Here are answers to six questions I’ve gotten about the big tax benefits of renting your personal residence to your corporation for 14 days or less.
Q&A 1
Q: Must my corporation issue Form 1099-MISC to me for the rent paid to me for the rental of my home?
A: Yes, the corporation must issue Form 1099-MISC if the rent is $600 or more for the year.
Q&A 2
Q: How do I, the S corporation owner, deal with the 1099-MISC form that I receive from my corporation for its rental of my personal residence? Remember, the rent is tax-free to me, but I have this 1099 that shows income to me.
A: The IRS matches 1099s with your personal return, so we report the 1099 income on your tax return to create that match, and then we subtract it out with an explanation so that it continues as tax-free to you.
Q&A 3
Q: My spouse and I each own an S corporation. Can each of us rent our family home to each of our corporations for 14 days or less, and thus gather 28 days or less of tax-free income?
A: No. The tax-free part applies to the physical home used as a residence, not to the individual owners. Thus, on this one home, you are limited to 14 days or less of tax-free income.
Q&A 4
Q: Can I hold educational sessions for my independent contractors in my home under the 14-days-or-less rental strategy?
A: Yes, but be careful. Make sure that the event is a training event. Avoid entertainment of any type (and include absolutely no family members). In Ireland, the Tax Court ruled that any use of a facility for entertainment triggers the entertainment facility rules that are fatal to the deduction.
Q&A 5
Q: If I rent my home to my corporation for the annual holiday party, do I report the expense on my corporate tax return in the employee benefit section?
A: No. The correct location is the entertainment section (the party is not subject to the 50 percent cut that applies to most entertainment). In your corporation’s chart of accounts, make sure that you have two categories for entertainment:
- Entertainment that’s subject to the 50 percent cut
- Entertainment that’s 100 percent deductible
Q&A 6
Q: Is it necessary to prepare an agreement between the owner and the S corporation for the use of the owner’s personal home for the 14-days-or-less events?
A: You don’t need a formal agreement between the corporation and the individual. Here’s what I suggest as supporting paperwork:
- An invoice from the homeowner to the corporation for the use of the home
- Proof of payment of the invoice by the corporation to the homeowner
- In the corporate files, proof that the corporation paid a reasonable amount for use of the home
To get some idea of what rent is reasonable, Google “rent a house for a day” or look at Airbnb. This will give you a start.
The point is that you want some reasonable proof that the rent paid by your corporation to you for use of your personal residence is a reasonable rent. This is likely more art than science, so you need some well-documented facts that support your claim.
We’re happy to discuss any of the answers above or to answer other questions that you may have. As you know, I’m here for you. Please don’t hesitate to give me a call.
