All Forum Posts by: Jason Malabute

Yes, you can transfer your properties to an LLC without refinancing, but here's what to keep in mind:

1. 1. Due-on-Sale Clause: Most mortgages have this clause, which could let the lender call the loan due if you transfer the property. Check with your lender first—they may allow it if you personally guarantee the loan.
2. 2. Refinancing: If the lender doesn't approve, refinancing under the LLC might be required, but LLC loans typically come with stricter terms and higher rates.
3. 3. Taxes: Be aware of potential transfer or capital gains taxes, depending on your state.
4. 4. Liability Protection: Transferring to an LLC provides asset protection but may not always be worth the hassle or cost.

Next Steps: Review your loan agreements, consult your lender, and get advice from a real estate attorney and tax pro to ensure everything’s compliant and beneficial.

FHA loans require living in the home as your primary residence for 1 year after purchase. Renting it out before that could violate the loan agreement unless the lender grants an exception (e.g., job relocation). Your cousin should contact the lender to discuss his options.

If he rents it out, he must report rental income and expenses (e.g., mortgage interest, taxes, repairs, depreciation) on Schedule E starting when the property is placed in service. Waiting until the 1-year period ends avoids potential loan issues and simplifies things. A tax advisor can help with deductions and proper reporting.

If the insurance payout ($380K) exceeds your adjusted basis (original purchase price + improvements - depreciation), it creates a taxable gain. Similarly, the sale ($575K) minus your adjusted basis determines your capital gain.

You may qualify for the primary residence exclusion (up to $250K single/$500K married) if you lived there 2 of the last 5 years. Any leftover gain is taxable.

The $150K left after paying off expenses isn't directly taxed. Taxes depend on the gains from the insurance payout and sale relative to your adjusted basis. If you reinvest the insurance payout under IRC 1033, you may defer some tax. Would suggest to consult a tax pro for this!

Hi Victor!

If you gift a house, the fair market value (FMV) at the time of the gift applies to the lifetime gift limit—not the amount you purchased it for. The recipient inherits your cost basis (what you paid) for calculating capital gains or depreciation.

You and your spouse can each gift $17,000/year per recipient under the annual gift tax exclusion ($34,000 total). To avoid reducing your lifetime exemption, you could gift equity incrementally, but this requires proper legal structuring (e.g., fractional ownership transfers). An appraisal will be needed to document the FMV for tax purposes.

Great questions! Here's how to handle your situation for tax purposes based on IRS guidelines:

1. Utilities for the Rented House

• Deductible as a rental expense from when the property was placed in service (ready to rent). Costs before that (during remodeling) are added to the basis.

2. Utilities for the Vacant House

• Not deductible. These costs are added to the basis since the property is not yet placed in service.

3. Interest for the Rented House

• Deductible as a rental expense from when the property was placed in service. Interest incurred during remodeling is added to the basis.

4. Interest for the Vacant House

• Not deductible. This interest is added to the basis as the property is not yet placed in service.

Summary: Costs before the property is ready to rent are added to the basis. Costs after it’s placed in service are deductible as rental expenses.

If you need help tracking these costs or categorizing them for your tax return, consider working with a tax professional or using software that helps you manage rental property expenses. If you have further questions, feel free to message me, I would be more than happy to help.

Hi @Tony C.! 

In Missouri, a married couple jointly owning LLCs is generally required to file partnership returns for each LLC, necessitating Form 1065 at the federal level and Form MO-1065 for the state.

However, the IRS offers a Qualified Joint Venture (QJV) election for married couples, allowing them to avoid partnership classification by treating the business as a joint sole proprietorship. This enables reporting income and expenses directly on their joint tax return, using Schedule C for active business income and Schedule E for rental income. To qualify, both spouses must materially participate in the business, and the venture must be jointly owned and operated.

However, It's important to note that the QJV election is available only to businesses that are not formed as LLCs in states that do not recognize community property laws. Since Missouri is not a community property state, your LLCs would not qualify for QJV treatment. Therefore, you would need to file partnership returns for each LLC.

Given these considerations, both approaches could be correct, depending on the specific circumstances of your LLCs and state laws. It's crucial to consult with a tax professional who understands the nuances of your situation to determine the most appropriate and cost-effective method for your tax filings.

Hi Kin,

Transferring your share of the property to your brother may have tax implications, including gift tax if the transfer is considered a gift. Any amount above the annual gift tax exclusion ($17,000 for 2023) counts against your lifetime exemption. Additionally, your brother would inherit your cost basis in the property, which could result in significant capital gains tax if he sells the property later. Selling your share at fair market value could avoid gift tax but may trigger capital gains tax for you based on the sale price and your cost basis.

In California, the transfer may also trigger a property tax reassessment under Proposition 13 unless a specific exemption applies. A quitclaim deed is a straightforward way to transfer ownership, but it doesn’t address tax issues. It’s crucial to consult a real estate attorney and tax advisor to structure the transfer in a way that minimizes tax consequences and aligns with your objectives.

For tax purposes, rental income is generally recognized in the year you receive it, not when it is paid. Since the payment was deposited into your account on 1/6/2025, it would typically be considered income for 2025, even though the tenant paid it on 12/31/2024.

However, if you use cash-basis accounting (which most landlords do), the key factor is when you physically receive the money, not when it was sent or owed. Best way is to consult with a tax advisor to ensure compliance with IRS guidelines.

In a 1031 exchange, you must reinvest all $450k and replace any associated debt to defer taxes fully. Since the original mortgage stays in place, you only need to ensure the reinvestment equals or exceeds the proceeds. Proportional leverage (like 27% LTV) isn't specifically required, but if you don't reinvest the full amount or fail to replace debt, the difference will be taxed as boot. Work with a qualified intermediary and tax advisor to ensure compliance and optimize your strategy.

It’s unnecessary and potentially problematic to add the ex-partner to the title before the sale. The client can distribute proceeds through a private agreement without involving the title. The title company will handle clearing the title but won’t manage personal agreements. Your client should consult a real estate attorney to draft an agreement with the ex and ensure there are no legal or tax issues, especially since this is an investment property. Adding the ex to the title could trigger gift tax implications, so keeping it simple is best.