All Forum Posts by: Bob Norton

@John Cox You will not get any huge write-offs by purchasing a rental property this close to the end of the year.  However, if the property is rent-ready and you immediately advertise it for rent, or it already has a tenant, you will be able to deduct some of the costs you pay at closing as rental expense this year.  If your earned income is above $150k, then any rental losses will be suspended and carried forward to the next year, in which case hurrying to purchase a property by the end of the year will not affect your taxes.

@Lara Gonzalez You shouldn't have to wait for the IRS to send you your refund from your amended return to apply for a new loan.  You can just give them a copy of your amended return.  The bank will request that you sign a transcript request form and the bank can request the transcripts later.

@Derek Askew I agree. I buy houses based on numbers that work for me.  If the wholesaler I'm buying the property from is making an unconscionable profit, that's okay with me.  I do run into a lot of wholesalers who mark up their contracts too much that the numbers won't work.  This tells me that they are newbies, bad negotiators, or they think they have a deal when they really have a dud.  That doesn't bother me either.  I just say, "No, do you have anything else?"

@Nick Seav Sounds like you need a CPA with an entrepreneurial mindset.  I recommend that you contact several of CPAs on this forum and interview them to find the mindset that you want in a CPA.

@Eamonn McElroy Thanks!

@Shannon Kiefhaber Generally, you cannot get property out of a corporation (or S-Corp or LLC taxed as S-Corp) without paying capital gains tax (and depreciation recapture), as the transfer is considered a deemed sale. The inversion you describe sounds like the properties will still be trapped in an S-Corp structure, so no benefits of having them in an LLC.

By the way, the major benefit of having real estate in an LLC is that you get to include mortgage debt as part of your investment basis, which means that rental losses are not limited by your investment in the company. Your rental losses can be limited by other circumstance, however.

Since the portfolio has been in your family a while, the basis issue may not be a problem for you.

After saying this, I'm sure your tax advisors are aware of these issues and have planned accordingly.  Also, there may be other issues they are trying to resolve that is more important to the family, than just the taxes.

@Erez Friedlander @Polo Vazquez The tax issues are generally the same with a partnership LLC with a friend as partner or a spouse as partner. There are two structural items to consider.

The first is that if you reside in a community property state in the USA, which treats properties owned jointly by spouses as being a single owner (simplified explanation!), then the IRS allows you and your spouse to elect to file the LLC as disregarded on your personal tax return or as a partnership with a separate tax return.

The second issue is that the partners can agree how to split up profits in a way that differs from their respective percentage of ownership. This would be defined in the LLC's operating agreement (which you should definitely have for multi-member LLCs). For example, if one member provides financing and the other member manages the property and does not invest any funds, then the members may decide to split up the income so that in years with losses, the losses are allocated 100% to the financing member, and in years with profits, the income is allocated 50/50 (or whatever the ownership percentages are.)

I hope this helps.

@Nicole Sugrue You and your siblings should simply gift your parents the funds to make the mortgage payment each month.  The tax-free gift limit is $15,000 per person.  So, you and your two siblings collectively could gift each of your parents up to $45,000 (which works out to $90,000 = 3 x 2 $15,000) in a year to cover their mortgage payments.  If you and your siblings are married, then your spouses can add another $90,000 per year.  I'm assuming that the annual mortgage payments are less than these amounts.

And, if you do this, then when your parents pass away, you and your siblings will inherit the house and your basis in the house increases to the fair market value.  If you assume the mortgage, then the bank will want you on title and may result in your "purchasing" the property for the amount of the debt.  So, if you decide to sell it in future years, you will have a serious capital gain.

Talk to a tax advisor, as well as an attorney, before deciding to do anything with the loan.

@Dusty Laurin As long as you do not run your AirBNB as a hotel, which means that you provide services like daily cleanings and food service (like a Bed & Breakfast), then your AirBNB is treated as a rental property just like a long-term rental.

As @Michael Plaks mentioned, there are quite a few good real estate accountants on this forum.  And we all service clients in multiple states.  I recommend that you check out the posts of several of the accountants on this forum and interview them via Zoom to find one that seems to be a fit for you.  

@Maqsood Alam However you describe the situation, you have an investment in either another company, a property, or a note receivable.  All of these are assets to you and not deductible as an expense until you sell the investment as a loss.  And, in which case, it would be a capital loss and limited to a deduction of $3k per year if you only have W-2 income.