Please forgive me if I am intruding here. I Googled up your forum because I have a tax question about our rental income (Florida, USA). My wife and I have two residential rentals; one is in a trust and is accounted separately from our annual income. My question is about the other unit, the rental from which we simply add to our annual gross income which also includes my self employment income and my wife's salary.
I need office space so we've been talking about converting a portion of that unit into an office, then renting the remainder at a reduced rate. Our ongoing costs will remain roughly the same ... that is, taxes, insurance, depreciation, etc. so we will show a higher annual loss at the reduced rental rate.
Here's my question: Should my proprietor company pay fair rental for the new office space and add it to our income, which would then be deducted on my Schedule C? Or should we simply report the reduced rental and ignore the office costs/income?
Perhaps this is hair splitting but the change will have the effect of reducing our tax liability. Any advice re IRS position about this?
Rental income?
Moderator: Mark T Serbinski CA CPA