All Forum Posts by: Kory Reynolds

Bookkeeping can be done remotely, so you can broaden your search nation wide, or even international.

My experience is that it has been incredibly difficult for clients to find a good bookkeeper, and when you find a really good one, they will not be anywhere near the cheapest.  Even then a lot of the really good ones let themselves get overbooked, so the flow of information tends to slow down.

A starting trend is I have a few real estate investor clients going overseas - there are more than a few larger and reputable firms in India offering bookkeeping services to US companies, typically on QuickBooks Online, and typically much cheaper than US rates.  At least in the relatively small sample size I have seen, the clients I have using them (represents about 40 entities between 3 clients), they do good and prompt work, and are good at coordinating with the CPA to ensure they get the reporting right for each type of property.  That said, it comes with it's own issues of time zone differences, communication and cultural differences, etc, but overall from my perspective I would rate it as a positive experience so far.

Bookkeeping is incredibly important since it is the foundation of your tax reporting, your investor reporting, analysis of the performance of your investments - it isn't something to skimp on. 

When one spouse qualifies as a real estate professional and makes a valid aggregation election of all rental property activities, then the benefit of that status and aggregation applies to all rental activities owned by either spouse.  This assumes married filing jointly - I'll admit I haven't looked into if there is a different answer if Married Filing Separately, but it seems plausible the answer could be different.

I wont' speak to the audit risk, but at least if it is not a syndicated conservation easement structure, it is not a listed transaction which requires the taxpayer to disclose that they participated.

If you are having a fee interest in a piece of land as a part of some kind of syndicated management structure (and just called a fee ownership arrangement to try and skirt around the rules), back to square one, it is a listed transaction you need to disclose.

If this is just you, on your own, buying land, doing some work, and then donating a conservation easement, then it is not a listed transaction.  That said, still disclosure required given a donation of the property, and the need to have a third party appraisal performed, the appraisers qualifications, and depending on the amount, attach a copy of that appraisal to the tax return.  The IRS will have all the information they need to pursue if they are so inclined.  It seems the risk here would still be significant - supporting why when you purchased the property, say you paid $100k for it, and now it is worth $500k a year later - what happened?

For what it is worth, for my dollars, I would not look to do any conservation easement 'investing' - anything with a sponsor is a target right now, and even on your own it seems high risk given how closely the IRS is looking at valuations.  Thinking about it honestly - if the property was really going to 5x over the course of a year, why wouldn't you sell it instead?  The cash in your pocket far outweighs the tax benefits of donating it.  This is why the easement 'investing' is typically based on VERY generous, if not fraudulent, appraisals - no one would ever actually pay what the appraiser is claiming.

1) Correct that in future years, the depreciation is much less.  Cost segregation is a timing difference - you are accelerating the deduction to an earlier year, rather that deducting over 27.5 / 39 years.  Over that whole time period, cost seg or not, you get the same deductions.  It is a time value of money proposition, less taxes paid and more money in your pocket now is worth more to you now than in the future, and does that time benefit of money analysis outweigh the cost of doing the study.

2) Any excess losses created by the cost segregation that cannot be taken are carried over to future years, and can offset you rental and other sources of passive income, including other rental properties (assuming not a qualified real estate professional).  So the acceleration doesn't provide a year 1 benefit, but maybe it provides a better year 1-5 benefit.  This is where tax planning is useful.

3) There is another way to go - one could do a cost segregation study, and elect out of bonus depreciation.  You still get a few benefits of the study - pulling more depreciation into the next 1-15 years than you would have otherwise had. 

4) Whether you 'need' more bonus depreciation now or not, one under discussed provision of a cost segregation study is that a good one provides you a clear schedule for when you dispose of various assets.  Say you replace all your windows in a few years...well those would need to be capitalized and depreciated over 27.5 years.  But, if you had a study, it gives you a clear break out of how much of your original cost was 'windows', and you can take a tax write off for the old windows.  Cost seg study is often better for this to me than a partial asset disposition calculation when talking about buying old properties, since the partial asset disposition doesn't property take into account the significant age of various components when you originally acquired the building. 

1) 750 hours isn't the only test - there is also "more than 50% of your personal service hours".  Assuming the S-Corp construction company is your primary gig, you would also likely check this box.  The secondary test - do you materially participate in your rental real estate activities - is what will matter for then being able to actually deduct any cost segregation related losses against your construction and other sources of active income.

2) You can do a cost segregation on a property if it is owned personally.  On a side note, owning real estate in an S-Corp is typically a terrible idea if you can avoid it due to basis limitation issues.

