All Forum Posts by: Bob Norton

The advantage of the Opportunity Zone is to have a tax-free gain in 10+ years, including depreciation recapture.  While you rent the property, you still get to deduct depreciation, and it's taxed as a regular rental property.  When you sell it after 10 years, then you get a step up in basis to the sale price and pay no taxes on your capital gain.

Everyone seems so focused on the capital gain deferment for investing in an Opportunity Zone.  You get to defer taxes until 2026 and possibly get an exemption for a small amount of that gain.  However, you will still have to keep your investment in the Opportunity Zone to get the tax-free gain treatment when you sell the property.  So, you will owe taxes on your deferred gain without having cash to pay it.  Plus, tax rates are scheduled to go back up in 2026 under the current law.  You might save taxes now with the deferment only to find out that you will pay a higher tax rate later.  Make sure you do this analysis first.

@Eduardo Alfaro I don't recommend doing that.  First, you cannot deduct a loss from a self-rental.  Second, you may lose any homestead exemption.  Third, if you sell the property, then you may not be able to take advantage of the tax-free gain exclusion of Sec 121.

@Jacob Nawrocki I recommend going with the 30yr mortgages.  You can always increase your principal payments to shorten the term on your loan.  You cannot reduce your mortgage payments if you need to pay less for some reason.

@Brett Murdock You have to run the numbers.  The 1% rule indicates that the property is worth looking at in most markets.  In the Hattiesburg area, you should be able to find houses that rent for higher than that.  I have clients in that area renting for more than 1% of property value.  

@Andy Lanyi Basis is your investment in the property. The fees charged by the title company for purchasing a property is added to your cost of the property, then you allocate the property cost between land and improvements, and then depreciate the improvements for 27.5 years for an SFR.

@Ron S. Interesting. No wonder so many states are in financial trouble.

@Michael Monroe  Good luck!  Any plan is better than no plan.  Your first goal should be to purchase your first home.  If you can find a duplex or triplex for house hacking, then you will learn property management from that.  You shouldn't worry about paying yourselves "rent".  The banks will ignore that anyway and you don't want a tax preparer to count that as taxable income.

I recommend attending real estate investor association meetings to meet as many investors as you can so that you can ask questions and learn from them.

@Troy DeLong There weren't significant changes to the tax code regarding real estate investing with the 2018 tax law for most investors.  Congress added Opportunity Zones and changed how Historic Tax Credits can be taken.

@Benjamin Misner You should get a new policy and name the mortgage company as an additional insured on the policy.  If you keep the existing policy and have a claim on it, then the insurance company will deny the claim since the original homeowner sold the property.  You will need a dwelling policy if you plan to lease it.  The person leasing it from you does not have to get insurance for the house, but may want to get renters insurance.  If they exercise their option to purchase the house from you, then they will need to get a homeowner's policy.

@Marc Estepa You can deduct any expense for running your rental business that is customary and necessary.  The expenses you mentioned (laptop, software, desk, dedicated cell phone, etc.) appear to all be acceptable business expenses.  There are no limits to the number of visits to your rental properties that you can deduct.  However, there must be a business purpose for the deduction.  Make sure you document each trip as to why it was necessary for you to visit your property, in case you get audited.  You can deduct a portion of your home expenses as a home office for your rental business. The office space needs to be a space used exclusively for your office, so you should remove any non-business items from the room.