All Forum Posts by: Louis P.

 NVM, found it!

There's nothing listed like this in all of Hampden County.  Where is this supposed to be?

Evan, looks like maybe what your referring to is that any personal property is classified as sec 1245 so the recapture on that portion is taxed as ordinary income (and rest of property is taxed differently).  It's talked about in another thread here.  Interesting and good to keep in mind.

Relevant Post:

https://www.biggerpockets.com/forums/51/topics/1218055-what-is-recapture

Thanks for raising that Evan, it's interesting if true.  Can anyone corroborate this?

Conceptually, I don't see why that would be the case.  REPS is what allows depreciation to offset active income, not CS itself.  CS is just a difference in the timing of when depreciation is recognized (or what is depreciated), it shouldn't change the nature of the investment type (short term vs long term). REPS and CS and ST/LT investments are all independent things and while there can be tax benefits when applying them in conjunction they shouldn't change the nature of each other.  Would be good to clarify this as it would be meaningful if upon sale those gains were taxed as active income.

I'll preface by saying I'm not a tax expert, but just went through a cost segregation as a REPS and this was my view.

The benefit from pulling out these items coupled with the bonus depreciation far outweighs any incrementally higher taxes in later years, by quite a large margin.  I was able to see this with a future depreciation table and compare against the non CS expectations.

I'm not sure about recapture, presumably yes this is not ideal and probably exacerbates the current recapture issue.  I'd expect on longer timelines this is less meaningful.  This wasn't a meaningful analysis for my purposes.

If someone doesn't have REPS, I'm mixed on how beneficial it is, but with REPS it seems like a big value add and does seem like kind of a free lunch.

That's what happens when interest rates are at 8% and purchase price/gross yields haven't adjusted.

The gross rental yield is only 9%, coupled with expenses it's less than the cost of financing - hence you earn yield by removing the cost of financing with cash.

High rates encourage this kind of behavior (holding cash or using cash to cut interest expense).  The market hasn't adjusted yet, liquidity will come out, prices will come down, or rents will go up....or some combination of all three to make pricing work.  Right now it doesn't.

That's interesting Samuel - does leasing make up a large/meaningful percent of the PM revenue?  That's a good amount of staff per door IMO.  Would seem you're either getting very strong $ per door, substantial leasing income, or cost of staff is relatively low.

Just curious, and interesting to see the different ways people can structure the same business quite differently (even Nathan's evolution is a good example).

Some owners choose to pay Capex themselves and others have us pay. If it's a relatively smaller Capex item that's within the range of a month or two's rent we'll usually pay it - anything more than that is usually direct.

We don't capitalize Capex and usually run it through the income statement. We can, however we are not the CPA/Tax preparer for clients. As long as the transaction/cost is identified and can be attributed as desired by the client, that is the key.

As a PM, we don't usually have the full perspective of a client's balance sheet.  They usually pay debt and some owner expenses (taxes, water, etc.).  I'd venture to say 99% of PM statements are inadequate or incomplete from a tax (or balance sheet) perspective and is also not likely the intent - more so to capture relevant income/expenses at that level.  

Hope that helps!

Sure, of course.  There are normal income & deductions though and trying to gauge through practical experience what range people are seeing.  I'm not looking for an exact number but a helpful approximation to see what's possible.  In particular, I think someone would be hard pressed to approach 0%, maybe I'm wrong.  It also gives some insight into how people structure their expense base.

Are you seeing your clients range from 0-40% - is there no rough approximation?  I'd guess 40% is on the high side.

For example, it's probably fair to see most leveraged real estate properties generate little (meaningful) taxable income.  It's usually taxed pretty favorably, not always true but a good rule of thumb.  Just looking for some context and thoughts.

It's Tax Time!  Curious to see what independent property managers or real estate agents are seeing for effective tax rates.

Given it's a service business with little offsetting expenses/deductions, seems like it can be difficult to lower the tax burden.

As an example, for every $100 of net income, I'd ballpark that 20% of that could be paid in taxes after reasonable deductions.