By The strategy behind creating an S corporation and then selling your home to that S corporation comes into play when
- you want to convert your home to a rental property and take advantage of the exclusions, or
- you need more time to sell the home to realize the benefits of the $250,000 exclusion ($500,000 if filing a joint return).
With this strategy, one question often comes up: “If a married couple sells their home to their S corporation to be a rental property, can the owners be the renters?”
Answer: No. In this situation, the tax code treats your S corporation as you, the individual taxpayer, and thus you would be renting from yourself, and that would produce no tax benefits.
In effect, the S corporation renting the residence to the owner of the S corporation is the same as homeowners renting their residence to themselves. It produces no tax benefits.
On the other hand, your S corporation could rent the home for use as a principal residence to your son or daughter or other related party, and the tax code would treat that rental the same as any rental to a third party.
If you would like to discuss turning your personal residence into a rental property, please don’t hesitate to call me on my direct line at 408-778-9651.