How to rent to myself

by 3beanz. Posted on Sep 11, 2020    0    8


I started a business earlier this year - it's an llc but I am doing the paperwork to file as an S Corp. The business needs a fair amount of storage both for a vehicle and inventory so I am building another garage on my property (est cost about $90K). The business is paying for the expenses of the building, not me personally.

How can I structure it so that the business pays me rent on the building? Form another llc to receive rents? Does it matter that the business has paid for the building on my personal land? I would like to get it all figured out before tax time! I appreciate any advise - I'm a first time business owner.


Comments

gavion92 1

The Company I am currently a controller at does, this.. We have a separate partnership entity that holds all of the property for our operating company and we charge the operating company rent every month. All you have to do is set-up a separate company, if the ownership is the same you would have to consolidate your financial statements as you are the sole owner and all of the revenue generated by this property holding company is derived from your operating S Corp. You have the S corp buy the property, then you literally create an intercompany account on your general ledger (credit cash on the S corp to purchase said property, then you would debit the intercompany on the S Corp, then for your general ledger on your new llc, you would debit the property asset account and credit the intercompany account made on your new llc) from an accounting standpoint. Your new llc will be taxed most likely as a sole proprietorship, flowing straight to your individual return.

  3beanz 1

Does this work if I am building on the land I own with my house? I live on some acreage so I had room to build it on my own land. I can also rent the acreage to local farmers.

gavion92 1

I am not a tax accountant, my experience is GAAP and financial statement auditing, but I do not believe that this should have any impact on it. From an accounting standpoint, you may want to charge the property holding company rent for land use, but it has to be at market rates and reasonable given the circumstances. You can always do a quick google search as well, something along the lines of "How to rent land to your own business" and see what the results provide for. It is not uncommon for individuals to rent land/properties to a company, therefore doing the same but renting to your own company is no different. You do not need to rent the land I do not believe, but it would be advisable to do so, as you will have minimal costs from your new rental llc and a ton of rental income, creating expense for the llc would be beneficial to you.

Hisholyness 3

All I can say is that is a lot of money to shell out and not talk to an accountant.

  3beanz

I have talked to an accountant - who referred me to a lawyer. I'll gladly meet with a lawyer too to get it structured properly - Just wanted to go into that meeting prepared with my own ideas.

SmBizOwnrSeekingFI 2

It sounds like if you are paying for the building costs with company funds then your best bet is to structure it as a land lease where the company pays to lease the land from you. A good accountant will advise you to price it so that it is within market rate but at the high end of market rate. My accountant did this for a commercial building I own personally and lease to my company. The accountant even drew up the lease for me.

ralphy112 2

If the company leases the land from personal self, won’t he then need to pay taxes on the lease income personally, eliminating any tax deduction benefit of the business leasing to begin with? What’s the end goal of the lease?

SmBizOwnrSeekingFI 2

You will pay taxes but there is an advantage of rental income vs ordinary payroll income. You are able to bypass payroll taxes.

Also with a rental property with structure included (not applicable here) you can depreciate the property which adds additional tax advantages.