Leasing Investment property to family members
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Level 2

Leasing Investment property to family members

Greetings.

 

My parents own a commercial investment property (in their LLC business name) free and clear and have discussed leasing it to my LLC business. I would then sublease it and generate business income.  They are looking to simplify their lives and not deal with any day to day issues related to being a landlord any longer and would just like to receive some monthly revenue. Can they lease it to me below fair market value (maybe as low as $1 per year so they would not have to remit sales tax...we live in Florida) and report their revenue as income? What are the IRS rules for this? 

 

We've discussed selling it to me but since I will inherit it as the stepped up value, this does not seem to be a smart option.

5 Replies
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Level 3

Leasing Investment property to family members

The irs rules are your parents are gifting you the difference between what you pay and the fair market rental value. 

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Level 2

Leasing Investment property to family members

How is fair maker value established?

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Expert Alumni

Leasing Investment property to family members

To determine the fair market rental (not the fair market sale value) for your location, you can use the HUD tool in this reference:  https://www.huduser.gov/portal/datasets/fmr.html

 

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Level 2

Leasing Investment property to family members

Great! Thank you. I noticed this is for residential rentals. How would it apply to commercial office space? Would that be based on square footage? Ours is a 2 acre property with C2 zoning and a 1200 sf house on it used for offices. Not really anything similar in the area.

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Expert Alumni

Leasing Investment property to family members

A local realtor or property management company may be able to provide a fair rental value range for this property. You will likely need to reach out to one that specializes in commercial property.

 

@JonPatrick

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