Renting from your Own LLC Tax Consequences

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Renting from your Own LLC Tax Consequences

Cheryl Platt
Brooksville, FL · Member since 2015 · 8 posts · 0 votes

I am getting ready to tear down the house I am living in and build a new house in its place. While we are building, I would like to rent a home that we purchased through our rental property LLC. I know that I can rent from the LLC as long as I have a lease agreement for the fair market rent amount. I saw somewhere that I might get double taxed on the rent paid and the rental income? That I might not be able to deduct the mortgage interest, etc.? I guess I don't understand why that might be the case. If I'm paying the business fair rent for the property, have a lease agreement between the LLC and myself for fair market rent, wouldn't it be treated just like any other tenant's income into the business?

Secondly, for the time I am living there, if I don't pay the business rent what expenses can be deducted on the business taxes?

Thanks in advanced for helping me sort this all out.

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    1y

    Yes, I believe you are likely creating a double-tax situation for yourself. Effectively, you are taking post-tax money, running it through your LLC. Yes, you will have some offsetting expenses, like interest, but any cashflow generated is taxable income that would be taxed again. Overall, not a good idea.

    Talk to your CPA and lawyer, but I would think this strategy is better. Don't pay fair market rent. Pay minimal rent, perhaps something equivalent to the mortgage payment, so there is no cashflow. A lawyer might argue you are piercing the corporate veil, but let me ask you this. How likely are you to sue yourself for a slip & fall? Now, if you have other properties in this LLC, it becomes a tougher decision.

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  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    1y

    I would of course check with your CPA and attorney, but you would be missing out on the homeownership write offs and the tax savings if you decide to sell that if you live in it and call it a primary within two of the last five years. I would put it back into your name or trust and use it as a primary. 

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  • Cheryl Platt
    OP
    Brooksville, FL · Member since 2015 · 8 posts · 0 votes
    1y

    Thank you for your responses - we only plan to live in the home as long as it takes us to build our personal residence and then we will rent it out to someone else and thus is becomes a true income property.  

    Should I pay the entire mortgage payment as rent or the approximate mortgage interest amount plus taxes/insurance?  

    Do I have to wait to depreciate until after I move out?

    Can I show a loss if I'm the one living in it or do I have to  wait until after I move out?

    We definitely would not sue ourselves, but I do have 2 other properties in the LLC - what difference would that make?

    I will talk to my CPA as well, but was wanting to get other's perspective so I really understand what questions I should be asking.  Are there any other questions I should be asking my CPA?

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  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    1y

    If you have two other properties in the same LLC, then if someone from your other two properties sues you, all of the assets in the LLC could be at stake depending on size of lawsuit

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  • Cheryl Platt
    OP
    Brooksville, FL · Member since 2015 · 8 posts · 0 votes
    1y

    Got it - thank you for the clarification

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  • Rohullah Sharifi
    Dr · VA · Member since 2025 · 154 posts · 34 votes
    1y

    If lower than market price, and this is an audit lottery. if you claim business rent, then must show rent income. can claim the deduction of utility etc... as well.

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  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 906 votes
    1y

    If all your properties are in the same LLC, a lawsuit against one of them could put all the assets in that LLC at risk.

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