can I rent to myself

Question

can I rent to myself through an LLC, corporation, or through any other means? & would this make any sense? I don't have any other real estate or businesses, I plan on renting out my house when we move to other house 1-2 years from now,  family of 5 annual household income 85k. What's your thoughts?

John Fossetti · Answer

You should consult with a CPA and Tax Professional.  I am not sure where you are going with this, but I will chime in and I hope this helps.

I have a decent size house on a Lake.  Once a month, my LLC rents a portion of my house for a day event (cookout or whatnot).  The LLC pays the trust that owns my house $1,000 per an event.  I have 12 events a year so I am renting out my house to my business for 12 days out of the year. .

According to IRS code, you don't need to claim any rental property if you are renting your property for less then 14 days of a calender year.

Since renting my home and having the functions at my residence, it is cheaper than renting a local hotel which has sometimes cost me a couple of thousand including food and everything.  My business gets to claim an additional $12,000 of expenses but I don't need to claim it personally as it is only for 12 days out of the year.

I am not giving tax or legal advice just stimulating your thought process and sharing what I have done!

I hope this helps.

Steven Hamilton II · Answer

@Pat L,

That is great, I love when auditors make an error that results in an ending better for the client.

-Steven

Pat L. · Answer

I have a commercial property owned by one LLC & rented out space to my other 'management' LLC at a nominal rate.

The IRS auditor didn't agree..but they did allow me to take a full office deduction with a pro rata treatment of expenses etc.

The latter proved to be a much better (creative) deduction.

Cindy Riley · Answer

I have an LLC for rental properties and have several properties deeded to the LLC.  I also have a new personal residence that needs a lot of work.  Did I say A LOT of work?  I was wondering if putting the new house in the LLC and renting to myself at fair market value would allow me to deduct all of the renovations.  The renovations should actually cause a loss in my rental business.  Thank you for your advise.

Pat L. · Answer

@Steven Hamilton II

your right but as you know my audit was (too me) very unusual.

But she allowed me to revisit a lot of deductions so it was not worth the debate on this issue.

However, her allowing an office deduction produced a larger deduction overall so it was to my advantage to stay within that line of (her) thinking???

Now in keeping with this discussion my wife has an S-Corp that purchased a building. My mgt LLC runs the building, another LLC we own holds the financing & she (& several others) rent from the LLC. Pseudo arms length passed scrutiny ...so far.

Steven Hamilton II · Answer

@Michael Myers ,

Leasing to yourself will provide you no benefit as you cannot deduct depreciation and other various expenses.

Now in the case of board meetings and special events.

Consider a good quality Umbrella policy before you worry about entities first.

What @John Fossetti is saying is correct as long as it is a legitimate event and you have run comparisons for similar services. As long as it does not exceed 14 days you are fine.  Also what @John Fossetti is referring to is called Cost Segregation.

@Aaron Yates , Something to consider for business purposes.

@Pat L,  Why did they disallow it? Depending upon the amount you should have appealed that issue.  As you have every right to lease it from one entity to another.

@Andy Collins ,

That is perfectly legal as long as everything is documented and has a true business purpose.

Andy Collins · Answer

I have a rule, I don't run up and insult great big guys (or anyone really, but that doesn't get the point across), and I don't play games with the IRS.

If you are audited and it doesn't pass the "smell test", even if they can't get you on that,,they will get you on something,,,,I don't want to do anything that even looks inappropriate

Matt Devincenzo · Answer

I'm not an attorney and don't pretend to be one so the following may not be accurate, but is how I understand it. I will ignore any possible issues of transferring the property to an LLC if it has a loan.

If you were to place your property into an LLC, but you use it for a personal residence it would nullify any liability protection benefit I believe. You may have pierced the corporate veil in a sense since any personal fault that you have in a situation is caused by you, who are the tenant and owner of the property and the entity so you are still personally liable.

Also @John Fossetti said something very key there he rents to himself less than 12 days a year personally and the threshold is 14. So if he went over that it would no longer be an investment property and it would be a property that he personally benefited from, and no longer treated as an investment for tax purposes. John correct me if I am wrong on this, as this is a key distinction as I understood from your post.

As for the protection necessary from an LLC. I personally hold my properties in my name with a high liability limit insurance policy on the property. I believe that an LLC is in many cases for smaller property owners, an unnecessary extra that only adds expense and complexity that is not required if you only own a property or two. LLCs do definitely have their place, but I believe they are overused in most cases for individual LLs that don't have any real need for them when they only have a couple of properties and can be adequately protected by carrying appropriate insurance coverage.

Michael Myers · Answer

great thoughts an ideas everyone, any other input would be greatly appreciated,

would putting my personal residents in a LLC for liability reasons be a worth while move

can I rent to myself

Most Popular Reply