Yes. It is possible to rent your garage to your own business and make good money. However, there are certain things you need to be aware of before you can legitimately do this.
For one, for the rent to be considered an allowable expense for the company, to offset against its profits, it needs to be a reasonable amount of rent.
In addition, note that what the company pays will be rental income, and you are still expected to declare it to HMRC and even pay income tax on it.
Aside from that, if you end up selling the house, the amount of principal private residence relief from capital gains tax might be restricted depending on how much the garage is exclusively given over to the business.
Pros and Cons of Renting Your Garage to Your Business
Indeed, there are pros and cons that come with renting out your garage to your business, and it is very important you take your time to consider them extensively.
- Renting your garage to your business ensures you have an additional source of income.
- It ensures that your business can avoid leasing an expensive commercial space, saving on rent expenses.
- Also, note that having a workspace close to home makes monitoring and accessing your business operations easier and less tiring
- Renting your garage for business purposes might as well come with its own tax benefits, such as potential tax deductions.
- In addition, you can have the flexibility to use the space for many other varying purposes if need be.
- Local zoning laws might restrict or prohibit the use of residential spaces for some types of businesses.
- Garages are known to be quite small especially when put in contrast to commercial spaces, and this can restrict the scale of your business operations.
- It is also possible that renting your garage for business purposes might negatively impact the resale value of your home.
- You cannot afford to underestimate how the noise and activity from the business might disrupt your personal living space or even your neighbours.
- Keep in mind that legal implications or disputes might arise due to the dual residential-commercial use of the property.
Things to Note When Renting Your Garage to Your Business
Indeed, while it is possible to rent your garage to your own business, it is recommended that you understand everything that comes with this approach while also taking into account legal, financial, and operational considerations. Nevertheless, below are the top things to note when looking to rent your garage to your business in the United States:
Crafting a Comprehensive Lease Agreement
The first thing you would want to do is to come up with a properly crafted lease agreement. This document will more or less function as the foundational framework, and will have to encompass all the necessary specifics of the arrangement.
It is very important that this document covers the essential elements of the agreement including the duration of the lease, the agreed-upon rent amount, payment schedule, as well as any additional rules that come with the usage of the space.
Aside from establishing clarity, you have to understand that this formal agreement also functions as a legal safeguard, providing recourse in case any issues arise.
Determining Fair Market Rent
Properly arranging your rental agreement to avoid any issues in the future warrants that you have a comprehensive insight and understanding of fair market rent.
Carry out well-detailed research within your local real estate landscape to come up with the going rates for similar garage spaces.
Most often you might want to reach out to a consulting real estate listing, get in touch with property management professionals, or obtain appraisals to adequately understand the prevailing market conditions.
Navigating Zoning Regulations
Before renting your garage to your own business, it’s also very important you understand the complex terrain of local zoning regulations.
Note that various areas possess varying rules when it comes to renting residential spaces for commercial use. You would want to ensure full adherence by obtaining the necessary permits and approvals.
Maintaining Financial Separation
You need to understand that the financial intertwining of personal and business matters can lead to many issues when not managed properly.
As such, it is recommended you create a valid demarcation between personal and business finances by establishing a dedicated business account for all transactions that have to do with the garage rental.
Keep in mind that this separation makes financial management easier and solidifies the legitimacy of the arrangement, especially when it has to do with taxes.
Navigating Tax Complexity
Just as was noted above, rental income in the United States is more or less considered taxable, and understanding the complexity of deductions that come with the space’s usage is paramount.
To be able to deal with the intricate labyrinth of tax laws, it is recommended you leverage the expertise of a qualified tax professional. This guarantees that your rental arrangement falls in line with all federal, state, and local tax regulations.