All Forum Posts by: Bruce D. Kowal

1]  Lots of questions about how to qualify as a Real Estate Professional.  The absolute best resource for this are the IRS Audit Techniques Guide for Passive Activities.  In particular Chapters 2 and 4.  This is written for IRS auditors, who are not rocket scientists.  You will be able to spot problems well in advance.  

Here is the link:  Passive Activity Loss - Audit Technique Guide

2]  Also, for those of you who have extended the due date of your individual tax returns, the deadline is October 15, and if you want to elect to group your passive activities, don't miss the deadline.

And if you have extended your entities, Corps and LLC etc., the deadline is one week from Thursday.

Tip:  always file something.  You have three years to amend.  

3]  Consult a CPA with some experience in these matters.  And if he screws up, remember, you can always amend.

Hold onto your cash.  Take lots of courses in the area on real estate and other investments.  Joing Meetup to meet other investors in real estate.  And as a former Navy Enlisted [E-6] who spent some time in Norfolk aboard ship, advance in your rates.  And, if young enough, go Officer or WO.  If you don't have a college degree, get one.  

Well, you have a CPA.  Ask him to model this for you on his software.   All CPA's use professional software capable of modeling different scenarios.  Very simple to do.  You will pay for his time, of course.  Unless, you are looking for free tax advice on BP.

You will likely not pay more than $2,000 annually.  Likely less.  If you balk at professional fees, there's always H&R Block or LIberty Tax. You will get what you pay for.  And, FWIW, we don't like new Clients obsessing over our fees.  

You are overthinking this. If you are a Member in an LLC, you will simply be issued a Schedule K-1 which is your prorata share of income/loss from the deal. Most likely you will have an ordinary loss from operations each year. And when the property is sold, the capital gain will likewise be passed through to you. You just hand the annual K-1 to your CPA. That's it.

Well for what it's worth, you can deduct it as a Non-Business Bad Debt in the year you deem it to be uncollectible.  It is treated as a short-term capital loss, and limited to $3,000 per year [Married Filing Joint]. But if will offset capital gains in the same tax years.

You can do whatever you and your investors/lenders want to do.  As long as income is reported, you can screw this up as much as you want.  

So, if these guys don't get any ownership interest, then when they have recovered their loans (when the loans are repaid in full), then any extra money you pay to them is simply ordinary income.  And you can report this on Form 1099-MISC as "Other Income", Box 3.  It's deprives your partners of capital gains treatment, but that's the way they want to set it up.  Fine.  

It's sloppy, but there it is.

The benefit YOU get is that you get to deduct the payments to your Buddy's  as a current expense, which lowers the LLC income flowing through to you. How cool is that? That is a big tax savings to you!

Sloppy, but if that's what they want, why argue?

If you report this as a Single Member LLC, then you do all this on Schedule C. The payments in excess of loan repayments are "Other Expenses". And the LLC issues the 1099-MISC to report the payments to each Lender. About Form 1099-MISC, Miscellaneous Income

And if you Partners are a bit dim, this is how you should structure this.  You get the valuable deductions.  They get their money back plus ordinary income.  They will think they are Kings!

Did you suffer any realized losses on stocks this year?  Got any personal loans which not being repaid this year?  You live in Florida where there is no income tax.  Don't complain . . .

There are two avenues to fully using a loss from rental real estate to offset ordinary income, such as your W2.  The Rental Real Estate loss allowance and being a Qualified Real Estate Professional.  You make too much money to qualify for the Rental Real Estate loss allowance.  Because you are specifically interested in short term rentals, HR Block publishes a very detailed guide.  Air BNB Host Reporting Guide 

After reading this guide, I suggest you make an appointment with your local HR Block office and discuss your concerns with them.

Who has title to the assets?