All Forum Posts by: Brian Schmelzlen

Are you asking if you will be taxed on your S-corp's rental income if you use the money for the business?  All of your income flows through to your individual tax return, but so do all of the expenses (on Form K-1, generally as a net number).  If the expense is a valid deduction, it will reduce your taxable income.

There are a lot of regulations on whether "fixing" the property is a repair or a capital expenditure.  I can address specific situations, but fixing is too general to discuss.  If by mortgages you mean paying down the principal, that is not a business deduction (it affects your balance sheet, not the p&l).  I dont know what you mean by interests.  If you mean your mortgage interest on a rental, yes paying that is a business expense.  With insurance, whether it is deductible and how depends on the type of insurance.  If you are talking about property insurance, that is a rental expense.

I don't see the advantage of using an S-corporation to invest in stock, bonds, mutual funds, etc.  There are rules and regulations regarding the treatment of that, but that is a whole topic unto itself.  To get to what I think you are asking, even if your S-corporation is the one investing in securities, any income it throws off would flow to your individual tax return and be taxable to you there.

It depends on your goals, which is also another way of saying it depends on where you are in life. If you are young (or young at heart) and still growing your portfolio, I think it makes sense to use leverage to grow it as quickly as is prudent. If you are getting closer to retiring and/or you are no longer growing your portfolio, it makes sense to start paying everything down.

Shawn, under that 401(k), if his wife puts in $3k, she is given $4k and the money grows tax-free. She also gets a tax deduction (in the form of less taxable income) by contributing the $3k. Having compounding interest, primarily on money that was given to you, growing tax-free is a good deal. The downside is that the money is tied up, but that also means it is more likely to be there when you are retired and no longer able to work. No one is arguing against investing in real estate (we wouldn’t be on BP if we didn’t think it is a great way to build wealth), but why put all your eggs in one basket especially if you can use someone else’s money to diversify?

If you are using quickbooks or any bookkeeping software, input it as a journal entry. Debit a fixed asset account, and credit a loan from member account (or a capital contribution, and the repayment can be a distribution next year).

It sounds like you will probably have to capitalize your rehab costs and depreciate it over time. You can expense routine repairs and maintenance (and certain work that fits within a safe harbor), but for major rehab work you have to capitalize and depreciate it over time.

I am curious what people have found to be the most effective way to find a good deal on office buildings or other commercial real estate. Has it been through loopnet, working with an agent, direct mail, or some other method? I am planning on utilizing all of the above to various degrees, but would like some insight on what has worked best for experienced investors.

Congratulations on getting married. You have owned the condo for over a year, so if sold (and not a 1031 exchange- if it has only been personal use 1031 is not an option), you will pay long-term capital gains on it (0%,15%, or 20% depending on your other income). Your gain is not necessarily your equity. It is the proceeds on the sale less your basis (purchase price plus significant improvements less tax depreciation).

First, it may not be at a loss. The seller’s basis is purchase price plus significant improvements less depreciation. 11 years of depreciation (if it was a rental the entire time) may push the basis down enough to be less than the proceeds. Second, yes. Capital losses offset capital gains, and once capital gains are eliminated up to $3k of capital losses may be deducted per year against ordinary income.

I would talk to a financial advisor, particularly one who is not motivated to just sell to your mom. An idea I heard on one of the earlier episodes of the podcast is investing in high quality, discounted notes. Might be worth exploring.

I am confused. Is that $80/month/unit? If so, it isn’t a great return but with the built-in equity I can see the appeal. If it is only $80 aggregate per month, it seems like you would be a lot better off selling the properties and finding a better cash-flowing investment. Just my 2 cents.