All Forum Posts by: Ashish Acharya

@Cathy Ries Yes, combining tech contract work and real estate investing under an LLC or S Corp can offer financial and tax advantages, especially if you're shifting away from W-2 work to create more flexibility.
Here’s how it breaks down:

• LLC or S Corp for Tech Contracting:
  If you're doing 1099 or Corp-to-Corp (C2C) work, forming an LLC taxed as an S Corp can reduce self-employment taxes by allowing you to take part of your income as a distribution rather than wages. You also gain access to more business deductions—home office, equipment, travel, insurance, etc.—which are not available as a W-2 employee.
• Real Estate Under the Same LLC?
  It’s generally not recommended to mix active income (tech contracting) with passive activities (real estate investing) in the same LLC due to liability and tax treatment differences. Instead, set up separate LLCs—one for your contract work and another for real estate—keeping income streams and deductions clearly separated.
• Time Flexibility for Real Estate:
  Contract work often allows for better time control, making it easier to pursue deals, manage properties, or scale a portfolio—especially if you aim for real estate professional status (REPS), which unlocks the ability to deduct rental losses against active income (only possible with sufficient hours and material participation).

Switching from W-2 to 1099 can unlock major tax planning opportunities, but only if structured properly. Let us know if you'd like help setting up your LLCs and building a tax-efficient strategy around both income streams.

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.

@Will Stewart Buying a property near Auburn can be a smart house hacking strategy, but tax implications matter. If you rent out rooms, you can claim rental deductions like mortgage interest, property taxes, and depreciation over 27.5 years, reducing taxable income. If it stays a rental, a 1031 exchange can defer capital gains tax when reinvesting.

if you use HELOC, Interest is only deductible if used for property improvements, not a down payment. Renting by the room can boost cash flow, but check local rental laws.

If structured correctly, this can cover housing costs while building equity. A real estate CPA can help you maximize tax benefits and avoid pitfalls.

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.

@Barret Davidson You're in a strong position to get started—partnering with a contractor in a lower-cost market like Chattanooga gives you both leverage and local expertise. Forming an LLC with a clear operating agreement is highly recommended since you're combining capital, splitting profits, and one of you is contributing labor. The agreement should clearly define roles, equity splits, how your brother will be compensated, and how key decisions will be made.

Since you’re planning to flip and eventually hold rentals, it’s important to keep these activities legally and financially separate. The best structure is to form two separate entities:

• One LLC for flipping, where income is treated as active (ordinary) income,
• Another LLC for buy-and-hold rentals, which generates passive income and offers long-term tax benefits like depreciation and potential 1031 exchanges.

This separation helps optimize your tax strategy, simplifies accounting, and provides better liability protection. Also, note that 1031 exchanges generally don’t apply to flips, since they're considered inventory, not investment property.

Tennessee has no state income tax on wages or rental profits, but does tax interest and dividends—so it's still wise to check with a CPA for state-specific guidance. For out-of-state investing, having accurate bookkeeping, a clear entity structure, and a tax advisor familiar with multi-state rules is key to long-term success.

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.

@Denise B. In a 1031 exchange, the taxpayer selling must be the same as the one buying, so if the relinquished properties are titled separately—one in your name and one in your husband's—you can’t simply acquire the replacement property jointly without risking disqualification. To stay compliant, you each should do a separate exchange and title the replacement property accordingly, then consider retitling jointly after a safe period (typically two years). Alternatively, setting up a joint entity beforehand could work, but must be done carefully. Work closely with a qualified intermediary and CPA to structure it properly and preserve tax deferral.

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.

@Gp G. A 1031 exchange could offer significant tax savings, but it depends on your full tax picture and future plans. Based on your numbers, if you sell for $350K with an original purchase price of $140K and around $180K in improvements (30K × 6 years), your adjusted basis is around $320K (assuming all repairs were capitalized, not deducted). That puts your estimated gain at about $30K, not including depreciation recapture, which could add more taxable income.
If most of the $180K in repair costs were expensed annually (not capitalized), your gain could be closer to $200K or more, and you'd face:

• Federal capital gains tax (up to 20%)
• Depreciation recapture tax (25%)
• State taxes, depending on where the property is located

A 1031 exchange allows you to defer these taxes entirely by rolling the proceeds into another investment property. This preserves your capital and gives you more buying power for your next deal. However, it won’t wipe out your credit card debt or mortgage—you’ll still need to structure the exchange carefully to avoid boot (taxable cash out).

