Tax advice for a start up RE investing LLC
Erick DuranPro Member
Rental Property Investor · Norwalk Ca · Member since 2021 · 22 posts · 10 votesTax advice for a start up RE investing LLC
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votesOriginally posted by @Erick Duran:
Newly started LLC for investing in rental properties. What can I expect to write off at the end of the year? Any guidance on what mistakes were made by any of you early on? Should I hold off on buying equipment suck as a laptop until after my first home purchase?
Anyone have a recommendation for a CA tax advisor?
If not required, getting an LLC in CA might be a mistake because of the 800 fees, but you might have other reasons to get the LLC.
Yes, wait until you buy your property to make most of the optional expenses. You can read more on the start-up cost on other threads here.
Once you purchase the property, there are various kinds of stuff that you can deduct.
Rather than giving you the list, first, let me say that you can deduct expenses that meet these two criteria:
- Ordinary Course of Business
- Necessary in the course of business
Here is the list of some of the items:
1) Mileage: any mileage that is associated with the rental activity. Use apps like MilesIQ to keep track of it. Note: If you go to the same meeting each month, you can do detail tracking for a month, and can use the same detail to estimate expenses for the rest of the year. ( If nothing changed)
2) Meals when traveling away from home - 50% is deductible unless the meal is provided to the general public (like Open houses) then it is 100% deductible. Open House - Meals and entertainment (Balloons)
3) Expenses for Meeting with investor
4) Expenses For Meeting with a realtor
5)Going to investors' meetings. Mileage and meals
6) Money paid for RE tax books is also the tax deduction.
7)Any expenses that help you with RE investment can be deducted. Eg. HOA fee - If HOA fees are not paid, the business will incur fines, so it is necessary to make a profit in the business.
8) Marketing expense and advertising
9) Cleaning and maintenance
10)Commission (Expenses like commission, abstract fees, recording fees to obtain your mortgage are not deductible but rather capitalized )
11) Insurance
12)Legal and other professional fees(Tax preparation for business, not personal part)
13)Management fee if applicable
14) Points- you generally cannot deduct the full amount the first year but have to deduct them over the term of the loan.
15) Repairs (Note always do repairs rather than improvements to rental because repairs are deductible right away and do not have to depreciate over a few years as done for improvements. Repairs do not have to be recaptured when you sell the house too.)
16) Utilities
17) Pre rental expenses ( expenses incurred before finding a tenant )
18) If you use your Car: This can include- oil changes, maintenance, gas, repairs, parking, tolls, and depreciation. If you use a personal car, make sure to keep a detailed record so that CPA can prorate the expenses between personal and business. This can include- oil changes, maintenance, gas, repairs, parking, tolls, and depreciation. If you use a personal car, make sure to keep a detailed record so that CPA can prorate the expenses between personal and business.
19) Any equipment you rent for the rental business.
20) Mortgage interest and property taxes
21)There are many others and depend on specific situations.
22) home office: Also, If your home qualifies for a principal place of business for RE activity, any mileage to any rental property is deductible.
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4 Replies
- 5yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Originally posted by @Erick Duran:
Newly started LLC for investing in rental properties. What can I expect to write off at the end of the year? Any guidance on what mistakes were made by any of you early on? Should I hold off on buying equipment suck as a laptop until after my first home purchase?
Anyone have a recommendation for a CA tax advisor?
If not required, getting an LLC in CA might be a mistake because of the 800 fees, but you might have other reasons to get the LLC.
Yes, wait until you buy your property to make most of the optional expenses. You can read more on the start-up cost on other threads here.
Once you purchase the property, there are various kinds of stuff that you can deduct.
Rather than giving you the list, first, let me say that you can deduct expenses that meet these two criteria:
- Ordinary Course of Business
- Necessary in the course of business
Here is the list of some of the items:
1) Mileage: any mileage that is associated with the rental activity. Use apps like MilesIQ to keep track of it. Note: If you go to the same meeting each month, you can do detail tracking for a month, and can use the same detail to estimate expenses for the rest of the year. ( If nothing changed)
2) Meals when traveling away from home - 50% is deductible unless the meal is provided to the general public (like Open houses) then it is 100% deductible. Open House - Meals and entertainment (Balloons)
3) Expenses for Meeting with investor
4) Expenses For Meeting with a realtor
5)Going to investors' meetings. Mileage and meals
6) Money paid for RE tax books is also the tax deduction.
7)Any expenses that help you with RE investment can be deducted. Eg. HOA fee - If HOA fees are not paid, the business will incur fines, so it is necessary to make a profit in the business.
8) Marketing expense and advertising
9) Cleaning and maintenance
10)Commission (Expenses like commission, abstract fees, recording fees to obtain your mortgage are not deductible but rather capitalized )
11) Insurance
12)Legal and other professional fees(Tax preparation for business, not personal part)
13)Management fee if applicable
14) Points- you generally cannot deduct the full amount the first year but have to deduct them over the term of the loan.
15) Repairs (Note always do repairs rather than improvements to rental because repairs are deductible right away and do not have to depreciate over a few years as done for improvements. Repairs do not have to be recaptured when you sell the house too.)
16) Utilities
17) Pre rental expenses ( expenses incurred before finding a tenant )
18) If you use your Car: This can include- oil changes, maintenance, gas, repairs, parking, tolls, and depreciation. If you use a personal car, make sure to keep a detailed record so that CPA can prorate the expenses between personal and business. This can include- oil changes, maintenance, gas, repairs, parking, tolls, and depreciation. If you use a personal car, make sure to keep a detailed record so that CPA can prorate the expenses between personal and business.
19) Any equipment you rent for the rental business.
20) Mortgage interest and property taxes
21)There are many others and depend on specific situations.
22) home office: Also, If your home qualifies for a principal place of business for RE activity, any mileage to any rental property is deductible.
INVESTOR FRIENDLY CPA®5241 Reviews - 5yJonathan PavkovBusiness MemberColumbus, OH · Member since 2021 · 201 posts · 166 votes
Originally posted by @Erick Duran:
Newly started LLC for investing in rental properties. What can I expect to write off at the end of the year? Any guidance on what mistakes were made by any of you early on? Should I hold off on buying equipment suck as a laptop until after my first home purchase?
Anyone have a recommendation for a CA tax advisor?
Hi Erick - are you investing in state (CA) or out of state also? Make sure your CPA can handle out of state if you are planning on looking at other markets.
- Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes5y
California is going to make you pay every year for every LLC you establish. Not sure what kind or how many properties you are going to acquire, but CA will make you disclose on your tax return if you have an LLC, and how many, and each (regardless of where formed) is going to cost you for nothing other than the "privilege" the state will assert to make you pay for using an LLC. Not sure if this is just a revenue grab, or a punitive measure for those who attempt to do a liability end run. Likely its some of both.
Welcome to the golden bear state.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes5y
Originally posted by @Erick Duran:
Newly started LLC for investing in rental properties.
What does this mean?
For random little houses just yourself or with spouse? No way.
Commercial and/or with other partners not your spouse? Maybe. Consider not doing it in CA.
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