3) There is no form you need to file with the IRS saying you are a real estate professional.  If you elect to aggregate all your rental activities together for determining material participation in those activities, there is an election that needs to be filed the first year.  On a go forward basis it is a matter of properly coding your rental activities as a materially participating real estate professional as required.

4) REP status does not necessarily increase the chance of audits, but I wouldn't be surprised if the IRS has 'checks' in their system looking for those who are high W-2 earners in companies they do not own, and are also claiming the status.

5) Many accountants on this forum work with people nationwide, and now is the best time of year to reach out and have discussions if you are interested.

Agreed that STR are not under the per se passive rules, and there is no real estate professional requirement related to them. Which is why I state that they are are a separate consideration.

To be a REP you pass 1 test....you need more than 750 hours / more than 50% of your personal service hours in real property trades or businesses (note...not "rental" property trades or businesses"). Real property trades or businesses includes any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage trade or business. Not limited to rental activities at all. This is the test I was referring to that STR hours would count towards. Passing this first test alone does not make the losses on rental real estate non-passive, all it does is open the door to the next step.

The second part to actually benefit from being a REP for ones rental real estate activities is if you materially participate in your rental real estate activities, including the option to aggregate all your rental real estate for determining if you materially participate. STR activities are not included as a part of this test, because they are not "rental real estate" activities.

It is very possible for someone to qualify as a "real estate professional" but not actually benefit from the status.  IE if one is in construction, they may spend all their time doing that, and then separately they invest in a syndication.  Sure they are a REP, but they don't materially participate in their rental real estate activities, so the losses in the rental game would remain passive.

I typically see 20-30% of the building value in year 1 as assets eligible for the 8-% bonus depreciation (sub 20 year life assets).  Many cost seg providers will give you a rough estimate on your project as a part of the quote process.

Note that in order to actually use those losses against your W-2 income you do need to 'materially participate' in that short term rental activity.  That also means that if you end up hiring a property manager (you didn't say one way or another in your post) you would be unable to use those losses.

@Account Closed is exactly correct - the answer to your question would be "it depends".  No one can say for sure without taking a look at the operating agreement or the current year activity of hte partnership since allocations outlined in the partnership agreement can be (almost) endlessly flexible.  I say "almost" since there are specific provisions of the code that must be considered for the IRS to respect any special allocations made. 

In a very simple partnership, where everyone has contributed proportional capital at the same time, has a proportional share of the profits, and guarantees a proportional share of the debt, and no one contributed property other than cash, then the answer to your question would typically be "yes" - the 20% partner would effectively be allocated 20% of the gross income of the partnership and 20% of the gross deductions.  For a rental partnership their K-1 will reflect their 20% share of the net income (income less expenses), and all of their other tax items would generally be 20% of the total partnership.

Partnerships are much more complex than many give them credit for, so if you are unsure or there are any special allocations of income or deduction that could be occurring, you should get someone experienced in this realm on your team.

You can have multiple 401(k) or other type retirement accounts, but there are restrictions on related parties (as Michael alludes to above).  What you are proposing doesn't work - while you might consider these different businesses, the controlled groups rules would definitely not.

The annual employee deferral has the same combined maximum across all 401(k) plans.  The employer share is not limited by the same limitation. Given if you have a Solo 401(k) you can set rather generous profit sharing "employer" contributions, you could benefit on both sides.  There are also creative plans out there that effectively solo fund a defined benefit plan (pension), sometimes referred to as a 'cash balance plan' - these are very complex and highly formula driven, but they can create a powerful savings mechanism if the right circumstances apply.   There is even the possibility of it hitting the level of deferral you are proposing of $500k+ in the right circumstances for a husband & wife business.  BUT...this does take a very narrow set of circumstances between your and spouse ages, earnings of the business and quality of those earnings, the number, age, and compensation of any employees...

If you are considering getting creative, definitely not a DIY activity, it would be worth getting someone involved who can advise on setting these plans up, dealing with the annual disclosures, and if something more complex than a basic Solo 401k - dealing with the calculations. 

 This is very true.  I have a lot of newer clients that come in initially thinking we'll be meeting numerous times a year to constantly scheme around taxes.  Thankfully the tax code is not that liquid (most years...TCJA through Covid was a fun time) - typically there is a lot of planning up front, and then the most common approach is ad hoc discussions throughout the year where tax does matter, and depending on our plan maybe projections and more formal discussions closer to year end.  Selling or buying a property can be good "FYI" moments to communicate to your tax advisor, perhaps large capital expenditures depending on your experience, same thing with any new partnerships, changes in ownership or agreements, changes in your goals, etc - a good moment to just reach out to your advisor to effectively say "FYI this is happening, let me know if there is anything I should be thinking about.".  Key word...BEFORE any of these things are actually executed.