Efficiency in Home Office expenses

[Gabriel Parker]

Hey there Bigger Pockets Community,

I have an interesting situation on my hands and would like some input to see if this plan is allowable or wise. My In-laws own a business that has government contracts in transit and are in a situation where they fight at the end of every year to lower their cash-on-hand and increase their overhead to continue to qualify for eligibility in certain contracts. 

They use a home office for their, "corporate," office and generally deduct what they can though they own it outright so only can deduct a small percentage of taxes and utilities they pay on the home. 

My thought was this: Could my fiance or I, (somebody outside ownership or affiliation with the business) create a property holding company that would purchase the home from her parents and lease it back to their business? Their home is zoned Low-Density Mixed-Use so it is allowable in their neighborhood to classify a property as light commercial use already. 

The thought here is that they could deduct their full lease payments (fair market value to rent that home would be approximately $2,800/ Month) as business overhead and the upkeep for the property would be classified as Capital Expenditures under the property holding business. 

Nothing here strikes me as illegal in any way though I don't know the nuance of the business tax code. Any thoughts on this would be appreciated.