All Forum Posts by: Bob Norton

@Ebuka Atueyi You should discuss this with a CPA in your area. Your choice of entity depends upon where you are located and what type of business you are in. Both a corporation and an LLC provides liability protection as long as you operate them as separate entities from yourself and follow your state's rules for maintaining limited liability status. Typically, its a good idea to setup an LLC which gives you the most options for the future. LLCs are pass-through entities, so you only pay tax once on net income. If you buy and hold rentals, then you will want to keep them in LLCs taxed as a sole proprietor or partnership. If you wholesale or flip properties, then you can elect to be taxed as an S-Corp once your LLC begins generating net income greater than what would be considered a reasonable salary for your area (discuss with your CPA). If you setup a corporation, instead of an LLC, then you may want to elect S-Corp status so that the corporations income will pass-through to you and you will avoid corporate income tax. This is a very simplified explanation of your options and you should discuss this with a CPA in your area and come up with a plan specific to your situation and goals.

@Daniel Wolz That's a good question for your attorney. It sounds like you are conducting business in a prudent manner to protect the limited liability status of your LLC. As for depositing rent checks into your personal account, and then transferring those funds to your LLC once you discovered the error, I think that shows that you are intending to maintain separation between yourself and your LLC. The issue that I see with your structure, is that you have more than one property in the same LLC. So, if someone gets hurt on one of your properties and sues you, then your other properties may be at risk. You could consider moving each property into its own LLC. I am assuming that you have adequate insurance to protect you, but separating the properties adds another layer of protection of liability.

@Pollyanna Gomez Purchase the owner's title insurance.  It doesn't cost that much and protects you in case something pops up in the public record that involves your property that the title company did not catch.

@Michelle Schrader Use the BARRRR method and put a For Rent sign in the yard.  You will be able to deduct operating expenses for this year, if your rental is habitable by mid-December as you mentioned.  You might actually find a tenant earlier than you mentioned and can decide whether or not to speed up the rehab.

@Mansi Mehta Whether or not you must capitalize rehab expenses depends upon when you place your rental property in service.  Any expenses you incur before your place the property in service as a rental must be capitalized and depreciated over its useful life.  That's 27.5 years for most rehab expenses.  Appliances and other similar equipment have shorter useful lives and may be expensed under Sec 179 for the year they are placed in service.  If your property is available for rent (ie. "in service"), then you must capitalize any rehab expenses greater than $2,500 (per invoice). Some expenses, like painting, can be expensed as maintenance, as long as this expense is invoiced separately.  You should discuss this with your CPA to make sure you are maximizing your deductions under the IRS rules.

@Dorys Prentice Depending upon how it is structured, a joint venture could be considered a partnership that requires a tax return for Federal tax purposes.  Some people call an arrangement a joint venture, but the arrangement is really more like a prime-subprime contractor arrangement where one party (the prime) recognizes all the revenue and any funds split with the other party (the subprime) is treated like a deductible vendor payment.  In this situation, both parties file separate returns and the prime issues a 1099 to the subprime for the payment that the subprime received.

@Tyler Hightree You may not have to file a return in states without income taxes. However, many states charge a franchise tax (even Texas) that may require you to file a tax return for your company, if you hold your rental properties in an LLC for instance. For Florida, you would not have to file an income tax return as long as your rental properties are held by you personally (which I do not recommend) or in an LLC.

@Casey Bishop Get the CPA license if it means something to you personally, otherwise don't waste the time and money, especially if do not plan to use it for generating income. You have the accounting skills that you can use in your business, you do not need the license unless you just want to get it. The contractor license could be helpful, if you plan to operate as your own GC and you need a GC license to pull permits for your projects. The realtor license will be helpful, because you will have easy access to the MLS, easy access to other properties on the market, and you can list your own projects. Also, depending upon how you buy, you can also earn commissions on the properties that you buy.

@Evan Loader I recommend that you file an extension in any case.  That gives you time to make sure all your data is complete when you give it to your CPA.  Most of my clients are business owners or real estate investors and I find that they are generally not ready to file their taxes by the deadline, so I automatically file extensions for them if I do not hear from them 15 days before the deadline.  

@David Smith When you file your tax return, you list the address where you receive your mail.