All Forum Posts by: Jason Malabute

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.

Hey Austin, congrats on starting your LLC! To help you pick the best tax classification, it would be great to know a bit more. What are your main goals with the LLC? Is this for a specific type of business, and do you have any partners involved? Also, where are you located, and do you expect to have any business activity in 2024? With a little more info, we can give you better advice!

Hi Salvatore,

That’s kind of a subjective question, but I can share my experience. I’ve had the chance to work with a cost segregation company that took the time to explain how the process would specifically benefit our investors tax wise, which I really appreciated. Just a heads-up—bonus depreciation can be claimed up to 60% for 2024, and it will drop down to 40% in 2025, so that’s something to keep in mind as you evaluate your options.

I’m not endorsing any particular company, and I don’t receive referral fees for recommending the one I used. However, if you’d like to know more about my experience or if you’re interested in an introduction, feel free to DM me. I’d be happy to share the details and connect you with the cost segregation company we use for our multifamily property.

Your individual tax return doesn’t include Schedule L; check Schedule E for depreciation, and ask your CPA for the depreciation schedule . Like what Basit said, the client copy of the tax return should include a depreciation schedule of each rental property that you have.

it’s important to note that the IRS generally does not allow you to deduct expenses for a new career or business that you are trying to enter. Deductions are typically only allowed for expenses that are related to your current trade or business. If you are in the process of entering a new business, such as real estate investing, those start-up expenses are generally capitalized and can be amortized over time, but they cannot be immediately deducted.

Yes, the costs for utilities, insurance, repairs, and maintenance are deductible in the current year since they are considered ordinary and necessary expenses for managing and maintaining the property. However, improvements generally need to be capitalized and depreciated over their useful life unless the amount is below $2,500, in which case you can utilize the de minimis safe harbor to deduct those costs in the current year.

Hi Jane,

Based on the details you provided, since your expense of $4,200 was used to replace the fence, this cost is considered a capital improvement rather than a repair. As a result, you will need to depreciate this expense over a period of time instead of deducting it in the same year.

Because the amount exceeds $2,500, you cannot take advantage of the de minimis safe harbor. This safe harbor generally allows you to expense items under $2,500 per invoice or item, but since your fence replacement exceeds this threshold, it doesn’t qualify.

As Michael mentioned, for the tax year 2024, you could potentially take advantage of a 60% bonus depreciation if you conduct a cost segregation study for your property. This approach could allow you to accelerate the depreciation of certain components of your property, including the new fence.

Please note that you cannot apply a Section 179 deduction to real estate improvements, as Section 179 is not applicable to real estate properties.

Abraham, for your fix-and-flip property, it’s important to note that these projects are typically taxed as ordinary income rather than as long-term capital gains. Since you’re not planning to live in the property as your primary residence for at least two out of the five previous years, you won’t be able to exclude up to $250,000 (if single) or $500,000 (if married) from the gain on the sale of the property. This exclusion is only available for properties that have been used as a primary residence for the required period.

Additionally, you won’t qualify for 1031 exchange benefits or long-term capital gains advantages unless you hold the property for more than a year or live in it for at least two years. Given that your primary goal appears to be generating cash from flipping, there aren’t many tax advantages available in this scenario. Instead, it might be more beneficial to focus on maximizing your profits from the flip. You can then consider using those profits to invest in a buy-and-hold property, which could provide more favorable tax treatment in the long run.

Judd, your question touches on complex tax issues, especially regarding the Foreign Earned Income Exclusion (FEIE) and managing U.S. rental properties from abroad. Since U.S. rental income is classified as U.S.-sourced, it doesn’t typically qualify for the FEIE, regardless of where you or your wife manage the properties.  To navigate these complexities and ensure you’re optimizing your tax strategy, it would be wise to consult a tax professional who specializes in international taxation and U.S. real estate.

Actually, I did a cost segregation on a 106-unit property I own, and even though we could only claim 80% of the bonus depreciation last year, it was still a big win for us and our investors. That tax break really made a difference. I really hope they figure out a way to extend this in the future because it’s a huge benefit for real estate investors like us.