All Forum Posts by: Brian Schmelzlen

Hi Teri,

The CPA you spoke to is correct, it is your original intent when you purchased the property that is controlling for its tax treatment.  The courts, if it ever comes to that, will look at a number of factors to objectively try to determine your intent, but ultimately it is intent that controls.  Because your intent was to treat it as a rental, you do not have to worry about self-employment taxes- it was not inventory.

The question then is how long did you hold the property?  If you held it for less than a year, it will still be taxed at ordinary income rates (short term capital gains really just means ordinary income rates).

The fact that it was in a single-member LLC does not really matter; it will be taxed as if it was in your name because the federal government disregards single-member LLCs (pretends they don't exist).

I thought Sell or Be Sold by Grant Cardone had good advice.

I think of business partnerships like a marriage, so make sure whoever you partner with is someone you can work well with.  Business divorces can be very messy.

That being said, I do think it is a good idea.  It reduces your risk by reducing the amount of personal capital you have to invest, and hopefully you can find a partner who has a complimentary skill set.  Ultimately, it may allow you both to accelerate your investing plans.

I would at least get a free consultation with a CPA.  That person, if ethical, will tell you if your situation is still simple enough that you should be doing it yourself.

Go in with a list of questions so you are learning regardless of whether you ultimately hire the CPA.  Even if you do hire a professional, you should understand your taxes.  Also, it would be helpful for you to find out if you would potentially be missing large deductions (or inadvertently taking too large of deductions that might get you in trouble with the IRS).  Knowing that should help you then decide if you are at a point where it makes sense to hire someone to do your taxes for you.

Originally posted by @Aaron K.:

@Brian Schmelzlen would one have to have a DBA or other sole proprietorship paperwork to take advantage of this break?

No, nothing like that is required (it really wouldn't do anything on your tax return).  Simply reporting the income on the correct spots on the tax return should do it.

You get the new 20% deduction even if you own your business as an individual (sole proprietor). No need to form an LLC just to claim the deduction (if you are the only owner, the federal government would disregard-pretend it doesn’t exist- anyways).

Originally posted by @Logan Allec:

Just FYI the Conference Committee did not include the 5 or 8 rule so it may very well remain 2 of 5...we'll have to wait and see.

Which is one of the more surprising aspects of the bill coming out of Conference Committee.  Both the House and Senate included it (the only disagreement was about an income limitation), so it seemed very likely that it would be in the final bill.  I wonder if they actually decided not to change it based on feedback they received, or if it was simply forgotten about in their haste to get the bill out of committee to meet their self-imposed deadlines.

Originally posted by @Anna M.:

@Brian Schmelzlen, do you know how it will impact owner occupied multi families?  I am house hacking in one of my rental properties. heeelp :(.

Hi Anna,

Essentially you are going to break up the multi-family property (for tax purposes) as if it is two properties.  You will end up with the rental property and the personal residence.  The tax changes are great for the rental side: lower tax rates and a new deduction worth up to 20% of your rental income.  On the personal side, the changes may help or hurt you depending upon your situation.  If you already were taking the standard deduction, the changes help you because the standard deduction almost doubled.  If you were itemizing, it may have helped or hurt depending on the nature and amount of your deductions.

Feel free to send me a private message if you want to talk more specifics about your situation.

Josh, there are exceptions built in if your total taxable income is below a certain threshold. The threshold amount depends upon your filing status. The exception means you are entitled to the deduction even without your business having W-2 income.

Originally posted by @Joe Splitrock:

@Brian Schmelzlen I have a question on the 20% deduction for rental income. In own several properties and after deducting expenses, interest and depreciation, my rental properties show a net loss on my taxes. I am able to apply that loss against my W2 income for my day job. Am I correct that the 20% deduction would only be applicable if my rental properties were showing a profit on my taxes after all expense, including depreciation? I understand you are not giving tax advice, just looking to understand what conversations I may need to have with my CPA. 

Hi Joe.  My understanding is that the deduction will be worth 20% of your "qualified domestic pass through" income, so if you have a loss you will not receive a benefit from it.