Pay Yourself Rent? The Battle of Schedule C vs E

[Kyle Scholnick]

Are there any rules and regulations from IRS on paying yourself rent if you own an office building and your unrelated business uses that location? By doing that, it would put passive income on schedule E as opposed to schedule C which would decrease self employment tax right? 

Any reason not to do it? 

[Eamonn McElroy]

@Kyle Scholnick

If you pay rent between your Sch C and Sch E, it won't be respected for federal income tax purposes.  You can't pay and receive rent to and from yourself. The real estate asset should be depreciated on the Sch C, regardless of any paperwork form over substance creations.  A good CPA will protect you from yourself here.

You need a regarded tax entity (partnership, S Corp, or C Corp) at the other side of the table if you want a true self-rental for income tax purposes.  Speak to your CPA.