Can My LLC Pay Me Rent for Using Half My Home as Business Space?

The new accountant is being overly cautious. What you're describing is a perfectly legitimate business arrangement. When you own a property personally and rent part of it to your business entity (LLC), that's a common practice called a "self-rental." In this arrangement, you report the rental income on Schedule E, which isn't subject to self-employment tax. This is completely legal as long as you're charging your LLC a fair market rental rate. The IRS does look at related-party transactions, but they're primarily concerned with whether the rent amount is reasonable for your area. Your original accountant gave you sound advice. The rental arrangement creates a legitimate business expense for your LLC while allowing you to receive income as the property owner without self-employment tax - similar to any landlord-tenant relationship. Just make sure you have a formal, written lease agreement between yourself and your LLC, maintain documentation of fair market rental rates for similar properties in your area, and ensure your LLC is paying rent consistently according to the lease terms.

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I initially thought this whole AI tax tool thing was going to be another useless automated system, but I decided to try taxr.ai after getting conflicting advice from two different accountants about my home-based consulting business. I was genuinely surprised! The system identified that my current self-rental arrangement had some documentation gaps that could be problematic in an audit. It provided templates for a proper lease agreement between my LLC and personal ownership that specifically addressed the IRS requirements for related-party transactions. What impressed me most was how it explained the specific tax court cases relevant to my situation and why certain documentation was critical. This wasn't generic advice - it was specific to my unique scenario with proportional business use of my property. Now I feel much more confident about my setup!

If you're getting drastically different advice from tax professionals, you might need to speak directly with the IRS to get clarity. I was in a similar position last year with conflicting opinions about my home-based business structure, and after weeks of trying, I finally got through to an IRS representative using https://claimyr.com - it's a service that waits on hold with the IRS for you and calls you when an agent is on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was super skeptical at first, but the IRS agent I spoke with clarified my specific situation and confirmed that my self-rental arrangement was legitimate as long as I had proper documentation and was charging market rates. Having that direct confirmation gave me peace of mind that my structure was compliant.

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Speaking from experience running a home-based consulting LLC for 7 years - there's a missing piece here that neither accountant seems to be addressing. The real question is whether you're trying to take BOTH a home office deduction AND have your LLC pay you rent. That's where you can get into trouble. If your LLC pays you rent, then you personally can't also take a home office deduction for the same space. You'd report the rental income on Schedule E and take related deductions there. Or alternatively, if you don't have the LLC pay rent, you could potentially take the home office deduction if you meet all the requirements. It sounds like your first accountant was setting up a legitimate arrangement, but maybe your new accountant is concerned about how it was implemented? Just make sure you're not double-dipping on deductions.

Has anyone mentioned the possible application of Section 199A here? If your LLC is paying you rent and that rental activity qualifies as a trade or business, that rental income might qualify for the 20% qualified business income deduction. This could be another tax advantage your first accountant was considering.

This is a really common source of confusion, and I think you're caught between two different schools of thought rather than right vs. wrong advice. Your original arrangement is legitimate, but let me add some clarity on what might be driving your new accountant's concerns. The self-rental arrangement you described is perfectly legal when done properly. You're right that if you rented from a third party, they wouldn't pay self-employment tax on that rental income either. The key requirements are: 1) formal written lease agreement, 2) fair market rent (get comparable property analysis), 3) consistent rent payments, and 4) proper separate accounting. However, your new accountant might be concerned about audit risk. The IRS does scrutinize related-party transactions more closely, especially with single-member LLCs. They want to ensure it's a legitimate business arrangement, not just tax manipulation. My suggestion: Ask your new accountant to be specific about their concerns. Are they worried about documentation gaps, audit risk, or do they fundamentally disagree with self-rental arrangements? If it's just about being conservative, you can decide whether the tax benefits outweigh the perceived risk. If they've identified actual compliance issues, those need to be addressed. Also consider getting a third opinion from a tax attorney or CPA who specializes in small business structures to break the tie between your two accountants.

I've been following this discussion and wanted to add something that might help clarify the situation. The confusion between your two accountants likely stems from different risk tolerance levels rather than one being definitively right or wrong. Your self-rental arrangement is indeed legitimate - it's called a "related party lease" and is specifically addressed in IRS regulations. The rental income goes on Schedule E (not subject to SE tax), while your LLC gets a business deduction for rent expense. This is standard practice for many small business owners. However, there are some nuances that might explain your new accountant's concerns: 1. **Documentation requirements are strict** - You need a formal lease with market-rate rent, consistent payments, and separate record-keeping 2. **Single-member LLC considerations** - If your LLC is disregarded for tax purposes, the IRS may scrutinize whether this creates any real economic substance 3. **Passive activity rules** - Depending on your level of participation, there could be limitations on deducting rental losses The key question to ask your new accountant: Are they concerned about the arrangement itself, or about how it's been implemented and documented? If it's the latter, those issues can usually be fixed. If they philosophically oppose self-rental arrangements, you might want that third opinion others have suggested. Your original accountant's advice wasn't wrong - they were likely optimizing for tax efficiency while staying within legal bounds.