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Rehabbing & House Flipping

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Nate White
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Sweat Equity hourly pay question

Nate White
Posted Jun 14 2022, 18:52

If I want to pay myself an hourly wage out of my real estate business putting sweat equity into an investment property, do I have to fill out a W-9 form? 

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Nathan Grabau
  • Realtor
  • Longmont, CO
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Nathan Grabau
  • Realtor
  • Longmont, CO
Replied Jun 14 2022, 19:37

You can do this, but there is very little tax advantage as I understand it. If you wholly own the business/ property then you should have it set up as a pass through entity like and LLC.

You can chose whether you are taking the money as an equity draw or as income. This is something you should talk to your CPA about. 

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Doug Garrison
  • Investor
  • Greensboro NC
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Doug Garrison
  • Investor
  • Greensboro NC
Replied Jun 16 2022, 02:59

No. Even if you structured this to be able to deduct your time as an expense to the rental property, maybe forming a separate contracting company, you would then be converting passive income to regular income. Regular income is subject to the 15% self employment tax whereas rental income is not. 

However, it's worth tracking your time to get an idea of what jobs might be worth hiring out versus doing yourself.

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Andrew Garcia
  • Lender
  • Charlotte, NC
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Andrew Garcia
  • Lender
  • Charlotte, NC
Replied Jun 16 2022, 06:42

Hi @Nate White, definitely talk to a CPA to learn if there are any tax advantages to this.

As far as I know, there is not but I am not a CPA.

Hope this helps! Let me know if I can be of any assistance.

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Basit Siddiqi
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  • Accountant
  • New York, NY
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Basit Siddiqi
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  • Accountant
  • New York, NY
Replied Jun 27 2022, 22:16

The only real benefit I can see from this is if you just started your real estate business and the lender is not counting the rental income towards your DTI ration because it hasn't been 2 years, they still may count the wages as income.

However, a lot of work with some additional costs involved. May not be worth it.