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Leasing a property you own to a business you own.

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Leasing a property you own to a business you own.

Old 07-20-2015, 01:08 PM
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Default Leasing a property you own to a business you own.

I have been trying for about 6 months to purchase an empty lot behind my house but it doesnt look like it will happen. The idea was to put up a nice garage/shop for my business.

I am currently working from home and I am completely out of room. I want to start expanding inventory, etc.
We currently own (with a mortgage) a rental property right next door to our residence. I am NOT real happy with our current tenants and will not be renewing the lease.
I am thinking about using the house next door for my and my wifes businesses.
My business is an LLC so I need to know if I can lease it to the business and write off the expense. My wifes business is a sole proprietorship so I dont think she can lease part or it as it is essentially renting from yourself.

The mortgage is about $700/mo and I get $1000 mo in rent. Trying to figure out the best way to do this if it is feasible.

I have a call into my accountant as well. Just looking for opinions/options/ideas.
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Old 07-20-2015, 01:09 PM
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The 2 properties should be in separate LLC's to pass the smell test ....
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Old 07-20-2015, 01:10 PM
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You would need to set it up in another llc. I owned a business and the building and one business rented it from the other.
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Old 07-20-2015, 01:25 PM
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I lease the building we're in to the repair shop I own. The building is in mine and my wife's name under an llc and we lease it to the shop under another llc controlled by us. Our accountant suggested going this route and keeping it separate.
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Old 07-20-2015, 02:46 PM
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I bought commercial property privately owned by my wife and myself and leased it to my corp.Never a problem with IRS.
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Old 07-20-2015, 02:51 PM
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yes but talk to your accountant first.
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Old 07-20-2015, 02:55 PM
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every business does this, has a real estate company and an operating company.
however- Im not an accountant- you should speak to him about it.
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Old 07-20-2015, 03:30 PM
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Yes you can do it, but you also have to pick up the lease income so the deduction is basically a wash. However, you can also depreciate the property along with other deductions you may not have if you were simply renting from an outside party.

It's best to talk to your account, because you can also run into some loss limitations on your rental business based on your income bracket, etc.
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Old 07-20-2015, 06:22 PM
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Nevermind.

Last edited by Trollin4Tuna; 07-21-2015 at 08:34 AM. Reason: New info
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Old 07-21-2015, 04:42 AM
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is this really worth the effort?
you still have to pay the taxes, and what limit to liability is there?
would think if you are getting sued, a simple search would lead anyone to your other properties or businesses that would also be included in a suit. in a business in your or your spouses name
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Old 07-21-2015, 07:43 AM
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Thanks for the info. Setting up an appointment with the accountant.
The other big advantage to us is having the house right next door available for guests or when I am in trouble with the Admiral aka "She who must be obeyed". :-)
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Old 07-21-2015, 08:02 AM
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I own the building in my personal name that my corporation rents an office space. I know it should be an LLC but I do carry 5 mil in liability coverage.
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Old 07-21-2015, 08:33 AM
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Originally Posted by Mr. Demeanor View Post
Thanks for the info. Setting up an appointment with the accountant.
The other big advantage to us is having the house right next door available for guests or when I am in trouble with the Admiral aka "She who must be obeyed". :-)
Wait...so you are going to be living in the house your business is renting? This presents some issues that you really need to discuss with your accountant. My earlier advice was really only renting a commercial building to your business. Let us know what he says.

Sorry about that. I didn't pick up on it from the beginning.
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Old 07-21-2015, 09:40 AM
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Better check the zoning laws about the business being in a residential neighborhood.
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Old 07-21-2015, 11:50 AM
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Most businesses that I deal with that have office/warehouse buildings I have are set up as S Corporations and actually pay rent to the owner.

Tax wise really does not make any difference since the Corp has a deduction but the owner has the income. With S corp it is just smoke and mirrors for most part BUT keeps the building out of Corporation name in case of litigation against the Corporation



Basically it is 6 one way 1/2 dozen the other
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Old 07-21-2015, 01:27 PM
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Upside, hard to take things from you via litigation. Downside, you'll be paying sales tax on a commercial rental. Everything else is a wash.
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Old 07-22-2015, 02:47 AM
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First talk to your accountant, since he should know your specific details. Rental is considered passive activity whereas your business is probably deemed not passive. That may have a tax impact on your specific situation.

Originally Posted by tprice View Post
Tax wise really does not make any difference since the Corp has a deduction but the owner has the income. With S corp it is just smoke and mirrors for most part BUT keeps the building out of Corporation name in case of litigation against the Corporation

Basically it is 6 one way 1/2 dozen the other
I generally agree, especially if the LLC is a "single member" LLC or, as the IRS defines it, a disregarded entity. If there are multiple members, that could have an impact on the tax treatment/cost splitting among members.

Personally, I feel that other than looking like a business, a single member LLC does not provide many tax or legal liability benefits/protections.
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Old 07-22-2015, 03:28 AM
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Yes. As others stated, you need two LLC s set up. I have a real estate LLC that owns my building, and an operating LLC that owns the business. You can move rent around, expenses, etc.
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Old 07-22-2015, 12:26 PM
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My partner and I did this with our small business. Set up a holding company to own the real estate and lease it back to the business (same partners in both companies). From a tax standpoint its basically a wash. Might be covered a little more from a liability standpoint. But the main purpose of setting it up this way was if we ever sold the business, the real estate wouldn't be involved at all since it wasn't an asset of the business. And we want to hold onto the real estate for a long term investment, whereas we might sell the business if the right buyer came along.
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Old 07-22-2015, 03:16 PM
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You have to look at what (if anything) you're getting on your home office deduction (including % of mort, repairs, taxes, etc.... remember that you'll also have to "give back" depreciation, etc. (if the house is the primary place of business, and the space is designated for said business)...

Now... weigh that against the the other property scenario. Set up either the business or the house as an LLC. I'd do both, if you can. Otherwise, hold the house in your name and the business in the LLC. Then the LLC is renting the house from you and your wife. That % of your income is now rental income - which be a benefit to you.

One pitfall that people don't consider is that you're going to have depreciation... which, someday, you're going to have to add on top of your gains (which sucks) -- unless you do a 1031-LKE then you can kick the can down the road.

Naturally talk to your guru. I had a home-based business from 2002 until 2011 it worked out great.
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