All Forum Posts by: Basit Siddiqi

House hacking makes your tax situation more complex.
You purchased a property that is treated as both an investment property and a personal residence. As such, payments that you make need to be prorated between business deductions and personal deductions.

Payments that you make normally fall into one of 3 buckets
100% of the payment can be factored in somewhere on the return
Partial payment can be factored somewhere on the return
0% of the payment can be factored in somewhere on the return

House-hacking also has considerable tax implications in the event that you want to sell this property.

You can potentially defer a portion or all of the gain on the investment property with 1031 exclusion.
You can potentially exclude a portion or all of the gain on the personal residence with section 121 exclusion.

You should have had a conversation with an accountant prior to going ahead with the cost segregation study.

A cost segregation study breaks down a building to more components than just building and land. I.E. fencing, floating floors, etc.

The cost segregation study will accelerate the depreciation into earlier years. The question is will you benefit.

If you already paid for the study, you might as well apply it to to the return.

The next question is whether your accountant is properly applying it.

You may want to consider working with a CPA who specializes in real estate taxation.

You have to report all other types of income to WV besides Wages and Salaries.
Therefore, yes, you would report the WV Rental income to WV.

The good thing about the house
Good monthly cash flow
Good interest rate

If its a headache property, I would sell
If it doesn't have much maintenance and you have good tenants, I would keep it.

If you do decide to sell, you have about $200,000 of equity which you can buy 2-4 houses with when the market is more favorable.

Do they have other sources of income for retirement?(Social security, pension, 401k, etc)

It is hard to retire on $350,000 of net worth.

Even if that is generating 10% cash flow, you are talking maybe $35,000 which is $17,500 for each person.

I personally like the idea of seller financing a home at that point, potentially exclude the gain on sale if it was their personal residence and get a nice interest return.
If the house is big, it also allows them to downsize the home when they look for something to rent.

If your current accountant is not a specialist in real estate taxation, you should look for one who is.

Next time, you should also get a consultation to see if the cost segregation study will be helpful before proceeding with the purchase. The worst thing is to pay for a service where you don't get a benefit.

If you have STR's and actively manage them, then there is a good chance that you can treat the propreties as active instead of passive which will allow you to offset the losses with other forms of income such as wages, interest, dividends, gains, etc.

There are two requirements to claim REP status

1) 750 Hours
2) You spend more time on real estate than other activities such as your W-2 Job or Business

You want to work with a tax professional who will be able to advise you on what hours count and what hours do not count.

Furthermore, the CPA may have a nice worksheet that you can use to help you document your hours.

Best of luck!

Be mindful that there are rules that the lenders want you to check off.
Furthermore, there are other rules on the tax side where you want to normally be under to get the most tax benefits.

The magic number in both instances is '14 days'
Lenders want you to stay atleast 14 days to meet the secondary home requirement.

The tax accountant normally wants you to stay less than 14 days or 10% of the days it was used as a rental to treat it as a rental and not as a personal residence.

Best of luck!

If you have a STR where you actively manage the property, it may be possible to potentially treat the property as active as opposed to passive(Many people often call this the STR Loophole).

If that is the case, a cost segregation on the property plus alot of the furnishings can be depreciated using bonus depreciation to wipe out other income such as wages, interest, dividends, etc.

You mentioned buying a MTR condo.

Is your income below $150,000 or are you able to claim real estate professional status?

Have a conversation with a CPA to see if you will benefit from the cost segregation before getting it done.