All Forum Posts by: Chris K.

@Brandon Hall .  What’s that sound?Just the mike dropping.

I agree @Kyle J. that’s what the attorney said, and I also agree with @Michael Plaks that’s a contradiction. But in any event, I hope said self-contradicting attorney is right, or at least right enough so that this will be allowed.  

Yes.  That’s correct, it only would make sense to prepay your property taxes if you itemize.  The 24,000 standard deduction does not come into effect until the 2018 tax year, which is one of the reasons why everyone is rushing to pay their taxes this year, while they still itemize (or, also, pay more than 10K in SALT).

Thanks @Michael Plaks.   I won’t quibble with you about whether it’s consistent, and I had read that there was some ambiguity there, but I think nearly everything I’ve read and researched recently suggested this was a wise move to make, even in the absence of an assessment. 

Yes, I suppose the worst is that I gave the city an interest free loan as well.

Out of curiosity, what makes you say that you doubt it will be enforced?  Are there really any clarifications to be made?  

So, following the near unanimous advice of everything I could find, because I have well over 10k in state and local taxes (and will likely opt for the standard deduction under the new tax bill), I went down to the City treasurer’s office today and prepaid my entire property taxes for 2018, like so many other people throughout the country, so I could deduct that payment on my 2017 return.  It was easy.  Although no assessment had yet been issued, the treasurer’s office said that “any overpayment will be refunded” if the assessment came in lower than I had estimated.

A few hours later, I received a push alert to my phone with a news article telling me that the IRS had said that you can only do this only in the limited circumstances where 2018 assessments have been issued in the calendar year 2017, which I’m sad to say, is not the case in my town in Virginia.  Assessments come out in January every year.

Surely I’m not the only person here in this situation.  Chalk it up to a bad break?  Or is this issue not yet over?  I can only imagine the people who have prepaid where property taxes are a lot higher.

After reading all 205 replies, my question is this. 

There have been a lot of scenarios talking about taxable income as generated by rent, but what if the income comes from the disposition of a previously-bought-and-held rental property that had appreciated in value?  Does that still get the 20% deduction?  Does it still apply even where the individual is not a real estate professional and instead just invests on the side of your regular W-2 job (making less than the 315k MFJ threshold)?   

The way I've read everything, it would appear that you'd have to pay the 1250 recapture on the amount you had depreciated, but then you would get to deduct 20% of the profit (the difference between sale price and the original basis).

Hmm. Thank you. I read the article, which was informative and well-written, but I didn't see anything to contradict the idea that, if you used a home equity line of credit secured by a personal residence to provide money for your investment activities, you have a choice. You can, if you want, deduct up to $100,000 of the interest on the HELOC as a personal itemized deduction under the IRS provision that lets you deduct up to $100,000 home equity debt in addition to the $1,000,000 in home purchase debt. Alternately, you could allocate the interest on the investment property to your Schedule E, write it off there and not write it off on your Schedule A. If this is right (and maybe it's not!) then if the interest between a mortgage on the investment property and HELOC are comparable (again putting aside the variable nature of a HELOC), wouldn't it follow that a HELOC would give a non-real estate professional a better position?

So, I scoured the forms, and I couldn't find anything on this. I would appreciate any thoughts you guys could share. My thesis is: for certain individuals interested in buy and hold, it could make more financial sense to use a HELOC for a greater part of your financing strategy, due to tax consequences. So, I'm under contract on an investment property (my 2nd!) and we are heading towards closing. I plan to have a 30-year mortgage for 75% of the value, and then I'm considering using a HELOC from my primary residence as the downpayment (or I might use cash). I have a traditional full time job with a W-2. Due to my adjusted gross income, I am not allowed to deduct my passive activity losses against that income, and I am not otherwise a "real estate professional." So, if my passive activity losses are greater than my passive income (and they will be due to depreciation), I have to carryover any and all loss until I dispose of the property, which could be a very long time since I plan to buy and hold. But, here's the interesting thing -- for the HELOC on my primary residence used to help purchase the property -- the interest paid on the HELOC IS deductible against W-2 income, even if used that on for an investment property, and regardless of passive activity loss rules. So, putting aside the variable nature of the HELOC interest vs. a mortgage, wouldn't it make sense to stretch the HELOC to as far as you comfortably could so that you create a situation such that the Interest is deductible against your W-2 income? I understand this situation would apply only to people who can't deduct passive activity losses against their regular income, but I have to imagine that's a very large group on Bigger Pockets. And also, I'll disclaim for you -- I understand any and all responses are not advice, and you recommend I seek a tax professional.

Although I imagine the potential value is greater outside of Charlottesville, isn't the demand far less?  The prices look right, but I'm worried about long stretches of vacancies in some of those areas (I'll admit I am less familiar with them).

Thank you very much for your advice. Yes, I have looked at a line of credit on the house. The mortgage is with Wells Fargo and I think they'd give me somewhere between 100-150 on an "ELOC." It'd probably be a percentage point higher than traditional HELOC, somewhere between 5.5 and 6.5%. Haven't shopped anywhere else yet. After these tenants leave, I think a deciding factor may be whether I can find more great tenants. Hopefully so.

Thank you for your offer to connect me up with a local investor.  I would truly appreciate talking with someone who has already explored the market.  Just let me know.