All Forum Posts by: Basit Siddiqi

@Arthur Voskanyan

Hi Arthur - I think it easier to think of it this way

You are paying Income tax on the difference between the selling price and the adjusted basis of the investment property you are selling. However, the income tax you will be paying is capped at the Capital gains rate and/or the depreciation recapture rate.

At the federal level the capital gains rate is 0%, 15% or 20% depending on your income tax bracket

The depreciation recapture rate is 25%

the $250,000 exclusion applies to your personal residence.

paying down a loan or mortgage is not an expense(business or personal). you are simply decreasing your liability from X to Y.

https://www.hrblock.com/tax-software/ is the website that describes the difference between basic and premium.

It mentions Premium has the following that Basic does not

Reporting assistance on income from investments, stock options, home sales and retirement

Guidance on maximizing mortgage interest and real estate tax deductions

One personal state program download included — a $39.95 value. Scroll to bottom of page.

Tax calculators to help determine the cost basis of a home sale, dividend, gift, and inheritance assets

Advanced Schedule C guidance to maximize deductions for self-employment income

considering you live in a state with no income tax - you won't benefit from the state program offered unless you invest out of state.

I suppose you can try it once and if you don't like it you can go back to the basic version.

@Sam Zes

Hi Sam - 

Being in the St. Louis area is a gem because you have an option of many cash flowing properties.

Hopefully people chime into this post and are able to give you some recommendations.

However, i'd recommend the following if no one chimes in

1) add the words "St. Louis" & "St. Charles" to your keyword alert. Visit the posts with these keywords and notice who the frequent posters are. Network with them and ask them who they use as their CPA.

2) an alternative is to attend REIA's(which it seems like you are doing from your first post). Network with a fellow investor and ask them who they use for their CPA.

If you are still unable to find a quality CPA to meet your needs; you may need to broaden your search to look for someone who works remotely. I along with others on this website work with people remotely.

Did you have any tax questions?
Just an FYI - creating an LLC does not create access to additional tax savings that you wouldn't be able to achieve with owning real estate personally.

It seemed liked you had an interest in acquiring RE through wholesalers a couple months ago. Have you brought property from a wholesaler yet?

Congrats on the home purchase!

Are you using a conventional(Fannie Mae/Freddie Mac) mortgage to acquire the home? If this is the case - They will likely want you to close on the home in your personal name.

If you are buying using a portfolio loan or all cash - you may have the option of purchasing it through an LLC. If you purchase it through an LLC - there may be some asset protection(consult an attorney).

Creating an LLC does not afford you any additional tax savings than if you owned it outright. Therefore; if i were to pick out of the 2; i would go with real estate attorney.

Let me know if you have any other questions.

@Bobby Davis

I am surprised no one chimed in and gave you a recommendation.

I would recommend the following if you are looking for a local CPA.

1) put a keyword alert for "Texas" and "San Marcos" and you will notice that a lot of frequent posters with those keywords in the alerts. Connect with them on bigger pockets and see who they use for a CPA.

2) Attend local REI events or biggerpockets local events. Network with the people that attend and ask who they use for a CPA.

If you are still not able to find a CPA that you connect with - you may need to connect with a CPA who works with clients remotely. There are CPA's all over BP who do this.

For the time being - did you have any tax questions/concerns? Flipping generates ordinary income. There are some tax savings opportunities with flipping.

I see you are an accountant - do you do audit work or fund accounting?

What was the purpose of forming the LLC in Utah?

Does the LLC have property or do business in Utah?

If you have your Utah LLC apply as a foreign LLC in California - you will still likely be paying annual Utah LLC fees with the secretary of state. You may also be paying for a Utah registered agent. 

If the LLC is not doing business in Utah - you may want to consider dissolving the LLC and just creating a new entity in California.

Welcome to Biggerpockets!

it seems you have a lot of ambitions!

I would say as you start off; focus on one item; whether it be flipping, tax lien certificates, foreclosures, etc. Each is a beast in its own right. Become an expert in one and then move on to the others.

@Rachid B.

there are some exceptions to the 2 out of 5 year rule that allows you to get a partial exclusion.

Work-related move

Health-related move

Unforeseeable events such as family death, multiple baby births, etc that caused you to move?

See publication https://www.irs.gov/pub/irs-pdf/p523.pdf page 5 for more details on exceptions.

Does any of the above apply?

@Erin W.
From a tax perspective - As a California resident - you are taxed on "worldwide income" meaning you have to report every income you earned to CA and pay tax on it.
This can include W-2 wages earned through your employer, real estate investments in CA and even real estate investments out of state such as Texas.

Normally - to offset the potential double taxation - California will give you a credit for taxes paid to another state. However, in this case, Texas does not have an income tax. Therefore; California does not have to give you a credit.

Let's look at an example of two people investing in real estate in Texas; A california resident and a texas resident

rental income of $10,000

Both will pay federal tax on the $10,000
California resident will pay state income tax on the $10,000
Texas resident will not pay state income tax on the $10,000

with that said - as a california resident - you will pay taxes on all income earned everywhere(regardless of what state)- so just compare investment on a case by case basis.