All Forum Posts by: Bruce D. Kowal
Bruce D. Kowal has started 36 posts and replied 272 times.
Post: Deducting RE courses/coaching/membership fees
- Metro NY + New Bedford
- Posts 275
- Votes 197
You are on the right track in terms of information you are getting. You are referring to the Hobby Loss rules, and the 3 out of 5 years.
Post: Multiple LLCs owning one property
- Metro NY + New Bedford
- Posts 275
- Votes 197
What a mess! The overall rule is not to cheat IRS, don't understate income. or overstate deductions. As long as, on the whole, you are reporting correctly, you are doing the best your can. Mr Dietz's suggestion solves a lot of the apparent problems, but is more expensive. Don't lose sleep over it.
Post: How much to keep aside for capital gains tax?
- Metro NY + New Bedford
- Posts 275
- Votes 197
One nice thing about New York. There is no special rate for capital gains. [sarc] It's all ordinary income. The taxable gain from the rented portion as follows: one-half the original cost of whole house. Add improvements made to the rental portion. That is your tax "basis". The taxable gain is 1/2 the proceeds from sale, less 1/2 selling expenses, add depreciation recapture. That's the ballpark taxable gain. Apply federal cap gain rate AND the NYS ordinary income rate. Your accountant can pro-forma this for 2022 easily using his tax software. All tax programs have that ability. Pay the tax with estimated tax payments on June 15, or Sept 15. In this way there will be no surprises twelve months from now. Very smart that you are thinking about this now, rather than panic next year.
Post: Offsetting passive gain on K-1 with passive losses from other K-1
- Metro NY + New Bedford
- Posts 275
- Votes 197
The terms used should be clearer. I assume the Poster is talking about a capital gain from a passive activity. And the losses referred to are Ordinary Losses from a passive activity. And there are two K-1's reporting on properties in the same State. One Passive Activity K-1 reports a capital gain, and the other Passive Activity K-1 reports an Ordinary Loss. Is that correct?
In any event, the tax software should have allowed the loss. It sounds as if it's a State taxation issue. States can decouple as much as they want from IRS rules. Ask the Tax Partner to explain.
Post: Now is a good time to start keeping daily logs
- Metro NY + New Bedford
- Posts 275
- Votes 197
For tax purposes, both material participation and use of your automobile for business purposes, you really should have a daily log. Today marks tax filing day for 2021 tax returns. Buy a notebook and start keeping track of time and mileage. DO IT NOW.
Post: US Treasury I - Bonds . Who knew?
- Metro NY + New Bedford
- Posts 275
- Votes 197
Nice article in today's WSJ about US Treasury I- bonds, soon to yield 9%. Maximum is $10,000, but if bought with a tax refund can add another $15,000. Not bad for a govt guaranteed interest payment.
Could be a paywall . . .
Post: Need Tax Advisor/Strategist/CPA in California
- Metro NY + New Bedford
- Posts 275
- Votes 197
Quote from @Nicole G.:
I really need to find a professional to help strategize the best ways to reduce taxes in addition to preparing taxes. I have several rental properties and I am self-employed as a real estate agent. For example, I didn't know that I could pay into a Self Employment IRA to help reduce the amount of self-employment taxes. Once I asked my accountant about it he said "sure if that's what you want to do." I would really like to find someone who can help me strategize with what different options I have. IRA's, LLCs, 1031...etc
Your CPA's remarks are not entirely out of line. Yes, you can reduce your SE taxes by amounts contributed to your SEP IRA.
But, here's the thing: you are a young woman. You want to build wealth through the purchase of residential real estate. When you put money in an IRA, it is locked up until your are 59 1/2.
Now, that is a LONG WAY off!
In the meantime, that money could have been used to fund down payments on new properties. You are literally shooting yourself in the foot, hobbling your pursuit of real estate wealth. If you were in any other profession, it would make sense.
Is your goal to retire on the cash flow from rental properties, or from withdrawals out of your IRA at age 60+?
A possible alternative, if you love real estate, is to put the money in the SEP IRA, and buy REIT ETF's. They do very well with no management.
Now, you know . . .
Post: Decision on where to invest as a beginner!
- Metro NY + New Bedford
- Posts 275
- Votes 197
You might take a look at the returns of REIT ETF's. They have done rather well, and there is more liquidity than with bricks and mortar. It is passive, that's for sure. I wonder how they compare with being a Member of a syndicated LLC.
Post: Is rental property investing forever doomed?
- Metro NY + New Bedford
- Posts 275
- Votes 197
Quote from @Jay Hinrichs:
Quote from @Adam Martin:
I think doomed may be a bit extreme here. People will always need a place to live and while past performance doesn't guarantee future results rental rates and home values have gone up and to the right over the long haul. Over time rents will continue to rise and will increase profit margins. Make sure you are investing in an area people want to live and employers want to invest and you should be fine. My real worry isn't about rising rates of homes, that just means my other ones are increasing in value as well as my net worth. My real concern is the skyrocketing interest rates which in my opinion is the biggest threat to real estate right now. I don't mind paying a couple hundred extra on the mortgage that is going to equity but it's a tough pill to swallow when it going to the bank in the form of higher interest rates.
simple solution landlords just pay cash .. returns are fine.. its the over reliance on OPM that will make returns go up or down.. when i started lending in 02 for turnkey model which was basically brand new. The reason investors flocked from West coast and east coast high priced markets is they had even cash flow or negative with minimum bank required down payments.. it was only the low priced markets where you could get 50 to 100 a month positive with minimum down or the BRRR strategy which is really just rate and term refit after rehab.. which is what I started my business providing the funding for out of area investors so they could do that strategy.. Prices of assets are going to go up why would we invest in real estate at all if we felt values would never rise.. just to make 200 a month risking 100k or more of your credit one could buy any number of small business's for those dollars and make 10X 200 a month .. we buy real estate for tax bene's and someone else paying your house off.. any positive cash flow is simply gravy.. its not appreciation is gravy its cash flow. But that narrative does not sell rentals in the cash flow market.
One just needs to put a little more down if they want to have money on top of what it takes to run the property or better yet in low priced markets simply buy them in cash then you get a very nice return even in high priced markets.
The really large fortunes in real estate occur when mortgages are payed off. But you need to be thinking generationally, what you are going to give your heirs.
Post: Needing a second opinion on my $51k tax obligation
- Metro NY + New Bedford
- Posts 275
- Votes 197
Quote from @Rob Pattison:
I bought a house in Costa Rica, using partially money from my 401k through a covid distribution, which meant I escaped the 10% penalty but still am liable for income tax.
I'm 59, and took out approximately $200k. This house is on the beach and will serve as a retirement home as well as an airbnb rental.
Per my CPA's advice, I was able to deduct all my travel to Costa Rica, and hotels, since this house is within a corporation and I intend mostly at this point in my life to rent via airbnb the house, staying there for about 1 week every 90 days to work, do additional rehab/improvements and catch waves with my surfboard.
My CPA initially calculated a tax obligation of $51k, which I thought was too high. His explanation was that he "was not equipped" to take all my deductions that year, and instead amortized them over many years.
The next day I sent him an email offering to pay more for his time to sharpen his pencil. He then came up with an obligation of $24k, much better, but still not where I think it should be..........more like under $10k.
Does anyone have a referral to an professional CPA who deals with Real Estate and is aggressive in coming up with the lowest, legal tax obligation for their clients? I live in the south bay area of Los Angeles, near the ocean.