Renting from your own LLC?

Question

Is it possible to do this? I am trying to think of a creative way to put a property "in service" to be able to claim schedule E deductions. Yes, yes, there is a back story to this.

Matthew Kreitzer · Answer

You may run into some issues down the line if there is some lawsuit involving premises liability and a savvy attorney tries to pierce the corporate veil. I would discuss completely with a local attorney the ins-and-outs of record keeping prior to embarking on this endeavor.

Christopher Phillips · Answer

Yes. You basically have two things going on:

1> HUD rules for being an owner - occupant. No renting. 1 year.

2> IRS rules. If our conversation is correct, you can't take start-up deductions for passive income investments. You have to apply that work to the cost basis and depreciate it. So no tax break for the start-up costs. Can you set it up as an LLC and rent it to yourself so you can claim landlord deductions? It's technically possible. You'll have to talk to your accountant about that.

Paul Winka · Answer

Chris, yes I remember reading something about what you have just put here. However, if I am the tenant to my own LLC, I would still be the owner occupant, right? I will be living in the property 100% of the time. And it will be owned by a single-member LLC that I created. Looks like I need to talk to an attorney.

Maybe some others out there on BP have done this and can weigh in?

Matthew Kreitzer · Answer

Premises liability comes into play whenever an invitee access your property and may be injured as a result. Yes, it does happen. You should consult with a local attorney.

Christopher Phillips · Answer

You bought the house under the guise as a owner occupant. You must live in it at least 50% of the time to be considered owner occupant. You have 60 days to do repairs before moving in. And you have to wait 1 year before you sell or rent it out or face penalty of 2 years in federal prison and up to $250,000 fine. there are certain guidelines that would allow you to move out soon like moving for a job or a death in the family.

So, technically, you're not supposed to rent out the house.

Paul Winka · Answer

@Matthew Kreitzer @Christopher Phillips Thanks for the responses.

I am not intending on doing this for long term. Just for a short while until the LLC finds another tenant besides me late next year. The back story is that the property must be owner occupied for one year because it was bought from HUD as owner occupied, non-investor. I paid cash for the house, so it will be easy to put title into the LLC name, no balking mortgagees. So why not let the LLC have me as its first tenant? I can check the box with HUD, cut my tax bill, and make my neighbors happy by fixing up this place.

Matthew, I am not sure what premises liability has to do with it or it is a real risk. I am just a small-time investor that wants to deduct some repairs. Is it really relevant or something I should be concerned about?

I made another post today about this if it helps explain it better. Yes, I'd talk this over with an attorney---for now I am gathering information so I can ask smart questions and see if it is even possible. Any other input?

Christopher Phillips · Answer

It's possible. But not sure. It's often done with commercial operations like running an office in a commercial building that you own. You pay rent to the business LLC and it's not subject to FICA.

I'm under the impression that if you formally setup the lease in writing, and you have to charge yourself normal rents. Going to high with the rent would make it seem like a tax dodge.

Speak to your attorney about the arrangement.

Renting from your own LLC?

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