If a single family home is held within a corporation or similar
business entity, is it permissible to rent the property to oneself at
a real market rental rate? Or, does this violate some type of arm's
length transaction rule with the tax authorities?  One reason to do
this would be to minimize the impact of not being able to deduct real
estate taxes under the AMT.  By having it in a business entity, the
real estate taxes might become deductible. Of course, one would also
lose the ability to deduct the capital appreciation of the house under
the capital gain exclusion rules.  A good answer will address both the
implications under AMT rules and under real estate rental principles.

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Clarification of Question by mindsponge-ga on 23 Mar 2004 08:49 PST

AMT is "alternative minimum tax" which has a totally different set of
rules as compared to the regular income tax.  Many people in high
state income tax states get forced into the AMT, and more will be
forced into it in the future.  AMT does not allow for the deduction of
state taxes, real estate taxes, and other normal itemizations in the
regular income tax system.

You may get an answer if you tell what the letters AMT stand for.
Obviously IRS is suspicious when you rent something to yourself and it
does tend to alert their audit computer. That is not to say it cannot
be done in an honest, ethical and comparitively safe manner.   Neil