@Chaseter14
your situation is different than above
you should actually draw up a lease between you as the owner of the property and the S-Corp. the reason is
that the S-Corp doesn't own the property. therefore the depreciation and expenses like taxes and mortgage interest are not reported by the S-Corp (except maybe for maintenance, repairs, insurance and possibly other expenses). so schedule E would show a loss. the reporting for the property would go on page 1 of Schedule E and look odd since no rental income is being reported. That may raise a red flag with the IRS. in addition, the loss would be passive so you face the rules regarding passive loss limits.
if fair rental is charged. the S-corp gets a deduction and the taxpayer reports the rental income on Schedule E. thus the taxpayer may now have either net rental income or a lower net loss which would help if subject to passive loss limits.
Rental activities are automatically treated as passive activities, with some exceptions, notably the self-rental rule. The self-rental rule prevents taxpayers from being able to “create” passive income from an active business in which tangible property is used by renting the property to an entity conducting the activity, or by causing the entity holding the property to rent it to the taxpayer.
Income from a self-rental is treated as nonpassive, while loss is treated as passive. Therefore, a taxpayer must pay special attention to the rental rate charged between their active business and their rental properties. If the rent charged is too low and produces a rental loss, the resulting loss becomes passive and may be suspended if the taxpayer otherwise has no other passive income with which to offset.
One interesting aspect of the self-rental rule is that it recharacterizes the rental income from an item of property, rather than from an activity. This is an important distinction even where the taxpayer may have made a grouping election to treat all rental real estate interests as one activity. The grouping election is only effective for purposes of determining whether a taxpayer materially participates in rental activities. Therefore, a taxpayer may have grouped rental activities for material participation reasons, but may also be subject to the self-rental rule for the rental of separate real estate properties to their active trade or business. One property rental may result in income, while the other results in loss. Each would be treated separately; the rental income as nonpassive, while the rental loss as passive. If these were the only two property rentals owned by the taxpayer or their holding entity, the loss from one cannot offset the income from the other.
