All Forum Posts by: Brian Schmelzlen

Edit: Inadvertent double post

Hi Aubrey,

Yes, you will still be able to deduct the property taxes, as well as your other operating expenses, on each of your rental properties on Schedule E.  No business entity is required.

You will be allowed to deduct up to $10,000 in property taxes on your principal residence or on your state income taxes (or some combination of both).

The 23% tax deduction was in the Senate bill, but after conference committee that got reduced to 20%.  It applies to properties held in your own name, as well as to LLCs and S-corporations.

Ron, there is not a tax advantage to doing it this way.  Repayments of a loan are not taxable events; however, paying interest is taxable to your parents and a tax deduction to you.  Technically you should be paying interest (at least at AFR) because you are a related party.

Tagging back out, Nicholas.

I am going to tag in for this question.

It sounds like your LLC is a single-member LLC (I am making that assumption based on the fact that it does not currently have a tax ID number). It is therefore a disregarded entity for federal tax purposes. Obtaining an ID number does not by itself change that. In order to change that, you would have to file Form 8832 to elect to be taxed as a corporation. However, this is not a move that I would make without serious consideration. Generally, it is not good for real estate investors to be taxed as a c-corporation due to double taxation issues if you choose to take money out of the corporation in any form other than payroll. Furthermore, you could elect to be taxed as a corporation and then elect S-corporation status, but ultimately that means all of the income will flow through to your individual tax return which is the situation it sounds like you are trying to avoid.

That is correct.  The estate tax will remain in place, but instead the exemption amount will nearly double to $11 million.

That is interesting, and probably true.  They were working on it for a long time before it became an actual bill, but it has been hastily amended a lot in a very short period of time (especially by legislative standards).

From a policy standpoint, that can be a disaster.  As a CPA, I hope it is true.  It makes my job a lot more fun when there are loopholes that I can help my clients legally exploit.

Until a bill is signed by President Trump and becomes law, it is all under negotiation.  However, that exception for houses under contract survived in the Senate bill and from what I am hearing (haven't seen an actual bill yet, its all just rumors) it survived the reconciliation process.

I agree with you that a title (on a business card, not necessarily inside the operation of a business) is just presentation and ultimately just fluff.

I am a partner in a CPA firm (with several other partners), and none of us list a title on our business cards.  I understand that a flashy title can get someone's attention and there is value to that, but I think substance is what is far more important.

I think the same holds true for investors.  If you are out and networking, ultimately all that anyone will care about is your substance (your track record, your business plan, your knowledge in the field).  A bank or private lender won't give you money just because your business card says "CEO".

Hi Alex,

The changes to the mortgage deduction and property taxes only affect Schedule A (personal residences).  It will not impact rentals, fortunately.

For those of you who do not an alert set up for whenever news breaks about the new tax bill, details are coming out about what will be contained in the final version of the bill (coming out of committee).

Here are the major details: the top tax rate for individuals will be 37%.  Presumably that will start for single filers at $500,000 of income and $1 million for couples filing jointly, but that part has not been confirmed.  This rate is less than the rates included in both the House and Senate versions of the bill.

The pass-through deduction for sole proprietors, partnerships, LLCs, and S-corporations will be 20% of qualified domestic pass-through income.  This deduction is limited to your pro rata share of the business' W-2 income, and is not available to certain service industries.  However, there is an exception for people with less than $250,000/$500,000 of income.

There will not be a special business rate (or special rate for "passive" buy and hold investors) for sole proprietors or pass-through entities.  You will get a deduction instead.

The Section 121 exclusion of capital gains for the sale on a principal residence is being modified.  The new holding period (to have owned and used the house as a principal residence) will now be 5 out of the last 8 years rather than 2 out of the last 5.   There is an exception for any houses under contract by 12/31/17 but that haven't closed.

Finally, mortgage interest will still be deductible for your principal residence.  However, the amount allowed to be deducted is being reduced.  You can now (starting in 2018) only deduct the interest on the first $750,000 of acquisition debt.