If your goal is to reinvest and continue building wealth through real estate, a 1031 is likely worth it. If you want to cash out, pay off debt, and exit the market, then paying the taxes may be more straightforward. A side-by-side tax estimate from a CPA would clarify the real savings, but for larger gains, 1031s are usually very worthwhile.

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.

@Sweta Jain Since the depreciation was calculated incorrectly by swapping the land and building values, this qualifies as a change in accounting method, not just a simple error. In this case, filing Form 3115 is the correct approach. The IRS allows you to fix depreciation mistakes prospectively using this form under Revenue Procedure 2015-13, without needing to amend prior returns. This will trigger a Section 481(a) adjustment, which accounts for the over-depreciation in prior years and corrects the depreciation going forward. While this won’t impact your taxable income from prior years, it can affect your passive loss carryforwards, so it’s important to recalculate them correctly. Work with a tax professional experienced in real estate to file Form 3115 accurately and avoid further issues.

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.

@Jon Thomson In a fix-and-flip LLC taxed as a sole proprietorship or partnership, the $40k from your HELOC is considered a loan used to fund project expenses, not income—and it's not directly deductible just because it's borrowed. What matters for tax purposes is how the funds are spent, not where they came from.

If that $40k was used for property improvements, those costs should be capitalized into your basis in the property. So instead of a $100k cost basis (purchase only), your adjusted basis becomes $140k (purchase + improvements). When you sell for $200k, your taxable gain would be $60k—not $100k. That gain is taxed at ordinary income tax rates, not capital gains, because flips are treated as inventory, not investments.

So no, you're not taxed on loan proceeds. You're taxed on net profit, which already accounts for improvement costs—regardless of how you funded them. Just be sure all improvement expenses are properly tracked and included in the property's basis.

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.

@Nate Pucel You can’t deduct the property taxes and insurance paid from 2020–2023 on your 2024 return since the property wasn’t in service; instead, those costs should be capitalized into your cost basis and depreciated over time starting in 2024. Rental losses are considered passive and generally can’t offset capital gains from stocks unless your AGI is under $100K and you qualify for the $25K active participation allowance. If eligible, you may be able to use part of the rental loss to offset your stock gains. For your second property, since it’s not yet rent-ready, expenses like insurance and taxes should also be capitalized and not deducted until the property is placed in service. Be sure to accurately track and categorize expenses, and consider working with a CPA to ensure proper treatment and maximize deductions.

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.

@Kwok Wong Using yourself as the registered agent is fine legally, but it makes your personal info public. If you prefer privacy or travel often, hiring a professional registered agent and filing a "Change of Registered Agent" is a smart move. For out-of-state properties, it's best to form an LLC in the state where the property is located rather than using Wyoming, Nevada, or Delaware—those states don't offer tax benefits unless you operate there, and you'd still need to register as a foreign LLC in the property's state, adding cost and complexity. If you create new LLCs in other states, there's no requirement to link them to your Hawaii LLC unless you're building a holding company structure, in which case ownership and tax flow need to be properly documented. Always align your entity structure with your investing strategy and consult your CPA to ensure tax efficiency and legal compliance.

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.

@Tom Child Since it's been over two years since your 1031 exchange, you're generally beyond the IRS's close scrutiny period, but to avoid triggering capital gains tax, the new entity must be treated as the same taxpayer. Transferring the property to a disregarded entity—like a single-member LLC or revocable trust with identical ownership—typically won't violate 1031 rules if no consideration (money or debt) changes hands. The IRS doesn't require a specific form, but you should fully document the transfer with an updated deed, operating agreement, and internal records showing no change in beneficial ownership. Avoid transferring to multi-member entities or partnerships unless ownership remains identical and compliant with the "same taxpayer" rule. A real estate CPA or attorney can help ensure the transfer is properly executed and tax-deferred status is preserved.

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.