problem tax wise?

Here is what i am thinking...  The mortgage interest + taxes + HOA fees + depreciation = $2,100/mo.  I would personally sign a lease with the LLC and pay $1,500/mo in rent.  The remainder would be a taxable loss by the LLC.

Is this ok?  $1,500/mo is a fair rent for this property.  I can justify the $600/mo taxable loss because a portion of the property would be used as an office for the LLC.

Is this smart/stupid/illegal?

Ebere Okoye · Answer

Because you own the LLC, it will be considered a personal use dwelling and subject to limits. Bottom line is that if you rent to yourself, you are not allowed to deduct expenses in excess of income

Steven Hamilton II · Answer

No. it is still a nightmare.  You could have the business provide you housing; however, you will have to include the greater of FMV or the actual housing costs in your income.

Jeremy D. · Answer

Hi Steven

Thanks for the feedback.  This is a 2 member LLC if that matters.

Jeremy

Steven Hamilton II · Answer

Jeremy,

First, you did not provide enough information.  Is this a single member LLC?

I'll keep it simple. I know there are a couple other posts about this; however, You cannot rent to yourself.  Nothing will be allowed except mortgage interest and real estate taxes on schedule A. Your home office will be deducted on Form 2106; however, dependent upon how high your expenses are it may not be beneficial to claim the deduction there.

-Steven the Tax Guy

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