Rent out bldg to self - don't think you can do this??

[KJ Judd]

Looking over new clients' last year's tax return, there is $12k deducted on Sch. C for rent expense and $12k reported on Sch. E as rental income less only depreciation. Interestingly this $12k rent expense is not reflected on his QB financial statements.

Client uses separate building located on his main residence for his studio/principal business office.

I think client could have taken expenses related to this building but not charged rent to self. I thought I remember this being discussed before but I couldn't find it when I searched.

Client is going through a messy divorce. Last year income was higher than anticipated and it almost appears the prior accountant was trying his best to lower self employment taxes.

[Gretel]

It depends who building is/was titled. If titled in both spouses names, half of rental expenses would be allowed.

[geekgirldany]

I saw this several years ago but it was for a person's home office. Not a separate building. I do have a customer that has a S-Corporation that rents a office/building from him. But of course this isn't lowering SE Taxes.

[KJ Judd]

Main residence & building is in both spouses names. Both spouses work in the business. (WI is a marital property state so this still qualifies as a sole proprietorship.)

The 2005 return also claims Domestic Production Activities deduction using the net Schedule C income as W-2 wages which I know isn't allowed.

[Bees Knees]

Paying himself money for use of his own building is not rent. IRS Pub 535, page 14, says:

"Rent is any amount you pay for the use of property you do not own."

[LTS]

single shholder corp?

Paying himself money for use of his own building is not rent. IRS Pub 535, page 14, says:

"Rent is any amount you pay for the use of property you do not own."

a point of order question. can a corp can pay rent to an individual corp shareholder?

[jimmcg]

As a general answer, absent any specific facts, the answer is maybe, their are certain requirements that must be met. See TaxBook Section 18 for details.

[Bees Knees]

a point of order question. can a corp can pay rent to an individual corp shareholder?

A corporation can pay rent to a shareholder for property the shareholder owns because the corporation does not own the property. That is why it is allowed in a corporation shareholder situation and not allowed in a sole proprietorship situation. There is a difference.

[equinecpa]

What do you think about rent from a sole member LLC to its owner? LLC is a disregarded entity for tax purposes but technically the LLC doesn't own the property?

[Bees Knees]

What do you think about rent from a sole member LLC to its owner? LLC is a disregarded entity for tax purposes but technically the LLC doesn't own the property?

If the entity is disregarded for tax purposes, it is as if the entity does not exist for tax purposes. If the LLC does not exist, then the individual is considered to own the property for tax purposes, and therefor, cannot rent it to himself.