All Forum Posts by: Jason Malabute

1. Yes, you can take advantage of bonus depreciation if you structure it properly, even with a partner, through a simple LLC or partnership agreement. Both partners typically share 50% of the tax benefits.

2. Bonus depreciation applies to offset any income, not just W-2 income, including passive or active real estate income.

3. Yes, if you don’t hold the property long term or exchange it (e.g., through a 1031 exchange), you may have to recapture the depreciation upon sale.

4. Switching from long-term to short-term rental (STR) applies for the full calendar year when calculating depreciation benefits.

5. Using co-hosts may help, but be cautious of the 100-hour requirement for material participation.

Hi Dave,

I understand why you’d want to handle your own taxes, whether it’s a personal preference or just comfort with your finances. However, as others have mentioned, it’s not common for tax professionals to review just one form, like the 8824, without seeing your entire tax situation.

1031 exchanges can get complicated, and reviewing only part of the process might lead to errors or missed details. That’s why most professionals would need to look at everything, not just one part, to give you the best advice and ensure no mistakes are made.

Hiring a professional might cost more upfront, but it’s worth it for the peace of mind and to avoid potential tax issues down the road.

Best regards,

Jason

Chris, I can really relate to this question because back in 2021, I sold my single-family home portfolio to get into multifamily investing. While selling your properties could provide the liquidity you need, you definitely want to consider the tax implications, especially if any of the properties were held for less than 12 months, as those will be taxed at a higher short-term capital gains rate.

However, if selling isn’t your only option, I would strongly recommend looking into a cash-out refinance. This could give you access to the cash you need without selling the properties. You get to keep the rental income, continue building equity, and the money from the refinance isn’t taxed since it’s considered a loan, not income. If the rental income is still strong after the refinance, you’d have a great setup—cash in hand and properties still appreciating with tenants paying off the loan.

It’s definitely worth considering this strategy before deciding to sell off your entire portfolio. Hope that helps!

Yes, it is possible to use profits from another business to invest in real estate. However, you need to consider how that income will be taxed and any potential benefits from investing in real estate. Real estate offers several advantages, such as tax deductions through depreciation, appreciation, and the potential for cash flow. Many investors also appreciate the ability to use leverage in real estate deals.

Real estate can be a strong strategy for preserving capital because of its tax advantages and growth potential.

Hi Justin,

Just like others have mentioned, if you’ve lived in the property as your primary residence for at least two out of the last five years, you may be eligible to exclude up to $250,000 of capital gains if you’re single, or up to $500,000 if you’re married and filing jointly, under the Section 121 exclusion. This exclusion allows you to reinvest the proceeds from the sale of your primary residence without being immediately taxed on the capital gains.

However, it seems like you might be considering a Section 1031 exchange based on how your question is phrased. A Section 1031 exchange, often referred to as a “like-kind exchange,” allows for the deferral of capital gains taxes when you reinvest the proceeds from the sale of real property into another real property of like kind, used for investment or business purposes.

Unfortunately, you cannot use a 1031 exchange in this scenario because the sale of a primary residence and the purchase of a small business do not meet the “like-kind” requirement.

Hey Ting,

So even though the property and loan were under your name, the IRS looks at beneficial ownership, not just whose name is on the title. That means both you and your partner are considered owners for tax purposes.

If you have a Partnership Agreement, that should be your go-to for figuring out how to split the capital gains. The agreement would outline how profits, losses, and ownership interests should be divided, which will guide how you allocate the gains. 

 It might be worth chatting with a tax pro to get everything squared away which it sounds like you already did.

Patrick, it’s great that you’re thinking about year-end tax strategies. To provide the best advice, we’d need a bit more information about your specific situation. However, here are a few general suggestions that might help:

Since you’re looking to offset rental income and don’t qualify as a real estate professional, one strategy could be to consider any capital improvements you’re planning in the near future. If there are items you need to replace and they are less than $2,500, you can take advantage of the de minimis safe harbor election, which allows you to deduct those costs in the current year rather than capitalizing them. As mentioned above by others, cost segregation is an option.

Additionally, contributing to your IRA is another option. For 2024, the contribution limits are $7,000 if you're under 50 and $8,000 if you're 50 or older. This could help reduce your taxable income, depending on your eligibility.

If you’re itemizing deductions, consider making charitable donations as well. With the holiday season approaching, a significant donation to your favorite non-profit or church could provide a tax deduction while supporting a cause you care about.

Ultimately, the right strategies really depend on your overall situation, and we’d need more details to offer more specific advice. But these are a few options to consider as you plan for the end of the year.

Yes, you can still deduct the expenses of the rehab even if you received rent before starting the capital improvements. The fact that it’s a major rehab over six figures makes it worth considering a cost segregation study. This could allow you to take advantage of bonus depreciation, which can significantly accelerate the depreciation deductions in the year you place the property into service

Hey Rashad,

I'm not in the San Antonio market, but I am a CPA and have been in the accounting industry since 2013. I've been investing in single-family home rentals since 2019 and have experience with the BRRRR strategy and long-term buy-and-hold investments. I'm also a general partner on two multi-family deals totaling 342 units.

Would love to connect and see how I might be able to assist you!

When helping my clients with their tax returns and bookkeeping, especially when they have real estate properties, we usually obtain the land value directly from the county assessor’s website. For example, in Los Angeles County, the asset or appraisal value of the property is relatively easy to find online. I’ve also done this in Indianapolis, Indiana, by using the Marion County website, which provides similar details.