All Forum Posts by: Jason Malabute

To prepare for reporting flood losses on tax returns, affected individuals should confirm if the area is a federally declared disaster zone, as seen during events like Hurricane Katrina. This allows for casualty loss deductions. Keep detailed records, including photos of damage, property estimates, and receipts. Any insurance reimbursements must be documented, as losses should be reduced accordingly.

From a tax perspective, there typically isn't a significant advantage. As a single-member LLC, the IRS considers it a disregarded entity, meaning the income, expenses, and other tax-related items will still be reported on your personal tax return via Schedule E. So, it won't offer you any tax savings on its own.

However, one of the primary reasons real estate investors place property into an LLC is for liability protection. If something were to happen with the property, such as a lawsuit from a tenant, having it in an LLC can help protect your personal assets from being at risk.

As Michael Plaks mentioned, since you are just starting your rental arbitrage business, expenses like attending BPCon would likely fall under startup costs. These are expenses incurred before your business is active, and they typically aren’t immediately deductible in full, as they are considered part of starting the business rather than ongoing operational costs.

To provide more detail, according to IRS rules (as seen in the screenshot), you can deduct the lesser of $5,000 or your total startup expenditures. However, if your startup costs exceed $50,000, the $5,000 deduction is reduced dollar-for-dollar by the amount exceeding $50,000. For example, if your total startup expenses are $53,000, you would only be able to deduct $2,000 in the first year ($5,000 - $3,000). If your startup costs are over $55,000, you lose the immediate deduction, and the entire amount would have to be amortized over 180 months (15 years).

Here’s an example to clarify:

• If you spend $7,000 on startup costs (such as attending BPCon, legal fees, and market research), you can deduct $5,000 in the first year and amortize the remaining $2,000 over 15 years, starting when your business is officially active.

• If your startup costs are $55,000 or more, you wouldn’t receive an immediate deduction but instead would amortize the entire $55,000 over the same 15-year period.

Travel and meals (50%) are deductible. Gardening maintenance is deductible as it’s not an improvement. In-year tax consultation, commission, are all deductible. Prorate insurance premiums based on in-service date. For the insurance deductible on the claim, it depends on the nature of the claim: if it’s for a repair, it’s deductible this year; if it’s an improvement, it needs to be capitalized.

It looks like you’re exploring an interesting strategy here, but there are a few things to clarify. First, qualifying as a real estate professional for tax purposes requires more than just 100 hours of participation. The IRS generally requires a minimum of 750 hours of real estate activity over the course of the year to meet the real estate professional status. Additionally, it’s important to note that land is not depreciable, so only the value of the structure can be depreciated, not the land itself. As for depreciation recapture, when you sell a property, the IRS typically requires you to pay back or “recapture” the depreciation you’ve taken. This is true regardless of whether the property is in an Opportunity Zone or not, as the Opportunity Zone benefits don’t exempt you from depreciation recapture.

Hi Tyler,

To network with tax professionals in the Rhode Island area who better understand your short-term rental (STR) business, I recommend starting with local real estate meetups. These meetups often have tax professionals in attendance. If they don't specialize in STRs, you can ask if any of their colleagues do. Additionally, you can network with other real estate professionals and investors—if they own STRs, they can likely refer you to their CPA.

If you prefer not to attend in-person meetups, consider joining local real estate groups online to connect with both tax professionals and investors. This is a great way to broaden your network without leaving home!

Best of luck!

Hey Ray,

I actually have some real-world experience that might help here. When I bought my first and second rental properties in Indianapolis while I was living in California, I initially purchased them under my name to secure personal mortgage loans. Afterward, I transferred the properties into an LLC. Like you, I was concerned about potentially triggering a due-on-sale clause with the lender.

However, I spoke with my lender, and while he confirmed that technically this could trigger a due-on-sale clause, he also mentioned that in practice, it's very rare. In fact, he had never seen it happen personally in his entire career. He said that as long as you're paying the mortgage every single month, the lender doesn't really care in practice if you transfer the title to an LLC. So, while it's technically possible, I would take that concern with a grain of salt. Just make sure to check with your lender because every lender is different.

As for your second question, even though your property may be owned by an LLC, anyone can still figure out who the actual owner is. For example, when I was cold-calling apartment owners, many owned the property through an LLC. What I did was go to the county records to see who was paying the property taxes—typically the owner of the property.

If it was an LLC, I would then go to the Secretary of State website and search for the LLC registration to see who filed it. Sometimes people use agents, but if the agent isn't a lawyer or CPA, then it's likely that the agent is the actual owner of the property. With a bit of research, it's pretty easy to figure out who owns the property, their home address, phone number, and sometimes even their email. This information is all public, so even though an LLC offers some protection, it doesn't make ownership entirely private.

Hey Dave,

I’m really sorry to hear about your experience—it’s never great when a call feels rushed or like a hard sell. While I wasn’t there to see exactly what happened, based on what you’ve shared and from my own experience, it sounds like they were more focused on closing the deal quickly rather than taking the time to truly understand your needs. Ideally, they should have asked more questions and really listened to what you’re looking for in future tax services before trying to close the deal.

That said, you’ve flagged something important—maybe they’re not the right fit for you. It sounds like you’re seeking more in-depth tax strategy help, which is critical, and this might be a sign that it’s worth continuing to search for someone who can genuinely partner with you and offer the value you’re looking for. Keep at it—you’ll find the right fit!

Best,

Jason

Hi Timothy,

I would suggest that if you’re not experienced with cost segregation studies, it’s best to hire a professional to do it for you. These studies can be pretty complex, and a third-party expert will ensure it’s done correctly and that you maximize your depreciation. If you need any advice or recommendations for some good cost segregation specialists, feel free to message me. I’ve worked with third parties before and can share my experience.

Also, I noticed you mentioned having a W-2 job. Keep in mind that passive losses from rental properties can only offset passive income unless you qualify as a real estate professional.

It’s generally advisable to have one go-to CPA contact who can handle your tax planning, tax compliance, and accounting as a real estate investor. Having a single CPA allows for consistency in tax strategies and communication.

However, there are times when it’s beneficial to get a second opinion. If you feel your CPA may not be fully up to date on certain aspects of your particular tax situation, especially with multi-state holdings, consulting another professional can offer fresh insights or alternative strategies.