All Forum Posts by: Brandon Hall

@Steven Hamilton II hence the reference to the TPR applicability...

I've requested an amendment to the BP article. Thanks for pointing that out everyone!

Sorry, the cite I have is Malmstedt v. Comm’r., 578 F.2d 520 (4th Cir. 1978) which deals with deducting expansion costs as ordinary expenses when one's activity rises to the level of a trade or business. I misinterpreted the case when I read it a couple years ago and wrote that article. 

The deductibility of repairs will largely depend on the Tangible Property Regs and your placed in service date.

You can likely deduct some of the costs as repairs but I’m assuming most would be capitalized. It also depends on the asset’s places in service date.

Though I’m not sure why your CPA is deducting anything over 10 years. If you capitalize, you’re looking at a 5, 7, 15, or 27.5 year useful life for residential real estate.

If no business was conducted, you may not have a filing liability. Otherwise the quote seems reasonable. We’d probably charge $800. CA stinks for entities.

If related to rentals, Sch E Line 19 - Other Expenses.

@Alan Feldman it's new as of the 2018 tax code changes. You have 180 days to apply sale proceeds to an OFund. @Thomas Castelli is our resident expert. 

If a second person is on an LLC it is considered a multi-member LLC and is taxed as a partnership.

In community property states, you can treat a multi-member LLC, where the only members are a husband and wife, as a single member LLC for tax purposes.

@Thomas Castelli

There are plenty of advantages to claiming the real estate professional status. One such advantage is that, assuming you also materially participated in your rental activity, you can take an unlimited amount of passive losses.

There can also be disadvantages. The biggest mistake we see is that RE Pros keep really shabby time records which allows the IRS to throw out the election under audit. So a disadvantage is an increased admin workload.

If you claim RE Pro, you should go ahead and file a Form 1099 for any contractor you paid over $600 during the year. Claiming RE Pro does not necessarily mean your business will rise to level of trade or business, which would require you to file Form 1099s, but it can’t hurt to be safe.

I do want to warn you that RE Pro is a confusing piece of the tax code. I highly recommend that you do not file your taxes and use this strategy without consulting a CPA. There are many areas where you can make mistakes that will lead to costly penalties if you’re not careful.

@Patrick Sears no, I believe @Ashish Acharya 's #2 statement is incorrect. 

You only eliminate gains on gain proceeds you invest, including holding for 10 years. If you invest "fresh" funds, you will not receive any benefit. 

Link to the code: https://www.law.cornell.edu/uscode/text/26/1400Z-2

Code Language:

IRC Sect. 1400-2(c) In the case of any investment held by the taxpayer for at least 10 years and with respect to which the taxpayer makes an election under this clause, the basis of such property shall be equal to the fair market value of such investment on the date that the investment is sold or exchanged.

This often confuses people and they think that any investment qualifies for the 10-year exclusion. But if you scroll down a bit, you'll see that's incorrect due to an exception:

IRC Sect. 1400-2(e)(1) In the case of any investment in a qualified opportunity fund only a portion of which consists of investments of gain to which an election under subsection (a) is in effect—

   (A) such investment shall be treated as 2 separate investments, consisting of—

      (i) one investment that only includes amounts to which the election under subsection (a) applies, and

      (ii) a separate investment consisting of other amounts, and

   (B) subsections (a), (b), and (c) shall only apply to the investment described in subparagraph (A)(i).

The (B) subsection is the killer. It says that subsection (c), which is the first section I posted above that allows any investment to qualify, only qualifies if it related to the investment described in subparagraph (A)(i). And subparagraph (A)(i) describes the portion of the investment that is only attributed to gains. 

Hope this helps.