All Forum Posts by: Brian Schmelzlen

@Michael Plaks Actually, I think we still agree on this one; I was just not as clear.  I don't think it make sense to file Form 8832 unless the business situation actually warrants it.

To answer your question, yes it is.  However, the question you should be asking is if you need to be filling out that form at all.

You are doing a 1031 exchange, which means that taxes are deferred.  Fill out CA Form 593-C, and mark box 10 or 11 (depending on your situation).

As a real estate investor, you generally do not want to be taxed as a corporation. It means double taxation (taxed once at the entity level, and once again at the individual level when distributions are made).  However, now that there is a 21% flat tax rate at the corporate level, it does make sense for some businesses to be taxed as a corporation if they intend to leave the profits in the business.  However, I still discourage it for buy and holds.

By filing Form 2553 (the S-corporation election), you elect to have your business' income "flow through" to your individual tax return. While there are some people who like to form an LLC, elect to have to be taxed as a corporation, and then make an S-election, I have always felt that for 99% of situations the complexity does not justify the limited potential benefits (often you arrive at the exact same result).

Originally posted by @Jared Nielsen:

Brian, 

I currently am purchasing the home through a hard money loan. Would you recommend trying to refinance the home into a conventional mortgage and renting it for a year?

It depends upon the gain and the rest of your tax situation.  My recommendation would be to meet with a CPA and get an accurate idea of what the taxes would like under a few different scenarios.

Hi Jared, One of the few drawbacks of a flip is that the property is considered for tax purposes to be inventory. Unfortunately, inventory is specifically excluded from being part of a 1031 exchange. There are other tax strategies that you may employ, but that one to defer your taxes will only really work with buy and holds.

Hi Robert,

Are you looking for a new credit card to help fund you deal, or to be able to put all of the business expenses on a separate credit card for easier tracking?

If it is to help you fund a deal, that can be a very risky strategy.

If it is to make it easier to track your expenses, almost any credit card would work but I would recommend one that doesn't charge annual fees.  I would look at the rewards offered by the home improvement store you use.

@Joel Owens is right.  Rather than looking to invest using other people's money before you have any experience, you should get a job working for someone who syndicates deals.  That way you would gain experience, be able to siphon off a portion of that person's good reputation when you are trying to attract investors yourself, and you will make money in the process rather than potentially losing it.

Most successful syndicators are looking to systemitize their businesses, and would like to hire someone at a low cost to do the work they don't enjoy doing.  Take advantage of that.

While the fees themselves are reasonable, I agree with @Michael Plaks that the issue is that you are charged the fees whether you use them or not.  It seems that they have fairly low fees because they bank on the fact that most clients will not consult with them on a monthly basis.  I am not really a big fan of tax and accounting firms operating like your local gym.

The new tax law made it so that the gain on the sale of personal property can no longer be deferred through a 1031 exchange (1031s can now only be used for real property).

Likewise, the new tax law made cost segregation studies far more valuable in the short-term by increasing bonus depreciation from 50% to 100% on property with a useful life of less than 20 years.

However, in essence what cost segregation studies do is transform a portion of real property into personal property.  This is a great short-term benefit, but what impact will it have on future 1031 exchanges.  Do you think the IRS is going to rule that the personal property components affixed to the real estate in a 1031 exchange are "other property" and thus boot, or ignore it?

Some of my REI clients are grappling with this, and I am still of the opinion that they should still do the cost seg studies if there are large enough short-term savings and they are planning on holding the property for an indefinite amount of time, but I am curious about other views on this.

Hi @Buddy Holmes,

According to Georgia's Department of Revenue, you are correct that % of the sales price will be withheld.  However, they provide for an alternative calculation based upon the seller's gain.  To use that method, you must complete Form IT-AFF2.

South Carolina has a tax credit available for taxes paid to other states on income that is taxable in both states.  Therefore, you do not have to worry about double-taxation from the states.