Sch C - rental expense to self

[Unregistered]

My office is split on this issue:
Can a sole prop rent their own buiding to themselves, claim the rent on Sch E and take the deduction for rent expense on Sch C? I say "no", but my office is split on this. Some claim this is okay as long as it is real estate rental. I am unable to find an IRS reference to this.

Why would someone do this? Suppose you have Sch C rental expense of $10,000, and then same amount of rental income on Sch E, you will save $1500 in SE tax.

Can anyone direct me to an IRS reference or FAQ that references this issue?

thx
Tim

[JoshinNC]

maybe

I would say yes IF the Sole Proprieter is registered under an EIN and not his/her SS #. If no seperate EIN, then no, because you would not have 2 entities.

[Matt Sova]

No

You cannot do this. Any expenses related to the building are put on the schedule C as well as depreciation.

[JON]

Unless

the property is owned by the nonSchedule C spouse or jointly. As I remember you get 50% on joint-100% in in spouse's name-never douse a schedule C proprietor get rent to himself.

[Tim]

I found a one line reference in Pub 535 page 14 that reads "Rent is any amount you pay for use of the property you do not own." The Tax Book section 8 page 8 also makes a one line reference stating "Rent is any amount paid for the use of property not owned by the taxpayer." Both are vague, do not address the issue of spouses, or define "property" as all property or personal property such as a tool.

[Tim]

I found a one line reference in Pub 535 page 14 that reads "Rent is any amount you pay for use of the property you do not own." The Tax Book section 8 page 8 also makes a one line reference stating "Rent is any amount paid for the use of property not owned by the taxpayer." Both are vague, do not address the issue of spouses, or define "property" as all property or personal property such as a tool.

[KJ Judd]

If with an S Corp, you have to pick up the rent as income, but do not get any of the expenses. I thought it was the same with a Schedule C. But with the state of my desk these days, I looked & can't find the reference on it.

[veritas]

No, Nein, Nyet

[Gretel]

Sie sprechen deutsch?

[Matt Sova]

I thought it was

Sprechen Sie Deutsch? Of course I only had 2 years of German, way, way, way back in high school.

[Gretel]

Matt, both is correct. As a question you say: Sprechen Sie deutsch?

As an surprised expression: Sie sprechen deutsch!?!

You must have a very good memory.

[Matt Sova]

Never learned that

I got straight A's in German I and II, but the teacher would not let me take German III. He said I was too disruptive (go figure!!) for a class that has a lot of self study time. What he did not realize is usually when I was talking I was helping a fellow classmate.

[Tim]

additional thoughts/references

Hi All
I still do not see anything concrete supporting my original position or allowing a Sch C/E combo. It seems like the audience is split. Are other people doing this? Has anyone come across an IRS ref to this issue and real estate?

Thanks

Tim

[Bees Knees]

The dictionary definition of the term "rent" and "lease" is "payment, usually of an amount fixed by contract, made by a tenant at specified intervals in return for the right to occupy or use the property of another."

If you want to start changing the English meaning of words to justify tax fraud, why not just change the meaing of income and say W-2 wages are really non-taxable gifts from your employer?

If you want to avoid SE tax, the business should be incorporated and pay rent to the individual. That way you pull profits out of the business without having to go through payroll which is subject to FICA.

[Matt Sova]

Corporate Rent

The dictionary definition of the term "rent" and "lease" is "payment, usually of an amount fixed by contract, made by a tenant at specified intervals in return for the right to occupy or use the property of another."

If you want to start changing the English meaning of words to justify tax fraud, why not just change the meaing of income and say W-2 wages are really non-taxable gifts from your employer?

If you want to avoid SE tax, the business should be incorporated and pay rent to the individual. That way you pull profits out of the business without having to go through payroll which is subject to FICA.

The rent paid by the corporation has to be fair market value rent. If it is office space and space in your area is around $15/sf you cannot charge $85/sf just to decrease the corporate income down to 0 without taking a wage.