Can my LLC own a new home and rent it to my wife.

[Steve Gume]

I own a LLC(100% sole owner). LLC has been registered for real estate renting. This LLC owns a commercial property which is having a net income of $1000/mo today. Can I buy a new home in this LLC(bank willing to provide loan) for a price of $200K and rent this home to my wife for a fair market value of $1200. Purpose of doing this is to reduce the tax basis of the LLC by deducting the below expenses

-House depreciation(over 27.5 years)
-Mortgage Interest
-HOA Due($325)
-RE Taxes($200)
-Furniture Depreciation
-Appliances depreciation/repairs
-Landscaping
-Insurance Expenses
-Utility Bills(water,electricity,cable & internet)
-Any home related mntnce expenses such as roof, windows
This will bring down my current LLC income down a lot. Also, I get to keep my standard deduction of $12,400 as is.
Is this Legal?

[Nathaniel Busch]

Through attribution rules, you and your wife would be considered equals. As a result, you would not be permitted to deduct any of your costs you mention, outside of taking the normal property taxes and mortgage interest on Schedule A.

See Publication 527: 

Used as a home but rented less than 15 days. If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). You are not required to report the rental income and rental expenses from this activity. The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses.

Thus, structuring your primary home as a rental would not really change anything. The "rent" you would pay yourself would be non taxable. The rent paid would be non deductible, and the interest and taxes would still be reported on Schedule A. All other expenses would be considered non-deductible (as they already are). 

Nathaniel Busch, CPA