All Forum Posts by: Michael Plaks

@Greg O'Brien

You must be a lawyer. :)  3rd long comment and still avoiding my question. Nobody is arguing with you about 8/52, no need to repeat it. The issue is using the funds to qualify for forgiveness.

Are you saying the SE forgiveness will be automatic? The bank just forgives 8/52 with no questions about how the funds were used? Would be nice, but I personally doubt so.

And if not automatic - then what? What will the banks ask for? How should clients use the funds meanwhile?

Exactly. :)  The point was: even us tax professionals who do it for a living and for many years do not have what you ask for - a simple yes/no answer. 

The not-so-helpful answer seems to be (but I don't want to reopen this can of worms): maybe, in some cases, and that would require making an aggregation election. The election, by the way, is irrevocable and is not a no-brainer, it could create undesirable side effects.

We certainly agree on at least one more round of guidance coming. Also agree that we cannot wait. Which brings me to the question you skillfully drove around: what do you tell your clients to do with the funds they received? Keep it in the account? Spend on whatever they want? Distribute to themselves? THIS is the question that has zero clarity. 

We cannot (or at least I myself cannot) just assume that 8/52 amount will be automatically forgiven. I expect a request that SE borrowers show something to be forgiven. Show what? Exactly.

@Jason Powell

Take some strong coffee (or something even stronger) and try to figure out what we argued about on this older thread and whether we agreed on anything. Warning: very technical.

https://www.biggerpockets.com/forums/51/topics/647412-syndication-losses-against-active-income

 

Nobody can give you proper advice without learning your entire business and financial circumstances. So the best we can do is some general rules of thumb. For example, STRs should not be held in the same entity with conventional rentals - for tax reasons. 

I'm frankly surprised that your attorney suggested combining them. Would not it increase your legal liability exposure? Not arguing with your attorney, as I'm not one myself, just wondering what his reasoning was on this one.

Unless your attorney objects, I'd form a new LLC for your new property and keep the STRs in an S-corp, as your current CPA suggested.

I think you're overly optimistic about the clarity of SE forgiveness. Tony Nitti, among others, pointed out that the 8/52 limitation is inconsistent with the Act itself and with the application of forgiveness to all other borrowers. It essentially ensures partial forgiveness for every SE applicant. It is likely to be revised, IMHO.

What it most unclear is the mechanics of the SE forgiveness. The money has to be spent on payroll or, in SE case, "owner compensation replacement." How do we accomplish this? Writing a check to ourselves every week equal to 1/52 of 2019 Sch C? Or is it automatically forgiven without verifying how the funds are used?  

@David Gates

You did not provide the timeline of your purchases and sales, so we have to guess. If you lived in Property A for 2+ years, then rented it, and it was less than 3 years between the date you moved out of it and the date you sold it - then Property A qualifies for the exclusion. You will, however, have to pay taxes on the depreciation taken since you moved out.

If you moved into Property B and then lived 2+ years there before it was sold - then Property B also qualifies for the exclusion. One possible complication: if, before moving into Property B, you used it as a rental or in some other way, your exclusion for Property B is only partial.

If both properties qualify, you can only apply an exclusion to one of them. You cannot apply it to both or split the exclusion between them. 

The other property have these options to consider for capital gain deferral:

1. 1031 exchange. Only for a rental property, and too late anyway, because it has been sold.
2. Monetized installment sale. It is controversial and has been discussed on this forum on multiple threads - search the forum.
3. Qualified Opportunity Zone funds. Has also been discussed a lot here. 

You brought up a partial exclusion. I have to guess that you sold either Property A or Property B before the 2-yr mark. Having a car stolen would not fly as an excuse. I have defended clients against the IRS for over 20 years, but I can't use this one as a justification for changing residences with a straight face.

@Paula Rodriguez

If you're retired on limited income, you may have very little (or even zero!) capital gains tax. You may not need a 1031 exchange at all.

@Rochelle Durieux

What do you mean - should you be doing it? Did you decide to do it yourself?

Look for form 4562 on your 2015 tax return. It should give you details on how much was set up for amortization (or depreciation, they're similar) and for how many years. Share with us these details if you want to. You should continue that pattern for the elected number of years, most likely.

@Bernard Sanga

Your CPA did nothing wrong for you to fire him. Under the current tax regime, most people have a higher standard deduction than they would with itemized deductions, such as property taxes and mortgage interest on your residence. It was different before 2018, but now it is the case.

Investment properties do not have these same issues, and most CPAs can handle rental properties correctly.