All Forum Posts by: Basit Siddiqi

@Scott Michael Welcome to Bigger Pockets!

1) You do not need to create an entity to start a business or to start claiming expenses/losses.

2) you can buy deals through an entity or in your personal name. There are pros/cons to each
buying in your personal name allows you to get a conventional mortgage which allows excellent rates.
Buying through an entity requires you to get a portfolio loan/commercial loan where terms may be shorter and rates slightly higher compared to conventional loans.
Entities can provide some liability protection(contact a lawyer on what they are). However, buying in a personal name can also provide some liability protection(contact a lawyer on what they are) if you have insurance.

3) if you guys plant to acquire the properties using financing - You guys should communicate with multiple lenders and tell them your situation and see if they will lend to you. If your brother has cash but no income can cause issues and they may not lend to you.

California does have a $800 fee for LP's and LLC's doing business in California. So please keep that in mind when forming the entity.

If you guys decide to do a buy and hold strategy - some type of partnership vehicle will work(GP, LP, LLC with a lot of people opting for the LLC)
Fix and flips + wholesaling will likely want to be done in an s-corp if you expect to generate a decent amount of ordinary income.

@Chris E.
was the title in your name? or did it also include your fiance?
I read your other posting that this sale is a fix&flip. 

Make sure to include all receipts related to fixing the property.
also tally up driving to and from the property, including to reach out to any contractors.
Also any fees paid to the lawyer to draft up the contract.

All should be able to be added to the basis of the property when calculating the gain

Congrats on the fix&flip!
Good luck on the next one!

@Corwin Hernandez 
Opening a solo 401k is great because it provides you flexibility in what you want your retirement account to invest in.

Furthermore; depending on the financial institution you choose to go to - you may also have lending abilities.

Please be mindful that opening up a solo 401k can have a 1 time set up fee with an annual fee.

I got lost about what you wanted to do with the solo 401k.
it appears that you wanted to move money from your employer 401k to the solo 401k. Employer 401k's usually do not allow you to move money out of it until you leave the employer.

I am not 100% sure of this - but I think you can only make contributions to a solo 401k with income earned through a business(outside of income earned through your employer). Also contributions to to all 401k's(solo and work) can't exceed the annual IRS limitations.

Please let me know if you have any tax questions!

Hi @Kevin Driggers
1) regardless if you hold the real estate in your personal name or in the name of a business. you should have a separate bank account for personal use and a bank account for each rental property.
This makes recordkeeping much easier and support to the IRS in the case you get audited. 

2) If you decide to create an entity - you may or may not be required to obtain an EIN. 
If you create a single member LLC with your only intent is to hold real estate and no plans of having employees, 401K among other things; you may not need an EIN.

Hi Corwin - Does your employer allow you to take loans against the 401k?

A couple of months ago I took a loan of $15,000 against my 401K to use as a down-payment on my first rental property.

IRS allows employers to adopt a policy of plan participants to take out the lesser of 50,000 or 1/2 your vested balance. It is up-to your employer to write it into the 401K plan policy.

There are downsides to taking a loan against your 401k such as the portion that you loan against doesn't grow tax-deferred free(technically it does a little since you'll likely paying yourself around 1% as interest to your 401K)

@Christopher Ward
When you mention you never itemized deduction and always took the standard deduction. Have you done a comparison to see if your itemized deduction was larger than your standard deduction?

Based on your profile - you are married and your standard deduction for 2016 is $12,600.
considering you have a home - you are entitled to claim the real estate taxes as an itemized deduction.
Texas residents are screwed because they are limited in taking any state taxes as an itemized deduction(because TX doesn't have a state tax)(unless you worked in another state and paid state taxes to another state).
However, what a lot of people don't know is that they are able to claim a deduction for sales tax(which is calculated by the IRS based on your income, zip code that you live in and the amount of exemptions you claim).

Others are well known, charity, medical expenses, employee expenses, mortgage interest(doesn't seem like you have this since you own it clear).

I like your strategy to acquire a HELOC as a downpayment on any investment you plan to acquire.

You can find great agents, management companies, contractors by first networking with some local BP members and ask who they use. Have you networked with anyone on the site yet?

HI Krizelle - Welcome to BP!

Does the other couple have tax experience? If they do not have experience - why do you have an interest in partnering with them? The only reason I ask is because I see a lot of headache for 4 people with limited real estate experience starting an LLC to acquire real estate.
who would take the lead? if there is an issue and you have to evict the tenant, who will find the attorney to evict them; will you have to get unanimous decision among everyone to get anything done?

Did you ask your CPA the question about starting an LLC for tax purposes?
an LLC and a regular partnership are taxed the same way(assuming you didn't elect the LLC to be taxed as a corporation)(LLC and partnership will file a different state tax form 565 vs 568. However, that shouldn't be an issue considering you guys likely wont hit the receipts required to pay any additional llc fees on form 568) .
I am curious on the reason for his answer.

Have you guys decided what area you plan to invest in?

If it is in regards to collection/audit - an EA/CPA will suffice.

The only time I see CPA's/EA's reach out to Tax Attorney's in relation to tax compliance is when that person failed to report foreign assets to the IRS and wants to enter the voluntary disclosure program
I hope the latter is not the case.

Are you trying to depict a balance sheet or income statement?

Net Worth Statement                                                     Fair Market Value
Cash                                                                                       $10,000
Investments                                                                          $20,000
Real Estate(original purchase of 95,000)                         $145,000
Total Assets                                                                          $175,000

Liabilities  
Mortgage                                                                                $108,750

Equity 
Equity                                                                                         $66,250

if you are trying to do an income statement

Statement of income & expenditures
Gross rent(A)                                                                               $10,000
Expenses(B)                                                                                 $5,000
Taxable income (A-B)                                                                 $5000
Unrealized gain on assets(C)                                                    $5,000
Book Income A-B+C                                                                    $10,000

looks simple and easy to read/understand

Hi Rego - 

I own properties in Allentown, PA and I decided to self-manage for the same reasons you gave.

I read the yelp/google reviews for the property management companies(keystone included) and the reviews were not nice.

Please keep me updated on who you decide to use.