Leaseback from my own company?

What’s the point/benefit of me forming a company to own my house and then me technically paying rent to my own company? A friend just did this at the advice of his CPA. What type of corporation would you recommend? LLC? And why?

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  1. 5 Answers

    Many individuals may be wondering about the possibility of renting their own home to themselves through a business they create. With recent changes to the tax code, including limitations around itemized deductions and deduction limits on state taxes, individuals are looking for ways to save more of their hard-earned tax dollars.

    It is possible to do this, however let’s look at this a bit closer. The easiest way would be to setup an LLC with yourself as the single member. The LLC would be able to deduct the mortgage interest, utilities and other home expenses. You would simply pay the rent. Sounds great, right? But hold on a second. One common problem that can arise is the creation of phantom taxable income. For example, let’s say you move your home into an LLC and then you rent it out to yourself for $2,000 per month. That $2,000 per month is not a deduction on your personal tax return, but will show up as rental income for the LLC. You will create phantom taxable income if you don’t have the expenses to cover that rental income. You also lose the mortgage interest deduction on your personal tax return.

    Even if you were to show a loss on the property after you factored in expenses related to the home, there are limitations on passive activity losses related to the property. There is also the consideration of taking a deduction for depreciation of the home. This can get really tricky and can end up being more of a tax burden for you when you go to sell the home. Taking a depreciation deduction will reduce your tax basis, which increases your taxable gain. If the LLC owns your home, you will have to pay the regular tax rates on the gain from the sale.

    However, if you own your home outright, you can sell it tax-free! If you owned and lived in the home for two of the five years before the sale, then up to $250,000 of profit is tax-free!

    There are many other pieces to this puzzle that would need to be sorted out with a tax advisor. I advise you seek the services of an experienced tax advisor to see which option is best for you.

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