Improve/Expand/ Short Term Rent your Home and avoid taxation??!

is there a higher tax for the "leaseholder" for that year?

if not, its even a sweeter deal

The leaseholder improvement tactic might avoid Federal Income taxes (questionable), but I doubt there's any way to avoid the dreaded property tax reassessment at some point down the line. As usual with taxation, no good deed goes unpunished.

unknownshopper said:

Looks like some 'weasel in training' wrote a thesis on this topic
... worth looking at for the end page citations alone.

just read it...of particular interest was this on the first page:
Under section 280(A)(g) of the Internal
Revenue Code, if a taxpayer uses a dwelling as a residence and rents that dwelling to a lessee for
a period of less than fifteen days, the rental payments are not included as income for tax
purposes.

...anyone wanna stay at my house for $50k per week, 2 week max? .oh yeah, if you need to improve it to suit your confeerencing needs (plasma TV, etc) I wont mind and wont charge you for damage to my walls for the mounts as long as you leave all the equipment

didYOUsearch said: of particular interest was this on the first page:
Under section 280(A)(g) of the Internal
Revenue Code, if a taxpayer uses a dwelling as a residence and rents that dwelling to a lessee for
a period of less than fifteen days, the rental payments are not included as income for tax
purposes.

No kidding. That makes me think of all those people that rent out their houses for 1-2 weeks for $100K or more when a major golf tournament comes to their neighborhood. They get all that rent tax free?

LordKronos said: Seriously though, this may get you out from having to pay the gift tax, but not the property tax increase due to increased taxable value.

That is assuming that they *know* your house has increased in value. If it's all interior work, then....
Where they get you is when you are supposed to pull permits. Unfortunately, the pool company felt that part was necessary for me, and I got slammed.

osc said: Maybe I will let my boss stay at my house for a week, (he does not really have to stay, who knwos if he did), I will then charge him 60,000 for that week. Because 60K is alot of money, we can arrange for 2 payments a month, for a year.TAX FREE.

I like your way of thinking!

DFWDAL said: osc said: Maybe I will let my boss stay at my house for a week, (he does not really have to stay, who knwos if he did), I will then charge him 60,000 for that week. Because 60K is alot of money, we can arrange for 2 payments a month, for a year.TAX FREE.

I like your way of thinking!
Me too. And I'm sure he still gets to write off the "rent" as business expense.

Regarding gift taxes from parents. Maybe someone's parents can lease their kid's house for less than 15 days, and during those 15 days decide to wallpaper the entire house with $100 bills. Stapling the bills to the walls makes them a fixture. Or how about bolting down a safe with wads of cash in it. The safe would also make it a fixture since it was bolted down.

How about some green for sharing with you all this gem?


Rent Your House for a Business Meeting

By Jeff Schnepper

I realize most of us don’t equate fun with the tax code, but the code is so huge and complex that it’s not hard to find something that can amuse you and possibly save you money, too. So, try this:

How would you like to take money out of one pocket, deduct it as a business expense, and then put it in your other pocket tax-free? Even better, how’d you like to do it completely legally?

It may sound complicated, but it’s actually fairly simple. And it can put real cash in your pocket. I call this the Schnepper Super Shelter.

To make the Schnepper Super Shelter work, you need a modest amount of background on how the tax code treats business expenses.
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Suite deal
So, let’s start with this assumption. You own a legitimate business, and you rent a suite in a hotel for a business meeting. You hold the meeting and collect the documentation that the event was a true business event.

Clearly, the rent you pay is an allowable business deduction. Both small and big businesses do this all the time. The hotel, meanwhile, has generated some taxable rental income. Nothing new here -- yet.

Now, instead of your business renting a suite in a hotel, you decide to rent my home. Once again, if you actually use it for business purposes and can document the business use, there’s no reason why you shouldn’t get the same “rental” deduction on your tax return.

And, so I should also have some taxable rental income, right?

Wrong!

The Olympics dilemma
I want you to think Olympics, Super Bowl and World Series.

Many years ago, Congress recognized that there might be situations where someone might rent out his home on a short-term basis. Families rented out homes and apartments for the 1984 Los Angeles Olympics and the 1996 Olympics in Atlanta. It sometimes happens in cities where the Super Bowl and World Series are held.

And rather than require an allocation of heat, electricity, utilities, depreciation, interest, taxes etc. over the short-term rental, Congress actually came up with a reasonable solution.

