All Forum Posts by: David C.

Joe, you are absolutely correct about the "two step qualification". The good news is - my wife is the sole owner and that IS her full time job. As for a time log, yes. But I would think that most legitimate folks could easily show the time they spent by transactions/auto travel logs alone, even without a separate "work log".  Just my 2 cents.

@Ashish Acharya  Thanks for the response and thanks so much for the clarification.  

We have had short term vacation rentals and have always filed the activities of our rentals as schedule C, per our CPA.  My understanding is due to this being that we are providing substantial services, serving as a "hotel" service, which makes sense.

Now we are transitioning over to long term rentals and it is my understanding that income from long term rental/SF homes would be reported on schedule E, which coincides with what you stated above.

I think the issue I am having is that I found the following source stating:

"Generally, unless you meet the qualifications to be considered a real estate professional, your rental income is passive and should be reported onto a Schedule E.

If you meet the qualifications to be considered a real estate professional, your rental income is not considered to be passive, and can be reported onto a Schedule C. On the Schedule C, you should report your rental income and any relating expenses or deductions."

*** So what is the deal with this?  From what you posted above, is this incorrect ?

Thanks!

I have read sources/watched videos, etc. regarding reporting rental income on your Schedule C vs. Schedule E.  Each source comments on why one may be better or the other.  Frankly, it seems like depending upon the source, you will get a different answer rather than getting clear cut scenarios explaining the "why's" for each.

My main questions are as follows:

1) In general - What are the pros/cons related to reporting rental income on your schedule C vs. schedule E ?

2) Is it more beneficial to report your rental income on a schedule E, since this prevents S.E. tax, or is it better to report this on a schedule C, since there are no limitations to your deductions ?

3) Spending 750 hours yearly related to your rental business/real estate investing qualifies you as a real estate professional.  Sources I have read state that this then allows you to report your rental income on a Schedule C.  That being said, does this mean that you MUST report your rental income on your schedule C, or can you still elect to report on your schedule E ?

4) The IRS website states, "If you provide substantial services that are primarily for your tenant's convenience, report your income and expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship)."  So if you are actively managing your own properties(substantial services), I would think that you would report your rental income on a schedule C.  Correct or incorrect?

Thanks,

Dave

@Justin Windham

It is my understanding that if I participate in any way in a rental property within my self directed IRA, I am in direct violation. That includes if I search for the property, do any improvement to the property, rent that property, etc. this is disallowed. That is what my research has presented.

@Keith Thompson  Absolutely outstanding post - I agree due diligence is critical.  The more I read about partnership deals/syndication investments, this is becomes glaringly evident.

As to the "outside our control" comment I had originally posted, this was not spelled out well (mainly because I didn't want to bore anyone).  My issue with the control stems from a few examples:

1) Real Estate - So far all real estate investing that I have done has involved SF long term rentals/vacation rentals under my own LLCs with my own funding.  So should something go wrong, I have only myself to blame.  Thankfully, I am very diligent, so things have gone well for me.  Obviously, I cannot do this in my SDIRA.

However, an investment such as a syndication property investment is allowed.  However, control goes right out the window - I do not have direct control of that entity itself.  I am relying on the skill/integrity of the manager of the syndication.  I guess it comes down to my fear that "If I don't things myself, it won't get done right." - Control issues, perhaps ? :)

A counter point to the statement that all investments are technically out of our direct control - Yes, you are correct, I cannot control Apple, Intel or Amazon, however, if I have a brokerage account containing those stocks, I can certainly reallocate my risk within minutes buy selling/buying, where in a partnership type investment, my money is tied up for a set amount of time.

Once again, thank you for posting - I have a lot more to digest and think about, which I am grateful for.  Thanks!!

Dave

@Seidy Lasker, if you felt that you received flak, it may be because it was justified.  Your post was literally a two line post that didn't answer the question of *how you found your CPA*.  It was just:

"InvestorFriendlyCPA.com

Ashish"

What I found most surprising is that you took a swipe at others who you claim post replies with "no value".  Did your post answer the question?  No.

Lastly, being "scheduled" and/or simply talking with a CPA does not equal having had your taxes completed with them.  I would never take a recommendation from someone who didn't actually have a track record with that professional.  Not born yesterday.

Ashish may be very competent (I have noticed that he is a responsive poster and seems helpful), but your two liner plugs and double response above gives me no confidence that you have any significant experience using him as your CPA.

Two Part Questions:

1) For those using rewards credit cards(business card) in the name of their LLC, have you opened them up for each LLC, or have you opened just one for a parent(management) LLC ?

2) When opening the business credit card, they require an individual's name - you cannot simply use the LLC. By supplying your personal name, does this wind up causing a breach in your LLC, because an individual (with personal assets) is now liked to the LLC ?

@Seidy Lasker

Not sure what the message you sent means, other than perhaps promoting Ashish and his website.  I have noticed that nearly all of your posts name drop Ashish.  My question is this - Does he do your taxes?  If not, personal experience do you have with him?

@Justin Windham  Excellent points - Thanks for the response!

@Ashish Acharya and @Dmitriy Fomichenko  thanks for the responses.

Currently, we are using the schedule C plan to fund the solo 401k, however, income on Schedule C gets taxed as ordinary income, which is a huge hit.

Follow my thought process here for a moment:

I form a separate LLC taxed as an S-Corp, lets call it XYZ. XYZ accepts profits from the child LLCs for the year. From this S-Corp she will draw a small salary as a W2, and the remainder will not be subject to S.E. tax, FICA or Obamacare and can be placed directly into her solo 401k or a Back Door Mega Roth.

I am definitely going to speak with my CPA, but wanted to see if anyone else had any insight if this was feasible.