All Forum Posts by: Johann Jells

Thanks once more Steven. (I wish I could figure out the formatting of this site to insert my responses into your post)

I don't understand your reference to schedule, are you saying that splitting my time at all makes defending RE-pro harder? And I still don't understand why the IRS would be interested at all in piercing a RE-Pro with no passive losses. What supervisor would approve man-hours for no recoverable tax?

Sorry if I was confusing about tax, having paid self-employment tax my whole adult life, I think of it as SS, and I'm so resigned to taxes that I didn't even realise we weren't paying any SS on our RE cashflow. I'm meticulous about expenses and deductions, but then we pay what we gotta pay.

As for FAFSA, I desperately want to believe you! But I need to corroborate it. My eldest is still only a HS freshman, but as I understand it I need the next 2 fiscal years to show the right profile. My wife thinks we should contact an independent Financial Aid consultant to see if they agree with you. But what you say makes sense, they're not CPAs. But sometimes too little knowledge makes people dangerous, they often rigidly act on rote or hearsay rather than facts.

Thanks Steve, though I'm struggling to keep up with you. The consulting business makes it difficult to argue what? That I'm a RE-Pro? The business is a flat bid, deliver the goods type. No billable hours. And we're not talking big bucks, I rarely break $50k, last year was a loss.

I do understand the need to doc the hours for a potential audit, but I still don't understand why the IRS would be interested at all in piercing a RE-Pro with no passive losses. The taxes from filing Form C sound not much different than what we're currently doing with a C and E. We pay SS on the income from both. I don't see a line on the 1040 for Medicare tax, I guess that will be new.

Re: FAFSA, are you saying the RE-Pro status is irrelevant if our holdings are in an LLC? I thought it was a requirement for RE to not be passive, LLC or not It seems too easy just to form an LLC to take it off the asset table, or everyone with a RE portfolio would, no?

Thanks for all the info Steve. Like I said, it's not a "job" but a sole consulting business in which I spend less time than the RE. The RE-Pro designation becomes critical for making the rentals an active rather than passive business, taking it off the table as assets for financial aid. This IS my business, no different than if I had a farm.

My understanding from some sources was that if you are a LLC or S corp filing form C the passive/active criteria like room services no longer applies. Do you know this not to be true?

Thanks Tim,

Something I read after I posted said that for LLC purposes a married couple filing together is NOT a single entity, so for us both to be in it it needs to be a partnership. So you think we should go to a lawyer not an EA or CPA?

Like I said, we have no passive losses, but there's big rewards in financial aid in showing this to be an active business rather than passive investment. Our real estate is my primary business activity, I have another consulting type business that is very variable in it's income. Since I am the manager, super and renovator of 13 100 year old apartments, I do spend 750 hrs on it. But as you're an accountant (CPA?) let me ask again as constant audits would be a drag: if I'm not taking passive losses, why would the IRS even be interested in challenging my RE-Pro status? As far as I know there's no other tax benefits, they would get no more tax if they pierced it, so wouldn't it be a waste of taxpayer money to even try?

I'm still struggling to understand the implications of C vs E filing to get the outcome I'm looking for. Unfortunately some of it is simply in the perceptions and biases of a college financial aid officer who is not an accountant. It would certainly be easier to file form E, but a C would have more weight with them.

Physics-wise, you get the heat of burning a candle in the room, no matter what nonsense you do to it. The clay may radiate after the candles have gone out, but you're still talking about heating a room with candles, which is not a particularly great idea. You're probably better off even with a kerosene lamp, but better even with a "blue flame" type heater.

Has anyone ever actually tested their low e windows? I had our building including own unit done in top rated Certainteed vinyl regular double pane, but they screwed up the order and one specialty window came in low-e & argon. One winter I compared with a non-contact thermometer that window with a regular one on the same facing and there was no difference! Maybe in the sunbelt it pays, but I can't detect it here.

My wife and I are looking to put our RE holdings on an "active" business footing, form an LCC (or one per held property?) and file taxes as a business rather than filing a form E. We have several reasons for doing this, from protecting our assets to establishing me as a RE professional as a way to exclude our RE business from financial aid assets. I do spend 750 hrs a year in RE and have no W2 income, though my wife does. But even so, we don't currently have passive losses so presumably the IRS will not take undue interest in us if there's no avoided taxes to be recovered.

As I understand it we can form an LLC and then declare to be a sole proprietorship and file a form C rather than be an S with more complex taxes. Is my assumption correct that marrieds filing together are a single entity and not a partnership?

Seeking out a professional to help with this incorporation, is a CPA good enough, or should we seek an EA or a tax attorney? Will I need to continue to have a CPA? I have filed my own taxes for many years using Turbotax after finding that we were paying our CPA/EA top dollar for one of his flunkies to simply do data entry in an equivalent software, and not getting the expertise we thought we were paying for. They made mistakes caught by the IRS, something that has not happened in 15 years of Turbotax. What i'd really like is to continue to prepare my own taxes and to consult with an EA occasionally, but I don't know if that's realistic.

Thanks for any advice on any of these issues.

At my university the houses of a frat quad they built in the early 70's were like bunkers. Much of the interior walls were cinderblock, the exterior brick, and no windows faced the quad. They were angled 90 deg to reduce breakage from projectiles. Sadly, a couple of decades after my tenure the frat lost it's charter due to a pledge dying of alcohol. In my day it was more of a weed house.

That's adding a LOT of combustible to the house. I wonder what the fire marshalls would say. Probably cheaper and easier to put 2 layers 5/8 drywall. No fist going through that and that's like a 2 hr fire rating.

Jessica, you have not responded to the most pertinent question asked: "What is the cap rate you are looking for?". This more than anything else determines where you're going to be looking and at what. If you go high you're looking at worse areas and lower appreciation potential, reverse that for low cap. Everyone here has different tolerance.

Personally, my most recent investment is in Jersey City Heights, which has the right balance for my taste, which is long term B&H value in a gentrifying area. It's a tough game, I don't know Newark but there's areas here, like Bergen-Lafayette, that have broken hearts and bank accounts of speculators again and again.