Can Your LLC Own Your Home & Rent It Back?


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10-24-13

This is a question that we received at USTaxAid. If you’ve got a question that you would like to get answered in a blog, please go to http://www.ustaxaid.com/got-a-tax-question/.

There have been a lot of ‘schemes’ over the years regarding principal residences and tax reduction. Most of them don’t work, or if they do work, end up costing you way more than you’re saving.

So in answer to the initial question, can an LLC or corporation own your principal residence? Yes. But should it? That’s another question.

You may choose to have your LLC own your own and do it with a single member, disregarded tax structure. In other words, you form the LLC and either you alone own it, or you own it with your spouse as community property or as joint tenancy. There is only one owner. You don’t elect a different tax structure, so it is called a disregarded entity. In this case, there is no tax change but you do pick up asset protection.

If you instead have the LLC or a corporation own the entity, and then pay rent. That rent will not be tax deductible for you, but it will be income to the LLC or other entity. So you’ve just created an income taxable event. The income to the LLC can be offset by depreciation and other expenses. But, you still haven’t picked up any new tax breaks. And you’ve given up a big one when you sell – the capital gain exclusion that only owners get when they sell their principal residence.

You might have even heard about the ‘scheme’ with having your C Corporation own your house. You can then (according to the scheme) have the company pay for all of your living expenses, tax free.

The real answer is you can’t do that. The living expenses are either taxable for you individually or if they aren’t, than it’s not a tax deduction for the corporation. If anyone tells you anything differently, they are trying to sell you a bill of goods. And in this case, the bill of goods can cost you taxes, penalties, interest and maybe even a jail term for fraud.

Bottomline: Can an LLC own your home? Yes. Should it? Maybe, if it’s a disregarded entity and it’s just for asset protection purposes.



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