All Forum Posts by: Andy Krafft

Quote from @Ben Foullon:

I appreciate your response, but I don’t appreciate that you’re assuming I’m just wasting money. It would be much easier to send money to each other. But my friend is selling some stocks and was told that if he invests it in real estate he won’t be taxed. So he’s wanting to lend it to me for my next investment without being taxed on it

Quote from @Stuart Udis:

@Ben Foullon Why can't you simply lend each other money? What is the benefit of this shared LLC? Just another example of investors wasting money, time and energy on anything and everything other than the underlying real estate. Sometimes I question whether there is some real estate investor challenge I am unaware of where investors actively try to one up one another with new ways to toss their money down the drain.

Real estate activities are typically considered passive activities, and the IRS restricts passive losses to offsetting only passive income. Gains from the sale of stocks are considered portfolio income, not passive income, so these types of gains usually can't be offset by passive real estate losses.

Do either of you own any real estate right now? 

Ok and what is the holding company holding? 

Since each of your LLCs owns 50% of the holding company, but the holding company doesn’t own your individual LLCs, the IRS will likely treat your LLCs as separate, single-member LLCs for tax purposes. This means that any transfers of funds between your LLCs could have tax implications.

What is the context for transferring money back and forth? Is it for services that one LLC provides the other? Or simply to help the other LLC pay for expenses?

For time horizons of 5 years or less, I usually prefer something safe like a HYSA or money-market fund. Just be sure you understand the liquidity of the HYSA because there are some banks that only allow a certain amount to be withdrawn each month. 

Alternatively, if you're wanting to do something more aggressive, you could consider a balanced fund, such as Vanguard's LifeStrategy Income Fund (VASIX), which is 20% Stocks / 80% Bonds. It's not my personal preference, as you are still exposing a chunk of your portfolio to volatility, but it's an option.

Is the holding company the sole owner of each subsidiary LLC?

Or does each LLC have a 50% ownership in the "holding" company? 

Unfortunately, the hours you spend managing your plumbing company likely wouldn’t count toward real estate professional status (REPS) hours. The IRS requires the hours to be specifically in real estate trades or businesses, which typically means activities directly related to owning, developing, operating, or managing real estate properties.

IRS Publication 925 outlines what counts as real estate trade or business activities, like development, construction, acquisition, management, leasing, and rental operations. Contracting and subcontracting services, like plumbing, generally don’t count unless tied directly to real estate you own.

Are you considering acquiring rental properties or engaging in real estate development where you would personally manage or oversee those properties?