All Forum Posts by: Ashish Acharya

@Debra Lyon Converting your long-term rental in Orange, TX into a short-term rental is a smart move, especially given the demand from traveling professionals and refinery workers. Set the property up with essential amenities like high-speed internet, smart locks, and washer/dryer access, and consider offering weekly or monthly discounts to attract longer stays. Use automation tools like Hospitable or PriceLabs to streamline bookings and guest communication.

From a tax perspective, STR income is generally reported on Schedule E if you're not providing hotel-like services, which avoids self-employment tax. However, if you or your spouse materially participate (e.g., 100+ hours and more than anyone else), you may qualify for the STR loophole, allowing depreciation and losses to offset W-2 or active income, even without Real Estate Professional status. Also, check local licensing, permit, and occupancy tax requirements in Orange County. With proper setup, compliance, and tax planning, your STR can become a high-performing, tax-efficient asset.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Laurie Geissler Yes, you’re correct, capital improvements such as converting the garage into a 1/1 unit can be added to your cost basis, which helps reduce the taxable long-term capital gain when you sell the property. Since you didn’t live in the home for 2 of the past 5 years, you don’t qualify for the $250K/$500K capital gains exclusion, but because you've owned it for over a year, any gain will be taxed at the long-term capital gains rate (typically 15–20% federally, plus state income tax).

Additionally, if you have claimed or were eligible to claim depreciation for the rental portion, you’ll owe 25% depreciation recapture tax on that amount. If the resulting tax liability significantly reduces your net proceeds, it may be smarter to hold the property as two rentals, benefit from ongoing cash flow, continued depreciation deductions, and possibly use a 1031 exchange in the future to defer capital gains tax entirely. A qualified real estate CPA can help you calculate your exact tax exposure and make an informed decision.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Terri P. There's no limit to how much you can deduct per rental property annually, but a $12,000 AC replacement is classified as a capital improvement, meaning it must be depreciated over 27.5 years (about $436/year), unless you qualify for Real Estate Professional (REP) status or the STR loophole, which could allow for bonus depreciation. In contrast, repairing the control board for $1,150 is fully deductible in the year paid, offering an immediate tax benefit. Financing the AC at 6.5% won't affect depreciation, but the interest is deductible as an operating expense. Paying upfront or via a loan doesn't change the capitalized amount, so a payment plan may help cash flow while still giving you interest deductions. If you're unsure whether REP or STR status applies, consult a tax advisor to maximize your write-offs.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Braeden Hilbish Yes, you can use a 1031 exchange to build a barndominium on gifted land, but only through a build-to-suit (construction) exchange, which requires a qualified intermediary (QI) to temporarily hold title and use your $100K proceeds to fund improvements.

However, the land itself doesn’t qualify since it was gifted, and only the improvements made within 180 days count toward the exchange. The barndominium must also be held for rental or business use, not as a personal residence. While this structure is complex, it could save $15K–$25K+ in capital gains tax, making it worthwhile if properly executed. Consult a 1031 exchange expert and tax advisor to ensure compliance and evaluate if the timeline and use-case make financial sense.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Zachary Wallis Using a property management company is often essential for out-of-state multifamily investing, especially if you're based in New Jersey and purchasing in another market. A good PM handles leasing, rent collection, maintenance, and tenant issues, providing a hands-off experience with local expertise. However, quality varies so be sure to interview multiple managers, check references, and review their fee structures (typically 8–10% of gross rent, plus lease-up and maintenance charges). From a tax perspective, property management fees are fully deductible on Schedule E, helping reduce your taxable rental income.

That said, using a PM can significantly reduce your material participation hours, which may make it harder to qualify for Real Estate Professional Status (REPS), a key designation if you're hoping to use real estate losses to offset W-2 or other active income. Ensure you get detailed monthly statements for clean bookkeeping and audit support, and vet your PM thoroughly before closing, as their performance directly impacts both your financial returns and your tax strategy.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Monique Kamaria Chheda Given your goals of passive investing, low risk, and limited time, the best place to start with $25K is typically in real estate debt notes, private real estate income funds, or REITs (Real Estate Investment Trusts).

• Debt Notes: You lend money to investors (like flippers or landlords) and earn fixed returns (typically 8–12%). These are secured by real estate, making them less volatile than stocks, though they do require some basic due diligence on the borrower.

• Private Real Estate Funds: These pool investor capital into diversified portfolios of income-producing real estate (like multifamily or NNN properties). They're fully passive, often offer monthly or quarterly payouts, and tend to focus on stable income. Choose funds with experienced sponsors, clear reporting, and transparent fee structures.

• Public REITs: These are the most liquid and beginner-friendly option. You can invest through a brokerage account, giving you passive exposure to real estate with lower minimums, though they move more like traditional stocks and are subject to market swings.

Since you're looking to trial the space, start with a conservative, income-focused fund or note investment. It provides passive income, steady returns, and avoids the hands-on effort required by short-term rentals or multifamily. Most importantly, consult with a real estate CPA to understand the tax-saving opportunities available through real estate investing, this can significantly boost your overall return and shape your strategy as you scale.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@John Anderson Transferring a free-and-clear rental property from your personal name to a two-member LLC can offer liability protection but may trigger certain tax and legal consequences. For federal tax purposes, there's usually no capital gains tax if no sale occurs, but if you give your family member ownership without compensation, it may count as a gift, potentially requiring a gift tax return (Form 709).

Also, some states may reassess the property for tax purposes, increasing property taxes. Additionally, your title insurance may become void or need updating after the transfer. To avoid these issues, consult a CPA to structure the transfer properly and a real estate attorney to ensure the LLC operating agreement reflects accurate ownership and contributions.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Adam Hill With $1.3M in 1031 equity and a need for hands-free investing as a non-resident, your best options are NNN (triple net) properties or DSTs (Delaware Statutory Trusts). NNNs offer predictable income (4.5%–6.5% cap rates) with tenants covering expenses, ideal if you invest in stable markets and strong-credit tenants like Walgreens or AutoZone. DSTs are fully passive, 1031-compliant fractional investments in assets like multifamily, medical, or self-storage, offering 4%–6% annual returns with zero management.

To proceed, define your risk/return profile, work with a 1031 intermediary familiar with non-resident tax rules, and target stable sectors like essential retail or healthcare. Choose DSTs for ultimate hands-off ownership, or NNNs for control and long-term income.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Glenn Smith Whether renting or flipping is better depends on your goals. Flipping can generate a quick, lump-sum profit but comes with higher risk, active involvement, and ordinary income taxes (plus self-employment tax if frequent). In contrast, renting offers steady long-term returns through cash flow, appreciation, debt paydown, and tax benefits like depreciation, with lower ongoing risk. Rentals also allow for capital gains deferral via 1031 exchanges. Flipping is best for short-term profit seekers willing to manage rehabs and market timing, while renting is ideal for building long-term wealth and passive income.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Xavier A. Malave Yes, you need to charge interest on a seller-financed deal in Texas to comply with IRS rules and avoid having imputed interest applied. For your 36-month self-storage deal, you must use at least the mid-term Applicable Federal Rate (AFR), which for May 2025 is 4.25% (monthly compounding). Charging less than the AFR may trigger IRS scrutiny, gift tax implications, or require reporting phantom income. To stay compliant, include a minimum 4.25% interest rate in your promissory note, track payments, and issue a 1099-INT if required.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.