financial planningrental expensestax planning

Self Rent


Click this link to subscribe to our Youtube Channel for more updates.

Video Transcription:

I’m Donna Bordeaux with Calculated Moves. Do you have a piece of property that you rent to a business that you are materially participating in? You’re active in that business. So for example, if you are a contractor and you operate a construction business and you own the building where your offices are located, you may have two separate entities, and one rents that property to another. Well, there are a lot of little, little things you need to be aware of little traps that you can fall into with self rent. Now you have rules here because if the contracting business was doing really, really well, you might try to shift the income over to the rental side to get different treatment of the income. So the IRS has put a message in there where you can’t manipulate that income to take the same income at a lower rate, just based on which entity you put the money into.

So what happens is kind of tricky. It can be a big trap. If you participate in that business, the income for that self rent we’ll call it. That’s under section 469 of the IRS code. That income from the self rent has the same, conditions applied to it as the business that it’s operating for. So what we try to do as a strategy is to get that self rent entity to come out to zero, meaning the income is estimated based on the exact expenses that will occur. That is the safest way to operate that type of business. Now, if in fact you don’t do that and you end up with a loss on the rental side, you will be having a passive loss, which can only be deducted if you have passive income and that’s difficult to get. So unless you own grandma’s house free and clear and you rent it as a rental property and it generates income.

You’re probably going to have suspended passive losses. That’s a long way of saying you won’t get to deduct those losses. So you just lost some money by having a poor tax plan. If you generated income on that rental property, that is taxes income all day long. So if one year you were up in one year, you’re down, you don’t come out. Even it’s a trap. So you have to plan very carefully for self rents to make sure that you have the right strategy. Again, my suggested strategy is to get that self rent come out as close to zero as possible. So if you have separate entities, for business, and a piece of property that you use for the business, let us know and see if we can help you get that strategy in place so that you don’t miss out. Also, if you don’t have a separate entity, you might want to talk to me about why you should.

I’m Donna Bordeaux with Calculated Moves.com. Please get in touch. You can visit our website at Calculated Moves.com. Don’t forget to subscribe to our Youtube page and follow us on Facebook. Thank you very much. Have a great day.

Donna Bordeaux, CPA with Calculated Moves

Creativity and CPAs don’t generally go together.  Most people think of CPAs as nerdy accountants who can’t talk with people.  Well, it’s time to break that stereotype.  Lively, friendly and knowledgeable can be a part of your relationship with your CPA as demonstrated by Donna and Chad Bordeaux.  They have over 50 years of combined experience as entrepreneurial CPAs.  They’ve owned businesses and helped business owners exceed their wildest dreams.   They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.