Rental Income

April 13, 2006

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One widely used method for building personal wealth, by letting the business compensate you for your financial risk as well as your services, is for you to retain any real estate used in your business in your own name.

Then, you lease the property to your company. This gives you income that can be increased in later years as the business prospers. At the same time it gives your company a deduction. More importantly, down the road, when the property has appreciated significantly, that appreciation will not be double-taxed as it would if your corporation owned it. Real estate is also a good vehicle for family income shifting when the time comes.

Warning

The IRS expressly forbids this method, however, if you are using a home office. If you want to lease part of your own home to yourself, don't try to deduct the rent on your tax return.

This method is not recommended for equipment. Equipment is generally leased as a financing alternative. Since equipment doesn't usually appreciate — in fact quite the opposite: it almost always depreciates — there is little benefit in owning it personally.