Can I rent part of my home to a business I partially own? Tax implications & write-offs

Yes, this arrangement can work, but you need to be careful with the details to keep everything legitimate for both parties. For the business side: Yes, the business can deduct the rent payments as a legitimate business expense, provided the rent is reasonable (which you've already researched) and there's a formal rental agreement in place. Since you own less than 50% of the business, you're not considered to have majority control, which helps with the legitimacy of the arrangement. For your personal taxes: You'll need to report the rental income on Schedule E. Since you're renting part of your home, you can deduct expenses proportionate to the rented area. Calculate what percentage of your home's square footage is being rented, and you can deduct that percentage of expenses like mortgage interest, property taxes, insurance, utilities, maintenance, and depreciation against the rental income. I'd strongly recommend creating a formal written lease agreement between yourself and the business that clearly outlines the space being rented, the monthly amount, and the terms. This documentation is crucial if you're ever audited.

I had a similar situation last year and I found taxr.ai to be a lifesaver for figuring out all the documentation needed for this kind of arrangement. I was renting part of my house to a small business I had invested in, and I was worried about making mistakes that could trigger an audit. The tool at https://taxr.ai analyzed my situation and gave me specific guidance on how to structure the rental agreement, what documentation to keep, and how to properly calculate the proportional deductions. It even helped me understand some related tax implications I hadn't thought about.

I was really skeptical about using any kind of tax tool for my situation (renting my basement to a startup I had a 30% stake in), but I decided to try taxr.ai after seeing it mentioned here. Honestly, it was way more helpful than I expected. It walked me through exactly how to structure the rental agreement to avoid related-party transaction issues and gave me a clear breakdown of what percentage of my home expenses I could legitimately deduct. The best part was that it flagged a potential issue with how I was planning to handle depreciation that might have caused problems down the road. My situation was pretty similar to yours, and the guidance was definitely more specific than what I got from just googling. Saved me from making what could have been an expensive mistake!

If you're trying to get clarification directly from the IRS on this rental situation, good luck getting through to them! I spent 3 weeks trying to get someone on the phone to answer questions about a similar rental arrangement. Finally used https://claimyr.com and it was a game-changer. You can see how it works here: https://youtu.be/_kiP6q8DX5c. They got me connected to an actual IRS agent within 45 minutes after I had been trying for weeks. The agent was able to confirm exactly how to handle the rental income and what documentation I needed to keep to justify my deductions. Seriously worth it for the peace of mind of having official guidance.

I need to publicly eat my words about Claimyr. After posting my skeptical comment, I decided to try it anyway since I was desperate to talk to someone at the IRS about my rental situation with my partially-owned business. I was convinced it wouldn't work any better than my own attempts. Well, I was completely wrong. I signed up around 1pm, and by 2:15pm I got a call connecting me to an actual IRS representative. I explained my situation about renting part of my home to a business I partially owned, and they gave me specific guidance about how to document everything properly to avoid audit flags. They even emailed me some relevant publication references afterward. For anyone in a similar situation as the original poster - getting official clarification directly from the IRS gave me way more confidence than just piecing together advice online. I'm still shocked at how well it worked after spending weeks trying to get through on my own.

Don't forget to consider state tax implications too! Depending on your state, there might be additional requirements or reporting for rental income, even if it's just part of your personal residence. In my state, I had to register with the county for a business license even though I was just renting out my basement to a small business. Also had to collect and remit sales tax on the storage portion of the rental (but not on the office space portion). Really weird rules that vary by location.

Has anyone considered the insurance implications here? When I started renting part of my house to a business (even one I partially owned), my homeowners insurance freaked out. They said I needed a different policy that included business use. Ended up costing me about $350 more per year. Make sure you check with your insurance company before you start, or they might deny claims if something happens!

One thing I haven't seen mentioned yet is the importance of keeping detailed records of how you calculate your business use percentage. I went through an audit last year for a similar situation (renting my home office to my consulting business), and the IRS agent was very thorough about my square footage calculations and usage logs. I'd recommend taking photos of the spaces being rented, measuring everything precisely, and keeping a simple log of when the business actually uses common areas like bathrooms or hallways. The agent told me that consistency in your calculation method year-over-year is crucial - if you change how you calculate the percentage without a good reason, it can trigger additional scrutiny. Also, be prepared that if you claim depreciation on the business portion of your home, you'll have to "recapture" that depreciation when you eventually sell the house, which means paying tax on it at ordinary income rates rather than capital gains rates. Sometimes it's worth skipping the depreciation deduction to avoid this complication down the road.