All Forum Posts by: Logan Allec

@Brian Reiner, @Aaron K. has a good idea.

My first deal was a 4-unit up I bought with FHA 3.5% in Santa Clarita.

I lived for free (as opposed to paying rent) + enjoyed cash flow + built equity so it definitely didn't compromise my cash reserves.

Good luck!

@Mike Abramowitz, OK, just make sure you review the 704(b) and 704(c) regs!

@Yonah Weiss honestly a cost seg would have to be pretty inexpensive for it to be worth it on a $500k property (with even less than that amount depreciable basis due to the land) since you're trading permanent dollars for what amounts to a timing difference...and in my experience cost segs are not cheap...I mean the analysis is largely driven by whether the rate of return you earn on your cash tax savings (driven of course by your individual marginal tax rate) due to accelerated depreciation will outweigh the cash outlay for the cost of the cost seg itself...I'm just not seeing the math working out on a $500k property even with bonus unless again the cost seg is super affordable...and in my experience "affordable cost seg" is an oxymoron.  But maybe I'm just talking to the wrong providers and of course in a Los Angeles and San Francisco context where naturally more basis would be allocated to nondepreciable land than in other locales.  What are your fees?  Feel free to PM offline.

@Mike Abramowitz, are you looking to add a new member to your LLC (post title) or is an existing member looking to contribute his personal property into the LLC (which is what it sounds like from the post itself)?

"As far as the taxes side of things and operating agreement, I'm not concerned with that..."

May I ask why? I'm no attorney, but it's my understanding that if you do not run your business as described in the operating agreement, it could cause your LLC to not be respected in court. Your operating agreement is really all your LLC has, and it's important for LLC owners to run their business in accordance with the LLC agreement.

Also, for tax purposes, if the value that the LLC assigns your partner's property when he contributes it to the LLC differs from his own tax basis in the property, he then has a built-in gain or loss on this property, and this will likely result in unique allocations of depreciation, gain or loss on sale, and other items if you want to keep the IRS out of your hair. Hopefully your operating agreement makes reference to Section 704 of the Internal Revenue Code because this is exactly where it applies.

@Paul Caputo, this sounds like a 3-unit building.  Would a cost seg really be worth it?

@Allen McGlashing, your situation is extremely common and simply being in a loss position alone would not cause the IRS to characterize your activity as not for profit.  It's an issue of intent.  If you are conducting this activity in a businesslike manner, if you are intending for this activity to turn a profit and you are taking action toward that goal, if you can expect to make a future profit (even if from appreciation), etc., then it looks more and more like you are conducting this activity for profit.

Roughly speaking, if your income is $100,000 or less (apart from this rental activity), you can deduct up to $25,000 of rental losses a year.  If your income is more than $100,000 and less than $150,000 (apart from the rental activity), you can take some deduction but not the full $25,000.  If you make $150,000 or more, you can't deduct any rental losses against your non-rental income (unless you're a real estate professional).

Note however that not all of your expenditures may be immediately deducted for tax purposes.  For example, rehab costs before you placed property in service typically has to be capitalized to the basis of the building.  Be sure to consult with a qualified tax professional.

@Tim Sisk you can't 1031 a flip.