All Forum Posts by: Andrew Abeyta

Hello Edward - yikes! Any reason why we’re mixing RE holdings and S-Corporations? (might be besides the point)

The distribution from the first S-Corporation would be a deemed sale for tax purposes. Though it might "seem" that you can arbitrarily attach the "tax basis as the fair market value" and thus receive $0 gain, the IRS would not respect this if you were selected for audit. The IRS will look for a fact pattern on assigning FMV (if it were appraised by a qualified appraiser, for instance. What similar properties in the area are selling for, etc…).

Gain does give you stock basis, if you were to sell or dissolve the first LLC, so there may be benefit of doing this transaction in the same tax year to ‘link' gain and loss. The last thing you want is big gain in year 1 and big cap loss in year 2.

REMEMBER: Property is very rigid when in Corporations! Getting it in or out almost always results in a taxable event, and when an owner passes away, the beneficiaries would receive a step up in *stock value*, not a step up in the assets within the corporation. This is a major drawback for depreciable assets.

Hoping you have a good CPA in your corner my friend!

- REI CPA

 Beat me to the punch by a minute; great stuff here ^

Hello Sophia -

Echoing Adam’s response; however, placing the property in service would likely be the date it’s *available for rent*. This might give you mother a jump start on tracking hours for REPS purposes and taking depreciation.

That said, she wouldn’t necessarily have to “forego” having a W-2. If she instead pulled back on her hours on that W-2 job, she’d be able to reach REPS status without foregoing all of her wage income.

State filings are important too. If there’s net income, and these are taxing states, her CPA should be looking into that state’s PTE.

- R/E CPA in CA

I’d advise you speak to a CPA as well, different trusts bring along potentially different income tax filing results.

The maxmimum income tax rates on trusts are also reached far earlier than they would be on a personal income tax return.

Generally trusts and LLCs serve different purposes as well (i.e. “who you’re shielding assets from”)

 Absolutely Steve, valid points. If proximity to home is a big factor, it might be best to keep pinging them, or perhaps search for another local firm in Riverside. 

If close proximity is not “as” crucial, I’d be happy to help you find a good home for your tax / compliance work!

Lots of great firms and practices in Southern California (I practice out of North OC)

Hello Steve - can’t help you on the “in” with this firm, but is there a reason why you’re set on this one specific firm?

There are many qualified CPAs on this platform that deal solely with real estate clientele. The power is in your hands my friend, God bless!

- R/E CPA in CA

No refund on the employer side! The “limitation” (or maximum, which I believe you’re referring to) applies to the individual / employee, not to the business. In theory, you would only hit the maximum SS amount (possibly SDI depending on your state).

I think the bigger question is: did someone advise you on making an S-Election for a rental property?? 

- REI CPA

I would lean towards reaffirming your position; perhaps advise your CPA to revisit Treas. Reg. 1.168(i)-8.

That being said, we may not have the full fact pattern given we are not able to see your tax return. Certain elections, i.e. GAA, may impact your options.

- R/E CPA

Hi @Laura Yazdi - I’m certainly a tax strategist in this space (CA-based CPA). Most of my client-base own and operate within CA, though several have out of state filings / properties / and are operating businesses outside of real estate.

As far as real estate laws, my expertise leans heavily towards income tax strategies, filings and assisting clients through highly complex transactions, not necessarily property tax law.