Can I rent my own house to myself?


M

miamicuse

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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P

Paul

miamicuse said:
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.
 
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M

MTW

miamicuse said:
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
 
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D

David Woods

miamicuse said:
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.
 
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R

Robert Daniels

miamicuse said:
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)
 
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W

William Brenner

miamicuse said:
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.
 
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W

William Brenner

miamicuse said:
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.
 
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