All Forum Posts by: Katie Ripp

Hi Mary Jay!

The tax on a Roth conversion is based on your individual income tax bracket for the calendar year, not the LLC's bracket. That means all of your taxable income for the year goes into the calculation, not just the income at the time you do the conversion.

I highly recommend consulting with a CPA before moving forward with a conversion since once you convert you can’t be un-done.

The 7 day average stay is determined on the full, calendar year basis. So if you switch to STR in May 2027, it would be challenging to get under the 7 days average stay for 2027.

Maybe consider mid-term stays for May 2027-December 2027 and then switch to only <7 STR stays in 2028. If you meet the other STR requirements for 2028, then yes you could apply a cost segregation study for 2028 tax year (with a Form 3115).

Also, the amount of bonus depreciation you would potentially take with a cost seg study it subject to the year that you placed the property in service, which was 80% for 2023.

Hi Ryan, 

Your CPA is correct, those rental are subject to the passive activity loss limitations. 

Although one thing that may potentially benefit you is the $25,000 special allowance for active real estate. If you make under $150,000 of other income, you may be able to recognize up to $25,000 in rental losses. I would ask your CPA if this is something that you qualify for.

Otherwise, you would need to 1) qualify as a real estate professional or 2) switch them to short-term rentals and materially participate. Both of these options would more than likely require that you self-manage. 

Yes you can potentially deduct property tax paid on more than one primary home, but keep in mind that the total is limited by the SALT limit which is now $40,000 for MFJ MAGI under $500,000. 

It would really be best to purchase the replacement property in the same name as the relinquished property (in your own names instead of the LLC) so as to not risk the IRS disqualifying the exchange. You could transfer the property to an LLC later on.

Just to clarify, inherited property does not qualify for 100% bonus depreciation, but a cost segregation study could allow you to accelerate depreciation on the 5 and 15 year assets. 

Your Sec. 121 exclusion would be disallowed. AKA this wouldn't work.

Section 121 explicitly disallows the exclusion for sales to related parties if the transaction is structured to avoid taxes. Specifically:

• 26 U.S. Code § 121(h) states that the exclusion does not apply to sales or exchanges to related persons as defined under 26 U.S. Code § 267(b) or 707(b) if the primary purpose of the transaction is tax avoidance. Related parties include family members (e.g., siblings, spouses, ancestors, and descendants) and entities controlled by the taxpayer.

The decision to do a cost seg generally comes down to whether or not you can actually benefit currently from the additional depreciation. If you are passive in those rentals (not real estate professional for tax purposes which requires 750 hours of real estate), and your Modified Adjusted gross income is over $150,000, then the cost seg is not actually going to save you any taxes. 

I would recommend consulting with your CPA/a CPA to look at the benefits of a cost seg for your specific situation.

Agree with @Jonathan Greene seller financing sound like it could be a great opportunity for this investor! It will allow him/her to spread out the recognition of capital gain over time for tax purposes. 

Another option:  if they want to reinvest into another property, they could consider a 1031 exchange 

Have a client looking to sell a parcel her late-husband purchased years ago. She is located in Arizona. She's looking for an agent that could help her out.