I am actively seeking investment properties (buy and hold) in the Raleigh, NC and surrounding areas (A & B neighborhoods predominantly) and need insight regarding how to structure an entity that is tax advantaged. Currently when I meet with real estate professionals, interview contractors, discuss investing in real estate with friends/family I cannot write off any of the expenses on my income taxes - some of my friends who own businesses write off a reasonable # of meals (where business is discussed), they also write off their vehicles and other expenses that pertain to their businesses.
Any insight from REI's who have experience? Appreciate your help.
0.535 per mile. Without active income just looking talking writing off expenses is often subject to be audited by IRS. You also need to have a business a llc whatever. Talk to your CPA.
One thing to think about is that, depending on how much you're writing off, it could hinder your ability to get a loan in the future (assuming you wanted to finance multiple properties.) Tax write-offs will reduce the amount of income a lender can credit you with for qualifying purposes.
Regarding "...some of my friends who own businesses write off a reasonable # of meals (where business is discussed), they also write off their vehicles and other expenses that pertain to their businesses." They should. People should take business expenses where appropriate (when doing business activities), including expenses related to company owned vehicles. I'm not sure about personal vehicles that are not used exclusively for business, but I think Sam is correct in that there is a standard, IRS set $/mile rate.In general, not directed at anyone... I think rather than looking for "an entity that is tax advantaged" people should be figuring out how to make a sound, profitable business. Profitable businesses tend to cut out unnecessary expenses and overhead. Some businesses will lease vehicles and expense all transportation costs while others will own the asset (and financing liability) expecting lower total cash outlay over the long term. Both have positives and negatives depending on your company management's financial biases.
Chris Martin - Of course I want a profitable business. I have an MBA and a nice corporate career so I understand the importance of running a lean operation. That said, expenses do occur and I want to minimize my tax burden. Your point is well received - I'm not going to be spending like a member of Congress - I'm far too conservative for that nonsense.
@Jon S. You might want to attend the March TREIA Main Meeting--there's going to be a guy talking about entities / taxes and he's going to be doing a Saturday seminar in late March.
you do not necessarily need an entity to start taking deductions.
Aslong as you have an activity that you have where your intent is to generate a profit.
Having an entity may provide you asset protection though.
You don't need an entity to be able to use deductions on your taxes - but you need some sort of business income (e.g. can have a rental producing rent income), the taxes and deductions will flow through to you. If you don't have a rental, all your expenses before getting one are considered startup expenses and are limited in amount and scope.
If you get an entity (most likely an LLC since S and C corporations are not suitable for buy&hold real estate), then you can start deducting all your business expenses - although most likely accumulating deductions till you'll actually have some income to apply the deductions to it. You need income in 3 of 5 consecutive years, otherwise, IRS will qualify your "business" as a hobby.
Read NOLO's Every Landlord's Tax Deduction Guide. And since most likely, next question you'll bump into will be the asset protection one, read also Every Landlord's Property Protection Guide: 10 Ways to Cut Your Risk Now.
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