Buy the Building, Rent It to Your Business and Avoid the Self-Rental Trap

You purchase a building as an individual, S corporation or single-member LLC then rent it to your business.  You have the choice to treat the rental and business separately for your federal tax reporting.  However, if you treat them separately, you created a self-rental problem since self-rental profit is not passive income that offsets passive losses from other activities.  On a self-rental, your profit is simply taxable profit, and your losses are passive losses.

Fortunately, federal tax law provides an election, Section 469, that combines the two activities (one passive and the other non-passive) for income and deduction purposes and you also achieve legal protection too.

If you would like to learn more about this tax strategy, please call Susan at 847.895.9880.