All Forum Posts by: Basit Siddiqi

You should definitely reach out to an attorney about whether or not you should create an LLC.

If you are wealthy or have a lot of equity in your house - it may be advantageous to create an LLC. People who don't go the LLC route is for people to get adequate insurance coverage.

Just to let you know - There are no tax advantages of forming an LLC(unless you select to be taxed as an S-Corp and are looking to limit your self-employment tax exposure).

@Dalton Dellinger

Did your Attorney suggest that you reach out to a CPA about the opinion on the structure?
In Indiana - Does a C-Corp offer more liability protection than an LLC?

Normally - you do not want to hold appreciating property(such as real estate) in a C-corp.

1) If the real estate generates a loss - the loss will be stuck with the C-corp as an NOL. You will not be able to offset the loss against the income reported on your personal return.

2) If you decide to transfer the property from the C-Corp to another person or entity - the Corp will be liable to pay tax on the appreciation.

I agree that you should create a separate bank account and have all income and expenses go through there. 

Some may argue that if you have an LLC or C-corp but the property is in your name that you may not even be afforded the protection that you think you have.

Let me know if you have any questions.

If you work with a partner on a flip but only you are listed on the purchase and sales agreement - you will personally be issued a 1099-S.

This information is also reported to the IRS where they will want to see this sale reported on your return.

If you operate as a partnership or joint venture and have the purchase and sales agreement in the name of the partnership/sales agreement; the partnership will be issued the 1099-S.
The partnership will report the gain and issue the partners a "K-1" where that information is reported on you and your partner's individual tax return.

Let me know if you have any additional question

@Michael Hooper

Most closing costs are usually added to the basis of the property and depreciated over its useful life(MACRS). 

The only closing costs that I can think of that are currently deductible is accrued interest paid and prepaid property taxes...but this shouldn't be a reason to push up or push back closing.

@Bruce Mac

Hopefully people chim in and are provide you with some referrals.

If they don't and you are looking for someone local

1) create a keyword alert for "California" and/or "San Francisco" and look for people who respond to posts that have these keywords. These are likely the bigplayers in the city and have a large network. Network with these professionals and ask them who they use for a CPA.

2) Attend local REIA events and network with the professionals here and ask them who they use for a CPA.

If you are still unable to find a local CPA; you may want to open up your search and look for a CPA who works with clients remotely. There are a lot of members on BP who do this.

For the time being - Do you have any questions?
Alot of california residents, especially San francisco residents, look for out of state investment deals because it is difficult to find deals in CA. If you do go on this road - you may need to file a CA resident return and a non-resident return in the state that you invest in.

@Ceasar Rosas

Hey Ceasar - I am a CPA living in NY who invests in PA. Let me know if you have any specific tax questions.

Just so you are aware

PA does not follow the federal guidelines for 1031 exchanges(does't apply in your case if you are flipping but i thought i'd let you know if you were thinking of alternative exit opportunities).
Also PA does not recognize NOL's at the state level for individuals. Hopefully you don't run across any losing flips...but if you do; you should look into offsetting it with a flip with a gain so you dont lose out on that loss.

Money that you put into an LLC is considered a contribution(or possibly a loan if there a loan agreement for the LLC to pay you back).

Money that you take out of an LLC is considered a distribution.
Distributions are not taxable income unless they exceed your basis.

If your money market account is paying you interest; you will be responsible for reporting the interest income.

LLC is moreso an asset-protection vehicle.

Operating a business through an LLC or personally in your name will not result in a better tax position.

@James Letchford
The investment vehicle that is created may need to withhold on the foreign investors.
You may need to see a tax treaty between the United States and Australia for the specific withholding rates.

Investing in Real estate is considered effectively connected income. The foreign investors may need to file a US tax return. Filing of the US tax return will allow the investors to get back any withholding(if any was withheld).

@Arthur Voskanyan

The net rental income(gross rents minus expenses(including depreciation)) will be taxed on whatever tax bracket you fall into.

Rental income is not subject to self-employment tax.