Selling Your Home to Your S Corporation

The strategy behind creating an S corporation and then selling your home to that S corporation comes into play when

• you want to convert your home to a rental property and take advantage of the exclusions, or
• you need more time to sell the home to realize the benefits of the $250,000 exclusion ($500,000 if filing a joint return). 

With this strategy, one question often comes up: If a married couple sells their home to their S corporation to be a rental property, can the owners be the renters?

Answer: No. In this situation, the tax code treats your S corporation as you, the individual taxpayer, and thus you would be renting from yourself, and that would produce no tax benefits.

In effect, the S corporation renting the residence to the owner of the S corporation is the same as homeowners renting their residence to themselves. It produces no tax benefits.        

On the other hand, your S corporation could rent the home for use as a principal residence to your son or daughter or other related party, and the tax code would treat that rental the same as any rental to a third party.