Yes, you can sell your house to your business, and the sale itself is legal in every state, but the IRS treats it as a related-party transaction and layers on rules that don’t apply when you sell to a stranger. The Section 121 principal-residence exclusion still shields up to $250,000 of gain ($500,000 on a joint return), yet gain above that ceiling is taxed as ordinary income rather than at long-term capital gains rates. A loss on the sale isn’t deductible at all. Add in possible mortgage acceleration, gift tax exposure if you underprice the deal, and the near-certain loss of your homestead exemption, and this becomes a transaction where careful pricing and documentation matter more than in almost any other real estate sale.
Price the Sale at Fair Market Value
Because you sit on both sides of the deal, the price and terms have to match what two unrelated parties would agree to. Tax and corporate law both enforce this through the arm’s length principle, which exists to police conflicts of interest between related parties.1Legal Information Institute. Arm’s Length In practice, that means a current independent appraisal sets the price and the closing follows normal procedures.
Underpricing the sale creates two separate problems beyond the tax issues discussed below. If a court later decides the entity is really your alter ego with no independent operations, the corporate veil can be pierced, exposing your personal assets to the business’s creditors. And a sale far below market value can be attacked as a fraudulent transfer. Under the Uniform Voidable Transactions Act, adopted in some form by nearly every state, creditors can unwind the sale or reach the property directly if the transaction lacked adequate consideration.2Legal Information Institute. Fraudulent Transfer Act The label doesn’t require intent; a price far enough below market is enough for a court to call the sale constructively fraudulent.
Keeping the entity’s finances strictly separate from your own matters just as much. Once the business owns the property, every related expense should run through the entity’s books and bank accounts. Paying personal bills from the business account, skipping required meetings, or letting the entity’s records lapse gives creditors and courts ammunition to treat the entity as a sham.
How the Gain Gets Taxed
Section 121 Still Applies
The principal-residence exclusion works even when the buyer is your own company. If you owned and lived in the home for at least two of the five years before the sale, you can exclude up to $250,000 of gain from your income, or $500,000 on a joint return where both spouses meet the use requirement.3Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence The statute restricts related-party sales only for remainder interests in a home, not outright sales, so the full exclusion is available here.
Some states don’t conform to the federal exclusion. You could owe state income tax on gain that’s fully excluded at the federal level, which catches sellers off guard at filing time.
Gain Above the Exclusion Is Ordinary Income
This is where selling to your own business diverges sharply from selling to a stranger. In a normal sale, gain above the Section 121 cap is taxed at long-term capital gains rates, which top out at 20% for higher-income taxpayers.4Internal Revenue Service. Topic No. 409, Capital Gains and Losses When you sell depreciable property to a controlled entity, Section 1239 reclassifies the entire recognized gain as ordinary income.5Office of the Law Revision Counsel. 26 USC 1239 – Gain From Sale of Depreciable Property Between Certain Related Taxpayers Ordinary rates run as high as 37%, nearly double the capital gains ceiling.
Section 1239 kicks in whenever you own more than 50% of the buying entity, whether it’s a corporation, LLC, or partnership.5Office of the Law Revision Counsel. 26 USC 1239 – Gain From Sale of Depreciable Property Between Certain Related Taxpayers Residential rental property is depreciable, so if the entity plans to rent the home or use it commercially, any gain above the Section 121 exclusion is ordinary income. A home with substantial appreciation can produce a significant ordinary-income hit most sellers don’t see coming.
If the House Has Lost Value, You Can’t Deduct the Loss
If the home has dropped in value since you bought it, selling to your own business does not generate a deductible loss. Section 267 flatly disallows any loss on a sale between an individual and a corporation or partnership in which that individual owns more than 50%.6Office of the Law Revision Counsel. 26 USC 267 – Losses, Expenses, and Interest With Respect to Transactions Between Related Taxpayers The loss vanishes for tax purposes. You cannot carry it forward on your personal return, and you cannot use it to offset other gains.
Section 267(d) offers a partial consolation. If the business later sells the property to an unrelated buyer at a gain, the previously disallowed loss can reduce that future gain. The benefit belongs to the entity, though, not to you personally, and it only helps if the property eventually appreciates. If you’re sitting on an unrealized loss, selling to your own company is one of the worst ways to crystallize it. (Personal residence losses aren’t deductible in an ordinary sale to a stranger either, but a related-party sale forecloses any future personal use of the loss as well.)
Below-Market Pricing Triggers Gift Tax Reporting
Setting the price below fair market value creates a separate gift tax problem. Under federal gift tax rules, the difference between the property’s fair market value and what you actually receive is treated as a gift.7Office of the Law Revision Counsel. 26 USC 2512 – Valuation of Gifts It applies even without any intent to make a gift. The IRS looks only at whether the consideration was adequate.
For 2026, the annual gift tax exclusion is $19,000 per recipient, and the lifetime gift and estate tax exemption is $15,000,000.8Internal Revenue Service. What’s New – Estate and Gift Tax Most people won’t owe actual gift tax because the lifetime exemption absorbs the excess, but you still have to file a gift tax return (Form 709) to report the transfer and reduce your remaining exemption. Missing that filing is an audit flag the IRS actively watches for in related-party real estate transactions. Pricing the sale at appraised fair market value avoids the whole problem.
