Many investment and tax advisers will tell you that your home can be an important source of tax benefits for things like the mortgage interest deduction or the home office deduction, but those individuals probably didn’t have the scheme that the lawyers working for the show Extreme Makeover Home Edition came up with. They found a little used rule that states: that the value of tenant improvements are not include-able in gross income and that rent payments are not taxable if your home is used for rental purposes less than 15 days per year. The producer paid their “rent” in this case by providing the family with new furniture and appliances.
This rule, as much as production budgets and any other considerations, probably dictated the show’s rapid demolition and construction timeline. As part of the show the home was “rented” from the lucky family and then “improved” by the show’s construction team. However, many tax experts who have looked at this have said that it is probably not a reasonable position, mostly because the changes go well beyond what would be considered reasonable tenant improvements. Luckily for the participants in the show, the consequences if an IRS victory would probably result in a very sympathetic looking family being assessed tens of thousands in taxes, a PR disaster, Which may be why we haven’t seen a case on it.
If you are having tax trouble, give us a call at 816-254-4949 or visit our website at www.hoorfarlaw.com.