Rent your home to your business for tax savings
Renting your home to your S Corporation can create two valuable tax benefits.
First, even though you are receiving rental income, the income received is not taxable on your personal income tax return. IRC Section 280A allows you to rent your entire home for 14 days or less without it being taxable income on your personal return.
Second, your business gets to deduct the rent as a business expense. If you are an S Corporation owner, you can also reduce your business’s taxable income by the amount of the rent paid. Since an S Corporation is a pass-through entity, it pays no federal income tax. The profit or loss is passed through to its owners. If you are a 100% owner of the S Corporation, your taxable income would be reduced by 100% of the amount of the rent paid by the business.
For example, renting your home for $1,500 a day for 14 days to the S Corporation would provide your business with a $21,000 deduction. Additionally, you would be receiving $21,000 of tax-free income.
The expense for renting the house should be shown as a meeting expense on the business return.
A business must be a partnership, S Corporation or C Corporation, to deduct renting your home to qualify for this strategy. A sole proprietor or LLC that is taxed as a sole proprietor does not benefit from renting their home to their business.
There must be an actual business purpose for the rental of your home. A business meeting, video work, mastermind, or other legitimate business purposes qualify as a deductible business expense.
You should keep documentation to prove that there was a valid business purpose. A rental contract or invoice can be used for documentation. Keep emails or pictures to verify that there was an actual meeting. Including the rental in the business’s annual minutes is a good idea.
If you rent your home for 15 days or more, all the rent received for the year is taxable.
Charge a reasonable amount for what another company would have charged for a similar rental. The amount you can charge depends on your area and the size of your house.
The business should not rent your house for entertainment since it wouldn’t be deductible. However, there is an exception for the annual employee holiday or summer picnic. The 50 percent expense deduction limit does not apply to an employee holiday party or summer picnic.
As long as you follow the rules and document everything correctly, you can avoid any IRS issues in the event of an audit.
Renting your home to your S Corporation can provide substantial tax benefits without incurring any additional costs.
David Zubler has an accounting degree and computer science degree with high distinction and has experience as an accounting manager and controller in manufacturing, and has owned his tax/consulting business since 1990. David Zubler is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, YourTaxCare.com. David can also be contacted by email at email@example.com.