Posted by John Merchant on May 22, 2005 at 20:30:23:
I think it’d depend on your contract with the company and what you tell them.
Find out why they’d pay rent, their motivation, etc. and see if you can engineer a plan they’re happy with.
In my book it would be wrong and unethical to tell the company anything except the whole truth.
Sure it would be a simple matter to set up a corp or LLC with a very trusted friend as the Manager or President and your name wouldn’t show…but if that’s fraud, it’s fraud so you need to dig into their concerns first.
If it were your company would you care if some one of your employees did that to you? If so, don’t you do it.
I have a feeling that while it may be technically legal, it may not be ethical. That being said, here is what I was thinking…
My job will pay for my housing if I am RENTING an house, but not when Im BUYING. I was thinking about buying a cheap house for cash, quit claim deed it to an LLC, put a first mortgage on it in the name of the LLC and rent it from the LLC. This will allow my employer to pay my “rent” which in turn will be used to pay the mortgage. 123 Any Street, LLC will technically be the owner and I doubt that my employer will be the wiser. Question is, is this legal? Techincally they are not paying MY mortgage, they are paying the mortgage of a house that belongs to 123 Any Street, LLC. Slippery slope, or go for it?
It’s not criminal if that is what you are asking. Could the employer file a lawsuit against you if they found out? maybe, but in reality it is very unlikely that they would. The employer would have to prove actual damages. If the employer was going to pay your rent anyway, I don’t see that the Employer has been damaged as long as you paying market rent. Of course they can always fire you.
The fraud aspects aside, there are tax issues you need to consider.
First, if the residence is in the name of an LLC, you will not be entitled to the 250/500K capital gains tax exemption when you eventualy sell. This potentially has a big tax impact.
Second, you will likely get taxed twice on the rent. You would probably need to declare the rent that the company is giving you as income. Second, you would then need to declare the rent again as income of the LLC (which would be a pass through to you). Thus, the same dollars are taxed twice to you.
Although the second taxation could be offset against the mandatory depreciation of the house, you would still get hit with depreciation recapture when you eventually sell.