* The short-term landlord gets zero additional deductions for the expenses from the “rental.”
* None of the income is taxable.

The code section (because everyone’s going to look it up) is Section 280A (g). It specifically states that if you rent out your home for less than 15 days during the calendar year, none of the income is taxable.

Client dinners don’t count
Be careful when you read the code section, because the general rule is that you get no deduction simply because you use your home for a business function like a client dinner.

There are several exceptions, one of which is for the rental of the house. The Internal Revenue Code is full of general rules, exceptions, and exceptions and limitations to the exceptions.

If you’re an employee of the business that rents the house, then there’s an exception to the exception. You get no deductions for the rental of your house to your employer.

But your company can deduct the cost of renting your house. So, I reduce my business expenses and potentially pocket some cash tax-free. The Schnepper Super Shelter.

How to make the provision really pay
Let’s get creative. If you have a regular corporation (the tax pros call it a “C corporation”), the corporation receives the deduction, and you receive tax-free income rather than taxable dividends or compensation. That’s the easy one.

Now, let’s say you have what the tax pros call an “S corporation.” That’s a corporation that passes through its expenses and income to the owners. It’s taxed similar to a partnership.

If your S corporation rents and uses your home for business, then it gets to take the deduction. But since the deduction is passed through directly to you, it also reduces your personal income-tax liability. And, if you don’t rent out the home for more than 14 days, none of the income is taxable to you.

Take it out of one pocket -- deduct it -- and put it in the other pocket tax-free.

What if you’re self-employed? What if you don’t have a corporation?

Remember the old Wall Street adage, “Bulls make money; bears make money; pigs get slaughtered.” You can push the envelope. But don’t be a pig.

If the house is in your name, that may be the pig position. But what if the house is in the name of your spouse? Arguably, that should work.

Alternatively, if I rent Charley’s house, and Charley rents your house, and you rent my house, we’re clearly within the four corners of the law.

The IRS perspective
What arguments can the IRS make? As long as the space is used for business, there should be no issue as to the legitimacy of the deduction. You just have to prove the business use. The tax pros call that the business “nexus.”

Prove the business use with specific documentation. If you have a monthly meeting, keep the minutes. Craft the minutes with the reason you’re having the meeting outside your normal business location. The standard reason is so that you’re not bothered by the interruptions of your normal business setting.

Prove the reasonableness of the rental charge by getting a letter from a local hotel. If the Four Seasons is charging $500 a day for a suite for a meeting, a note from them should be sufficient substantiation for your $500 a day rental expense. On a monthly basis, that’s a $6,000 deduction (saving $2,100 in tax each year if you’re in the 35% tax bracket) plus $6,000 in tax-free income.

So long as you can substantiate the business connection and the reasonableness of the charge, the deduction should be allowed.

As for the tax-free receipt of the rental income, the Internal Revenue Code clearly states that it’s not taxable as long as you rent for less than 15 days during the year. The IRS really has no argument here.

Is the Schnepper Super Shelter an aggressive strategy? Absolutely.

Was this part of the congressional intent when the Internal Revenue Code was drafted? Absolutely not.

But just because Congress didn’t think about it when they drafted the law doesn’t mean it doesn’t work under the law that was passed.

Why shouldn’t you use this technique now to reduce your taxable income? No reason at all. But, once it becomes known and used by many, I strongly suspect Congress will move to change the law.

I guess they don’t have a sense of fun.

A meeting like the one described may require certain audio/video equipment in excess of what a typical hotel conference room has but which your home might. I imagine you could find a far higher quote from a video conference center.

I have always liked the idea of starting a photography business and writing off my vacations!

nice find dys, thanks!

unknownshopper said: Not sure the IRS would be so reticent about nailing a car- and cc-happy Cali weasel.
LOL!

unknownshopper said:
Looks like some 'weasel in training' wrote a thesis on this topic
... worth looking at for the end page citations alone.
I thought some of the precedents from Turner v. Commissioner, 1954 (pg 10 above) on subjective valuations were interesting. Basically a poor person wins a big prize that they clearly couldn't have afforded otherwise. The taxable value of the prize was found to be less than fair market value, since the poor person clearly would not have purchased said item at market value, but would have bought it at a sufficient discount. It was decided by the court that the taxable value was something like 60% of FMV in that case. Maybe your reputation as a cheapskate is worth something afterall .