Tax-Free Income from Rental of Your Home to a Corporation
IRC Section 280A allows you to rent your entire home tax-free for 14 days or less during the year: no tax on the income, and no deductions for the home. You can rent to a third party or to your S or C corporation. For example, say the fair rent on your home is $1,500 a day and you rent the home to your corporation for 14 days during the year. Here’s how you benefit:
- The S corporation deducts the $21,000 ($1,500 x 14) and passes the benefits of that deduction to you. If you are in the 40 percent tax bracket, your cash benefit is $8,400 ($21,000 x 40 percent).
- You also receive the $21,000 in rental income tax-free, for a total cash benefit of $29,400 ($21,000 + $8,400).
You have to admit, this sounds almost too good to be true. But it is true. This result is embedded in the law, and it’s available to you if you operate your business as an S corporation. (The C corporation produces slightly different cash results.)