Renting building owned by LLC to LLC member

wrote

Certainly.

Yes it would.

Thanks Paul for the quick reply. I have a new tax advisor this year who is doing my taxes (I have always done them myself in the past). He said that because I have elected to be disregarded as a corporation for tax purposes and to file a schedule C and have income pass through to my personal income tax, that I can't rent the building to my LLC.

I have always assumed that this is correct, however my tax advisor (a CPA) says since I have the LLC going on a schedule C, that I am basically renting a building to myself.

Going back to my original question, and with electing to be disregarded as a corporation, can I rent the building to my LLC?

Thanks, JV

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And I'll have to go along with your CPA on this one. (Forget anything relating to the word "corporation"; it just don't apply in this case.

While legally you can go through the paperwork of renting the building to your LLC, there's no need. Just use the building and report everything, e.g. taxes, depreciation, repairs,... on your schedule c. Isn't that what he said?

ChEAr$, Harlan Lunsford, EA n LA

wouldn't that start you down the slippery slope of "piercing the corporate (or LLC) veil"?

The LLC is a separate LEGAL entity. I would have the LLC rent the building legit, and put the rental income on schedule E and the rental expense on schedule C. Why would that not be permitted?

On Feb 16, 5:28 pm, "Gil Faver"

"Piercing the corporate veil" is a term used when trying to do things within a corporation instead of proper place, individually. Quite the reverse of this case.

Correct, the LLC is separate, but disregarded for tax purposes, and that is what we're talking about here.

ChEAr$, Harlan Lunsford, EA n LA

Disregarded for tax purposes - but it IS a separate legal entity by state law.

As such I would have a rental contract in place between the LLC and the property owner. Specifically because the LLC is not the owner of the building.

Perhaps the OP is married (no info there) and can have the spouse own the building, which solves the problem.

I don't think this applies. Rental expense is a valid expense.

sure. You have one?

I believe that you can pierece the corporate veil by either doing things outside the corporation that should be done inside the corporation, or vice versa.

While I understand that the LLC is disregarded for tax purposes, I think it best to keep in mind state law concepts when doing taxes, and finding the sweet spot.

It would appear that if you put finances pertaining to a personal asset/business together with finances pertaing to an LLC asset/business on the same IRS form, you are running the risk of someone saying you are not treating these two separate legal matters properly. I would not run that risk. I still see no reason not to include the rental property on Schedule E and the business on Schedule C, and making sure you are following all applicable IRC and IRS provisions.

Not sure I get this.

What if the LLC is sued and has to sell its assets to make payment. If it just uses the building, then perhaps the lawyer can construe that as the LLC owns the building (which is why it doesn't have to pay rent). So then it means that the building could be lost in a lawsuit. However, if there is a rental contract, them the building is protected. I'm no lawyer, so could be way off here.

On Feb 17, 2:09 pm, "Gil Faver"

We're only talking about the tax aspects here, and as for "where to put it", IRS don't give a rat's... uh... whatever. Just so you PUT it!

ChEAr$, Harlan Lunsford, EA n LA

absolutely. This is essential. Here is an example of the attorney who advises a client to keep matters separate being circumfented by a tax preparer who is only concerning himself with filling out a tax form, and making his life as easy as possible. Here starts the slippery slope, with the taxpayer getting advise NOT to keep things separate, so what will the taxpayer do next, as an expediant . . .

be way off here.

some of us like to look at "the big picture", not just tax aspects. I think that is good advice to all . . .

I certainly agree with you statement. However in looking at the big picture, remember that we are here to serve the client, not to make his life more complicated. Remember that in the OP's case, what's done is already done, so we can't have him go back and fill out a backdated lease.

ChEAr$, Harlan Lunsford, EA n LA

always good to hear.

However in looking at the big

I agree, that's why I made the point of following state law regarding treating separate entities as separate entities.

We don't know if the OP just bought the building or not. But, in any event, he can certainly sign a lease now, for going forward.

Hello All,

Thanks for all the replies. I have been away for a few days and am amazed at the discussion this has generated. I would like to summarize what my original question was.

I own a single member LLC that is disregarded as a corp. for tax purposes, I fill out a schedule C and pass the income to my 1040. The LLC generates income, there is no tax loss in this case. In February

2007 I purchased a building under my own name "JV". The plan was to have JV lease the building to the LLC. Triple net lease has been generated. The reasons for having the building in my name are:

1) Remove large asset from LLC assets (lawyer said that's the way to do it).

2) I plan to sell or close down the business in 5-7 years and rent out the building for retirement income. 3) Rent is expense to LLC and passive income to JV.

I hired a CPA to do my taxes this year. In looking over my information, he said that "since I had elected to be disregarded as a corporation, I can't rent the building to my LLC". In his opinion I am basically "renting to myself".

- I am married and can transfer the building to my wife if needed.

- I am the only person who has seen the lease, it could easily be changed.

- I am paying a fair market value.

- There is no tax loss.

What I did in the past that can't change:

- The LLC paid rent to JV in 2007.

- The LLC issued a 1099-MISC to JV and reported it to the IRS.

My goal here is to get as much outside information so I know what options I have to move forward, and more important, is this his "TAX OPINION" or a "TAX FACT". If I have to make the rental income to me non-passive, then that's ok.

Thanks to all for the helpful information.

JV