All Forum Posts by: David M.

@AnnMarie Bacchus From one of your comments about being sold REI pkg, perhaps part of the issue is your search for "REI cpa." Personally, one doesn't need a "REI" specific cpa. Honestly, I don't think people always need a CPA since that certification is for public accounting --- this isn't public accounting and GAAP.

But, you need a to find a competent accountant.  Like most professions, its as "practice."  In my experience, the smaller accountants don't always have the experience, nor the infrastructure.  When it came time for myself, I just went to a large firm for assistance.

Hope that helps.  Good luck.

@April Birdsong

As mentioned, material participation of $25k allowable deduction phases out between a modified AGI of $100k to $150k.

You might be able to deduct some of the upgrades if they were smaller chunks.. maybe?

The Real Estate Professional Status (REPS) is a little misleading from the name.  It has nothing to do with being a real estate agent.  Generally, most people do not qualify since it requires you to do be doing more than half your time as in real estate related activities.  So, if you have a full time job which is notionally 2000 hours a year, you'd have to being doing real estate for at least 2001 hours..

This is pretty normal.  Investors aren't always bring their Passive Allowed Losses (PAL) onto their 1040 to deduct against their regular income.  They are carried forward year over year.  Its a little often mentioned added benefit that when you sell, these "credits" help offset your gains.  So, many times you don't have to 1031.

So to your question about yearly basis, IN GENERAL, your tax liability should look like as if you just had to your salary.  Any actual/paper losses with your rentals will be carried over year after year as PAL.  If your rentals are positive, the PAL will be used to offset those gains so there won't be any tax liability until the PAL is used up.

Hope this helps.  Happy to chat.  good luck.

@Seana Yates While people structure partnerships anyway that they find acceptable, here are some concepts to consider:

Your "sweat equity" is great because it saves you in expenses.  The IRS just doesn't let you charge for your labour.  But,you should be getting more back in the helping to value your property.  But, if others work on your property, you should just be compensating them with payment for a job done.  

Here's the main reason why:  equity partners have an actual stake in the profitability of the venture.  Many people have wanted to partner with me, but they only want to share in the profits.  When I ask what happens if we lose money (which does happen unfortunately), they start backing off and giving me reasons why they need to be paid out anyway.  

For any investor,  your assets are at risk.  So, if somebody wants to invest with you but can't share in the losses, then they aren't really investors.

Once you start "pooling" funds, my understanding is it falls under SEC rules and regulations.  If you actually had a true partnership where everybody was involved in some shape or form, then its okay to proceed.

Hope that helps.  Happy to chat.  Good luck.

@Peyton LaBarbera

That kinda goes back to studying your market --- chicken and the egg?

As mentioned, you need to figure out how property taxes are handled.  With that info, thats very easy to calculate.

Insurance will pretty need to get your insurance carrier to provide you with some quotes.

Aside from your mortgage, that handles your PITI.

Everything else is part of the rest of your due diligence.  I think its a bit of both art and science, as well as availability.  If a property is a little more run down, it probably will need some expenditures up front.  Even with a property that seems "fine," stuff breaks down.  Maybe that 2yr washing machines decides to die --- they really don't make them like they used ...  Maybe same with the hvac...

Is that what you were asking?  Good luck.

@Chris Seveney @Jay Hinrichs In NJ, this sort of TC needs to be a licensed agent.  Well, at least if TC is going to contact anybody for paperwork.

If its in pure in-house clerical work, such as my admin looking over my file and telling me I'm missing something, that can be done by a non-licensed person.  

But, if the TC has to contact anybody for paperwork, such as the lead disclosure, it has to be a licensed agent.

For additional reference, this applies to people staffing the office.  If the unlicensed admin has to answer the phone and the caller asks anything about a property, all he/she can do is take a message and refer the caller to a licensed agent.

That's just how NJ work...

@Laura Dagenais That's kinda lot to put into one company.  Licensure, insurance, business lines, etc would be all mashed together.  Maybe some sort of "white glove" organization exists, but doubtful.

Also, it would be better to split it up for sourcing issues, just like hiring trades instead of general contractors.

For example, it took me two years to find my agent.  My "problem" is that I've outlived multiple good attorneys --- unfortunately, those are the good ones.  I've always done my own bookkeeping.  over 20yrs prepared and file my own returns, but financials became more complicated so I had to turn to an accounting firm.  I went with a large 400+ person firm that can cover anything.

Either way, the chances of one or two people having all those licenses/capabilities is pretty rare.  So, you'll be working with separate people anyway.  Lets face it, in most cases one doesn't care about the other.  No one should "care" what the realtor is doing --- it doesn't affect your accounting or legal matter.  Sure, what you do will affect those latter two, but nothing about the realtor.

Perhaps with in your setup the lawyer and accountant may need to confer, but the accountant will prepare the return according to whatever income/expenses you provide and whatever legal structure your lawyer puts together for you. Also, I've of the camp that LLC's and expecially anonymity in many situations is overrated...

And, if you are investing in FL, then you'll need realtor licensed in FL.  Your attorney, for your legal structure, will need to be FL and perhaps MA (so two attorneys anyway).  Since FL doesn't have an income tax, go with a MA accountant.  Although, that doesn't always really matter too much, for example, my accountant can all 50 states.

Hope that helps some.  Happy to chat.  Good luck.

@Wilson Pereira

https://www.biggerpockets.com/forums/48/topics/1169308-equit... if its anything like this one (this link goes to my post), better to sell...  It really depends on your numbers.  I find many people are just unwilling or unable to pay the tax, even though it can make financial sense. 

Happy to chat.  Good luck.

@Account Closed so I believe we are saying the same thing. Its whatever you want to do, right?

@Account Closed 

As an account, can you clarify when did capital gains tax rate get to 25%?

With several properties, how could he really be using sec121 within a year or two?

You don't think with several duplexes he can't take splitting up his sales over a couple of tax years to keep in a lower capital gains tax bracket?

@Account Closed Well, generally from an "investing" perspective, liquating your 401k portfolio isn't really wise. Better to keep it in the tax advantaged system as its pretty hard to get the money in there in the first place. Perhaps smartly convert it over to a Roth IRA to have tax free for the rest of your life.

I think some people invest in debt via the Roth, which is supposed to be an allowable play.

As far as a retirement portfolio...  What wouldn't be better than a Roth which is tax free, has no maintenance issues, and is "instantly" transferred to your heirs upon your death (any account names beneficiaries and is transferred on death).

As always, it comes down to what one is comfortable investing in, or having somebody else invest / manage for you, and what can you effectively make money.