Can I rent my own house to myself?

Discussion in 'Tax' started by miamicuse, Aug 21, 2005.

  1. miamicuse

    miamicuse Guest

    Can I rent my house to myself and in effect turn it into an
    investment property?

    I will pay myself a rent.

    But the lawn cut, pest control, roof repair, plumbing and
    electric, landscaping and a major kitchen improvements I
    plan to make will be expenses right? Insurance too?

    The answer is most likely no. I just want to know why not?

    Thanks,

    MC

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    miamicuse, Aug 21, 2005
    #1
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  2. miamicuse

    Paul Guest

    "miamicuse" <> wrote

    > Can I rent my house to myself and in effect turn
    > it into an investment property?


    No.

    > I will pay myself a rent.
    >
    > But the lawn cut, pest control, roof repair, plumbing and
    > electric, landscaping and a major kitchen improvements I
    > plan to make will be expenses right? Insurance too?
    >
    > The answer is most likely no. I just want to know why not?


    You can't turn personal expenses into a business loss.

    --
    Paul A. Thomas, CPA
    Athens, Georgia

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Paul, Aug 23, 2005
    #2
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  3. miamicuse

    MTW Guest

    miamicuse wrote:

    > The answer is most likely no. I just want to know why not?


    As a general rule, "self-dealing" isn't recognized for tax
    purposes.

    But, as to your particular situation, IRC 280A probably
    applies. That section would, in so many words, define this
    situation as "personal" use and therefore no deductions
    other than interest, taxes and casualty losses would be
    allowed.

    MTW

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    MTW, Aug 23, 2005
    #3
  4. miamicuse

    David Woods Guest

    "miamicuse" <> wrote:

    > Can I rent my house to myself and in effect turn
    > it into an investment property?
    >
    > I will pay myself a rent.
    >
    > But the lawn cut, pest control, roof repair, plumbing and
    > electric, landscaping and a major kitchen improvements I
    > plan to make will be expenses right? Insurance too?
    >
    > The answer is most likely no. I just want to know why not?


    Likely no? And you want to know why not? I'll tell you
    what. If you pay me $10,000, I'll tell you why. <shakes
    head>

    --
    David M. Woods, EA, ChFC, CLU
    Woods Financial Services
    Norwood, MA 02062
    www.woods-financial.com

    Moderator: I'll tell you for $250.

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    David Woods, Aug 23, 2005
    #4
  5. "miamicuse" <> wrote:

    > Can I rent my house to myself and in effect turn it into an
    > investment property?
    >
    > I will pay myself a rent.
    >
    > But the lawn cut, pest control, roof repair, plumbing and
    > electric, landscaping and a major kitchen improvements I
    > plan to make will be expenses right? Insurance too?
    >
    > The answer is most likely no. I just want to know why not?


    1) Tax looks at the substance of transactions, and there's
    no substance in "renting to yourself". Are you (as landlord)
    going to enforce the terms of a lease if you (as tenant)
    break it? Will you tell the sheriff to evict you if you
    don't pay you what you owe to yourself?

    But let's suppose you *could* rent your house to yourself --
    what would be the tax result?

    2) Paying rent is a nondeductible personal expense, but rent
    received is income for a landlord. Oops -- you just
    increased your tax liability.

    2A) Homeowners and landlords both get to deduct mortgage
    interest -- within certain limits -- and property taxes, so
    no improvement there. And even landlords cannot deduct the
    cost of "major kitchen improvements" right away -- the costs
    of improvements have to be written off over 5 years
    (appliances) to 27.5 years (structure).

    2B) Could you perhaps offset the "self-charged rent" with
    deductions that are allowed landlords but not homeowners,
    such as repairs, insurance, association dues and the like?

    No, the tax code blocks this with Section 280A, one of the
    most circuitous and confusing provisions in a law not known
    for its clarity. It usually comes up in vacation home and
    home office situations, but it also limits rental deductions
    (other than mortgage interest, taxes and casualties) to the
    amount of rental income when the rented property is used as
    one's residence. See Sec. 280A(c)(5). In other words, you
    can't use landlord-type deductions to create a net loss.

    Result: self-charged home rent would be a bad idea even if
    it worked -- it can only raise taxable income, not reduce
    it.

    Bob Daniels ("The Tax Code -- software written by lawyers." - 'G)

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Robert Daniels, Aug 23, 2005
    #5
  6. miamicuse wrote:

    > Can I rent my house to myself and in effect turn it into an
    > investment property?
    >
    > I will pay myself a rent.
    >
    > But the lawn cut, pest control, roof repair, plumbing and
    > electric, landscaping and a major kitchen improvements I
    > plan to make will be expenses right? Insurance too?
    >
    > The answer is most likely no. I just want to know why not?


    DISCLAIMER; I am not a tax professional, and any errors are
    the result of my ignorance.

    What a wonderful idea! -- if it is indeed legal. The only
    problem is that you seem to have forgotten that the rent
    that you pay yourself is taxable income, which would wash
    out the expenses you want to write off.

    This might actually be costly to you. If, as hinted by your
    user name, you are located in Florida, you would most likely
    lose your homestead exemption.

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    William Brenner, Aug 25, 2005
    #6
  7. miamicuse wrote:

    > Can I rent my house to myself and in effect turn it into an
    > investment property?
    >
    > I will pay myself a rent.
    >
    > But the lawn cut, pest control, roof repair, plumbing and
    > electric, landscaping and a major kitchen improvements I
    > plan to make will be expenses right? Insurance too?
    >
    > The answer is most likely no. I just want to know why not?


    What a wonderful idea -- until you remember that the rent
    you pay yourself to cover the expenses would be taxable
    income and nothing would be gained.

    In fact, it could be costly to you. If, as your screen name
    implies, you are in Florida, you probably would legally lose
    your homestead exemption.

    DISCLAIMER: I am not a tax professional. Any errors in the
    above are a result of my ignorance of such matters.

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    William Brenner, Aug 25, 2005
    #7
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