All Forum Posts by: Account Closed

Investors and other Real Estate Professionals:

I served with Deloitte for 14+ years and subsequently with large middle market accounting firms for 15+ years (RSM, Crowe, BKD). My experience and knowledge of real estate tax law is unmatched.

Take advantage of my experience. We are all trying to lift each other up here. That is the point of this platform!

Guillermo -

Typically, you can depreciate the cost of the property over its useful life, even if you acquired it through a subject-to deal. The depreciable basis would generally include the purchase price you paid for the property.

The change in ownership might trigger certain tax consequences or impact the property's eligibility for certain tax breaks. Consulting with a tax professional is advisable to understand the specific implications based on your situation.

Ahna -

Yes, you're correct in thinking that you and your family members can generally allocate deductions and income based on your ownership percentages. In your case, you would allocate expenses, such as mortgage interest and property taxes, based on your respective ownership shares (50% for you, 25% each for your mom and brother).

Given that the property is an investment for you, you can report your share of rental income and deductions on your tax return. This includes your share of depreciation, which is typically based on your ownership percentage (50% in your case).

For your mom, who is treating her living space as a primary residence, the rules are a bit different. Generally, she won't be able to deduct mortgage interest related to her portion as a rental expense. However, she might be eligible for the primary residence mortgage interest deduction. The garage ADU being her primary residence can potentially qualify for certain tax benefits.

Lastly, I would say that you should connect with an experienced tax CPA who can closely examine your situation and tailor advice relevant to this scenario.

Regards.

Shane -

Claiming real estate professional status (REPS) can potentially allow you to deduct losses from your rental activities against your other active (W-2) income. This is one of the benefits of qualifying for REPS.

When you qualify as a real estate professional, you may be able to use the losses incurred from your rental activities to offset income from other sources, including your W-2 income. This can be particularly advantageous for individuals who are actively involved in real estate and meet the specific criteria outlined for REPS.

*Not official tax advice. Pls consult an experienced tax professional that can tailor advice unique to your situation*

Shane -

Typically, when you own rental properties through an LLC, the income and expenses associated with those properties flow through to your personal tax return. A single-member LLC is considered a "disregarded entity" for tax purposes, meaning that the IRS disregards the entity, and you report the income and expenses on your individual tax return.

It's common for investors to use an LLC for liability protection and to keep their business and personal finances separate. However, the tax treatment may not change significantly in terms of reporting income and deductions.

The idea of using the LLC as a management company is interesting but may not be necessary for the purposes of deducting expenses. Typically, you can deduct legitimate business expenses associated with managing and maintaining rental properties directly on your Schedule E.

Depreciation, advertising, insurance, interest, lawn care, and other relevant expenses can be deducted as part of your rental property business.

 Ben - Thanks for writing. Let's connect. Thanks.

Alexandra -

Thanks for the question.

If you've been running the rental activities through the LLC, but the title is still held under personal names, you're essentially operating as a disregarded entity for tax purposes. In this situation, the LLC is treated as a pass-through entity, and the income and expenses flow through to the individual members. Here's how you might handle this for tax reporting:

1. You can report the rental income and expenses on Schedule E of your individual tax return (Form 1040). This is the standard way to report rental real estate activities.
2. Since you are a multi-member LLC, you might think about filing Form 1065 (U.S. Return of Partnership Income) for your LLC. However, if the LLC is treated as a disregarded entity for tax purposes, you won't need to file Form 1065. Instead, the activity is reported on the individual members' tax returns.
3. You can still claim depreciation on the property on your Schedule E. Even though the title is not held by the LLC, the LLC is the one conducting the rental activity.
4. While not directly related to the current tax year, you might want to consider transferring the title of the property to the LLC for liability protection and potential tax benefits in the future.

When you make an adjustment to the reported amount on the 1099-S, it's generally a good practice to keep supporting documentation in case the tax authorities inquire about it. In your case, since you reduced the reported amount on the 1099-S to reflect the actual amount you received after the payment to the program, you might want to have the documentation from the county's request readily available.

While it's not mandatory to submit the documentation with your tax return, having it on hand can be helpful in case of an audit or if the IRS requests additional information. You can retain the relevant documents, such as the request from the county and any communication related to the payment, in your records.

If the tax authorities have questions about the adjustment, you can provide the documentation at that time. It's always a good idea to keep thorough records and be prepared to support any changes made to your tax return.

If you're uncertain about how to proceed or have concerns, consider consulting with a tax professional for personalized advice based on your specific situation.

The payment you made to the program, which required half of the profits from the sale, is typically not considered a closing cost in the traditional sense. Instead, it's often treated as a separate obligation related to the terms of the program. The 1099-S you received at closing reflects the full sales price because it's reporting the total amount received from the sale before any specific deductions or payments.

For tax purposes, you would need to consider the net proceeds from the sale. In this case, you may need to adjust the reported sales price to reflect the amount paid back to the program. The net proceeds would be the actual amount you received after deducting the payment to the program.

It's advisable to consult with a tax professional to ensure that you accurately report the sale on your tax return, taking into account any payments or obligations associated with the program. They can help you navigate the complexities of reporting real estate transactions and provide guidance on properly accounting for such payments.

Daniel -

Yes, it's possible to conduct a cost segregation study for the tax year 2023 in 2024, as long as the study is completed before the tax filing deadline. The purpose of a cost segregation study is to reclassify certain assets within a property to accelerate depreciation and take advantage of potential tax benefits.

To benefit from the increased bonus depreciation, it's important to ensure that the cost segregation study is completed and the necessary information is included in your tax return for the applicable tax year before the filing deadline. Typically, the cost segregation study should be conducted in a timely manner to provide the required information for tax planning and preparation.

Be sure to work with a qualified tax professional or cost segregation specialist to ensure that the study is done correctly and that all relevant details are considered for your specific situation.