If I purchase the building that my office is located in...

[Just-Lisa-Now-]

Can I raise my own rent to reduce my SE taxes for my business?  Would I need to be a different type of entity, or can I own the building personally and keep my tax office a sole prop?

Serious question, the building is for sale, I'm the longest standing tenant and they like the idea of selling to me, we're meeting next week to see if the numbers make sense...if the building can pay for itself with the mortgage Id need to finance, it might be a pretty good investment.

[rbynaker · Accepted solution]

While you can't deduct rent you pay to yourself, you can deduct all of the building expenses on your Schedule C (interest, taxes, insurance, utilities, etc.)  That will reduce your SE tax.

If you have other tenants in the building you'd prorate the expenses between C and E.

[Just-Lisa-Now-]

I guess I left out some details.  Its an office building with at least 15 other leased offices in it.  So it would be a commercial rental property that I would be purchasing, my office is just one of the offices in the building.  Does that change your answer?

[garman22 · Accepted solution]

I dont think it changes the answer quite frankly. 

Here is what I found.

https://intltax.typepad.com/intltax_blog/2019/01/rental-of-real-estate-to-yourself.html

There are others but this made sense to me. 

[IRonMaN]

Sounds like you are going to be prorating some building costs next year 🙂

[Just-Lisa-Now-]

Eh, I sat down with my husband tonight and crunched the numbers, and its just not workable for me at the price they want....even if someone had all the cash up front (which I dont), it would be close to 10 years to recoup your original investment, and that would be if you had 90-100% occupancy, which it doesn't, it averages around 70%.

Its a great deal for them since they bought it 40 years ago and its all paid off, but I cant see someone coming in and buying it for what they are asking, its only zoned for business offices and theyre not high end enough that you could charge much more than what theyre already charging.

....was fun to dream  LOL 

[abctax55]

1) make a low ball offer, maybe they'll bite
2) see if they will carry the paper, maybe at lower rate... and explain the benefits of an installment sale.

[Just-Lisa-Now-]

"1) make a low ball offer, maybe they'll bite
2) see if they will carry the paper, maybe at lower rate... and explain the benefits of an installment sale."

Im still going to talk with them.   Super nice people (husband/wife) known them for over 30 years, they keep my suite rent below fair market since Ive been there so long, and I know they would be motivated to work with me...so far Ive only spoken with the wife, she manages the property, she just kept saying how great the depreciation was and how many things you can write off,  thats all great from a tax standpoint, not cash flow so I dont think she quite grasps the entire situation...the husband is the money/investor guy, he started from nothing and seems like everything he touched turned to gold, and he's a big fan of "the little guy"....so we'll see what happens!

[IRonMaN]

Ignoring the cash flow standpoint, do you really want to own a building?  It's one thing to own the building you are in when you are the only tenant, and another to have to deal with people pestering you during tax season.  "My office is too hot".  "My office is too cold".  "One of my lightbulbs burned out"  And of course the classic "the toilet is plugged up and there is water running down the hallway".  Personally, if they gave me the building I don't know that I would take it.  But then again, as pointed out the other day, I am old and grouchy.  😞

[Just-Lisa-Now-]

Ive been there forever so Im well aware of all its issues.  My husband is retiring this year and will need something to fill his time, he's more than qualified to handle just about any maintenance, electrical, plumbing, HVAC issues that may arise.

From an investment standpoint, real estate has always been solid where I am in CA, but youre right, is this what I want to deal with not only during tax season, but all year long?   I love my "slacker" summers!  LOL

My optimistic side says "woohoo, a new adventure!" and my pessimistic side is giving me the finger and saying "are you just trying to make life difficult?"

[abctax55]

I've been a landlady, both for residential and for commercial - the commercial adjacent to my office so I know the PITA aspect of *on-site* management.

Your husband being able to be the "let Mr HoneyDo" take care of repairs/maintenance is a plus.

The depreciation/interest write off should be more than the "low" rent you've been paying (and it/when the building sells, remember your rent will likely go up).  Plus a cost segregation study might mean even bigger write-offs <w>.

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