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Can a self-employed sole proprietor deduct rent on ...

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Can a self-employed sole proprietor...
Can a self-employed sole proprietor deduct rent on Schedule C for a building that he owns personally and reports on Scedule E?
Submitted: 10 years ago.Category: Tax
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Answered in 20 hours by:
3/23/2007
Tax Professional: Jim Revels, Certified Public Accountant (CPA) replied 10 years ago
Jim Revels
Jim Revels, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 210
Experience: Providing income tax / planning services for over 16 years on all entity and individual tax issues
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I just came across this issue in an IRS audit for a new client of mine. Their former accountant was using this strategy (that you outline above). They are disallowing this as an expense under this situation. The IRS has taken the position that in fact you are just paying yourself and will not allow this type of related transaction.

However if it is structured as follows it is acceptable. The building should be held in a limited partnership with an LLC as the general partner and you and someone else as the limited partners. You convert your Schedule C (sole proprietorship) to any other form of activity LLC, S-corp, etc. Then you have the newly created entity LLC, S-corp etc. rent the building from the Limited partnership addressed above. THis is the way to audit proof the transaction that you want to benefit from.

Jim Revels
Jim Revels, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 210
Experience: Providing income tax / planning services for over 16 years on all entity and individual tax issues
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