All Forum Posts by: Michael Plaks

Or to any other EIDL question, really.

I assume this is what you mean: a business that you own personally received an EIDL loan. You're also a partner in another business, and that other business did a flip. You're wondering if the flip of which you own 50% thru the partnership is required to be declared as collateral against your own EIDL loan. The answer is no, to the best of my knowledge. Sadly, literally nobody can claim knowing anything for sure when it comes to these SBA loans.

As to your desire to never violate anything - forget it, it's impossible when in business.

@John Cantu

From the agreement: "Borrower will not sell or transfer any collateral (except normal inventory turnover in the ordinary course of business) described in the "Collateral" paragraph hereof without the prior written consent of SBA."

@Greg Widdicombe

You're correct. Box 7.

The contractor requests Box 3 because that box can help him escape the self-employment tax, and he wants to game the system. Deny.

It's easy to find the descriptions of the $25k allowance online, for example here:
https://www.biggerpockets.com/blog/beginners-guide-depreciating-investment
so forgive me for not going into it. The reason is why it is usually available for SFHs and small groups but NOT for syndications is that you must own at least 10% of the property, which makes it a non-starter for syndications. If your income is too high, then it's not available for any type of investments.

I want to address other parts of your question. There're several subtle but important inaccuracies in your K-1 description. 

- A syndication does not pay taxes, so it does not "take losses." It merely calculates them, divides them between the partners and reports them on K-1s. Each partner may or may not be allowed to claim his respective portion of the syndication losses on his personal tax return. Some partners may be able to, and others may not.

- Depreciation is not passed thru K-1s, at least not directly. It's baked into the total partnership loss which is passed thru K-1s. Say you receive a K-1 that says you have a taxable loss of $500. You cannot tell how much of that loss is due to depreciation, unless you review the partnership return itself. Your share of depreciation could be $100, $500 or $5,000, and it's not reported on K-1.

- K-1s report two important numbers that are actually not related and do not work together. The first is taxable income or loss. It incorporates all elements of income and expenses, depreciation being one of them. It has nothing to do with your capital investment, only with taxes. The other number is your actual cash distributions. They are not taxable except for some rare circumstances. You may think of them as return of your capital, but it is not really accurate. There's more to that.

The important part to understand is that these two numbers are never equal, and the distribution number is irrelevant for tax purposes most of the time. You can have a negative loss for tax purposes while showing a positive cash distribution. You can have a positive taxable income while having zero distributions. And so on.

@Kate Christenbury

@Kory Reynolds gave you the correct answer, which is a no...

...assuming that we're talking about a 2nd home that you use for your personal vacations or that of your family and friends, as opposed to using it as an investment property rented to unrelated people. 

If it's the latter, then the rules for personal residences no longer apply. You would have an investment property, and your interest would be deductible against your income from this property. It won't matter that it's secured by your personal residence.

It gets much more complicated in reality, because you would have a mixture of business and personal use, but the point is that your interest will be at least partially deductible, and in a much better place than personal itemized deductions on Schedule A.

Once again, if the property is never rented for profit - then the interest attributed to it is not deductible unless the loan is secured by that same property.

I requested it. Submitted the paperwork and blood and urine samples to BP. Waiting for the big decision. 

Not quite. There are two critical distinctions with the assets that you control or at least own a major piece of:

1. You may be able to apply some losses, up to $25k per year, against your regular income if it's not too high

2. You may 1031-exchange assets, postponing your capital gains and depreciation recapture indefinitely or even eliminate them permanently if you never sell and leave the wealth to your heirs

Besides the benefit of being a passive investor and utilizing other people's experience, one fundamental advantage of syndications is an opportunity to invest in larger assets that an individual or a small group simply cannot afford.

@John Tiernan

https://www.therealestatecpa.com/ultimate-guide-irs-schedule-e/

https://www.biggerpockets.com/renewsblog/rental-tax-write-offs/

Warning: your deductions do not start until the rehab is finished. Your $10k repair cost will not be deductible at once, it will be deducted very slowly over many years, known as depreciation.

If you're expecting "up the wazoo" deductions, you've been misled. There are tax benefits of owning real estate, but they should never to be the reason to buy properties. You buy them for long-term wealth accumulation and cash flow.

@Pratish SHah

Depends on the nature of repairs and the lease situation.

If the condo is ready and available for rent on June 15th, and your repairs are minor/cosmetic in nature (probably the case since you lived there), and particularly if you already have a tenant signed the lease from July 1st - then you should be able to claim the property being placed in service on June 15th and deduct both the mileage and the cost of the repairs. 

The only way to be 100% sure is to discuss all specifics with a tax pro.