The Mortgage Can Be Called Due
If you still owe money on the home, transferring title to a business can trigger the due-on-sale clause in your mortgage. That clause lets the lender demand full repayment of the outstanding balance when ownership changes. Federal law preempts state limits on enforcement, so the lender’s contractual right generally controls.9eCFR. 12 CFR Part 191 – Preemption of State Due-on-Sale Laws
The Garn-St. Germain Act carves out several protected transfers where lenders cannot accelerate, including transfers into a living trust where you remain the beneficiary and occupant. Transfers to an LLC, corporation, or partnership are not on that protected list.10eCFR. 12 CFR Part 191 – Preemption of State Due-on-Sale Laws – Section 191.5 The lender has the contractual right to call the loan when it discovers the title change.
Some lenders don’t actively monitor title records and may not enforce the clause. Counting on that is a gamble. Fannie Mae’s servicing guidelines allow certain transfers to an LLC without acceleration, but only if the mortgage was purchased or securitized by Fannie Mae on or after June 1, 2016, the original borrower controls or holds a majority interest in the LLC, and any change in occupancy doesn’t violate the loan terms. Freddie Mac has similar rules requiring the original borrower to be the managing member. If your loan doesn’t fit those conditions, you may need to refinance into a commercial loan in the entity’s name. Commercial mortgage rates typically run one to two percentage points higher than residential rates, with shorter terms and larger down payment requirements.
Property Tax Reassessment and Homestead Loss
Transferring the home to a business can produce two property tax hits people routinely overlook. First, many jurisdictions treat the transfer as a change of ownership that triggers reassessment at current market value. If your home has appreciated since the last assessment, your property tax bill can jump. Some states exempt transfers where the proportional ownership interest stays the same (you owned the house before, and you own 100% of the entity after), but the rules vary widely and the exemption is not automatic anywhere. You typically have to file a specific form with the county assessor to claim it.
Second, homestead exemptions almost universally require the property to be owned by a natural person using it as a principal residence. An LLC or corporation isn’t a natural person. Once the entity holds title, the homestead exemption disappears in most jurisdictions, raising the assessed value subject to tax. In states with generous homestead exemptions, losing it alone can add thousands of dollars a year to property taxes. Check with your county assessor’s office before recording the deed. Reversing the transfer after losing the exemption creates its own tax and recording complications.
Insurance and Ongoing Entity Costs
A standard homeowners policy covers a residence owned by an individual. Once an LLC or corporation holds title, the insurer will typically require a commercial property or landlord policy. Those policies often carry higher premiums and may need endorsements for slip-and-fall liability, tenant-caused damage, or business interruption. The entity, not you, has to be the named insured. A claim on a policy where the named insured doesn’t match the title holder can be denied outright.
Maintaining the entity itself costs money every year. Annual report or franchise tax fees range from nothing in a handful of states to over $800 in others. A registered agent, a separate bank account, bookkeeping, and an annual return for the entity add to the overhead. These costs continue whether the property produces rental income or not. For a single home you plan to keep living in, the ongoing expense may outweigh whatever benefit prompted the transfer in the first place.
What Changes for the Business After the Sale
Once the business owns the property, it records the acquisition as a depreciable asset. Residential rental structures are depreciated over 27.5 years using the straight-line method, and the deduction applies only to the building’s value, not the land, so the purchase price has to be allocated between the two.11Internal Revenue Service. Publication 527 (2025), Residential Rental Property Depreciation reduces the entity’s taxable rental income each year, but it sets up a future cost: when the business eventually sells to an unrelated buyer, previously claimed depreciation is recaptured and taxed at a maximum rate of 25%.4Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Rental activity is generally passive, which limits how losses from the property can be used. If you actively participate in managing the rental, you can deduct up to $25,000 of rental losses against other income. That allowance phases out once adjusted gross income exceeds $100,000 and disappears entirely at $150,000. Losses you can’t use in the current year carry forward until you can, or until you dispose of the property in a fully taxable transaction.12Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
Entity type shapes how those numbers land on your return. An LLC taxed as a disregarded entity or partnership passes income and losses through to you, where the passive loss limits apply directly. A C corporation pays its own tax and doesn’t pass losses through at all. Choosing the wrong structure can leave you with depreciation deductions you can’t actually use for years.
Reporting the Sale
A sale to your own entity still generates a Form 1099-S reporting obligation. The person responsible for closing (usually the settlement agent listed on the Closing Disclosure) files the form, and the seller’s taxpayer identification number has to be collected no later than closing.13Internal Revenue Service. Instructions for Form 1099-S, Proceeds From Real Estate Transactions There’s no exception for related-party buyers. If no settlement agent is involved, responsibility falls in order to the buyer’s attorney, the seller’s attorney, or the buyer.
On your personal return, you report the sale on Schedule D and Form 8949, claiming the Section 121 exclusion if you qualify. If the price was below fair market value and a gift component has to be reported, Form 709 is due by April 15 of the following year. A pass-through entity reflects the acquisition on its own return and starts depreciating the asset from the closing date.
Before any of that paperwork matters, get a professional appraisal. It establishes the fair market value and is your primary defense if the IRS, a court, or a creditor later challenges the price. Automated online estimates won’t hold up in an audit; you need a signed report from a licensed appraiser based on comparable recent sales. Draft the purchase and sale agreement the way you would for a sale to a stranger, and have the entity formally authorize the purchase through a board or member resolution kept with its records. Those documents prove the decision was sanctioned by the entity rather than made casually by you wearing two hats.