All Forum Posts by: Michael Plaks

1040-ES is a paper voucher if you send payment by snail mail. 

Not needed if you pay on the IRS website - which is the right way to pay.

Excellent question, and a sensible plan. For the QOZ funds purposes, you do not have to net losses against gains. You can invest the full January gain, within 180 days.

@Patrick J.

There're three possible interpretations of your question.

1. Making payments in advance. So, if you expect to owe $40,000 for 2020 a year from now, you're supposed to make 4 payments, $10,000 each, on Apr 15, June 15, Sep 15 and Jan 15. Can you instead make one prepayment of $40,000 on Apr 15? Yes, but it's shooting yourself in the foot. Your money will be sitting in the IRS coffers, without any interest paid to you. 

Also, due to the virus, the April 15 payment this year can be made as late as July 15, without interest or penalties.

2. Making payments late. Same example as above, but you want to make one $40,000 payment on Jan 15, the date for the last of the 4 payments. Think about it - if it was permitted, who would be making the 4 payments? Everyone would wait until Jan 15 then.

So no, it is not allowed. If you do so, you will owe "estimated tax penalty" which in reality is a hidden interest, currently at 6% annual. If interest by itself does not discourage you, keep in mind that you will technically be not in compliance, which prevents you from, for example, working out a payment plan on an old IRS debt.

3. Catch-up payment on April 15 instead of the 4 payments. This is the same as #2, only worse, because you will be past even the last of the 4 payment dates, and your penalty/interest will be higher.

There're ways to reduce or avoid the estimated payment penalty by planning ahead, but it's case by case.

Finally, if your income is uneven, and most of it came late in the year, for example you sold a large property towards the end of the year - the rules are different, and it's best to consult an accountant.

@Shafi Noss

Without an example, I can't be sure we're on the same page.

Say you bought a property for $200k 10 years ago, depreciated $50k of it, and are selling it for $300k now.

You have a $150k capital gain, $50k of which is taxed under 1250 recapture rules, and $100k under long-term cap gains rules.

Now, a mathematically flawed example below, just to illustrate the concept. In reality, it is more complicated.

• If you're in a 12% bracket, your $50k will be taxed at 12%, and your $100k at 0% .
• If you're in a 24% bracket, your $50k will be taxed at 24%, and your $100k at 15% (maxed out for moderate AGI).
• If you're in a 35% bracket, your $50k will be taxed at 25% (maxed out), and your $100k at 20% (rate bump at high AGI).

@Jo Jennings

I agree with what my colleagues said earlier. I want to add an important point: the decisions on how to treat it for taxes will be made a year from now, while working on your 2020 taxes. By that time, there will be more clarity of what happens with the property.

Discussing it now is more like discussing what college your kid will go to before she graduated from her preschool. (Well, I know people who do that.)

My only recommendation for now is to open a separate bank account for everything related to this property, make sure that all related expenses are channeled thru this account, and only expenses related to this property. Also, document any actions and conversations you have about potential business use of this property. Then, connect with a tax professional later in the year.

Are you asking about signing a contract with your leasing agent now? In other words, sign a contract that you owed him $1,949 commissions today, even though he already got paid? If this is your question, then yes, I recommend you do it.

With this contract signed, you should use the first method: report full rent that your agent collected from the tenant and deduct one month of rent (that he kept) as your expense.

@David V.

I confirm that @Joe Splitrock is correct. Deductibility follows what the money is used for.

The prorated portion of the interest corresponding to the $80k is deductible against the original rental property.

The interest portion corresponding to the $100k is deductible or not depending on how you use the money. If you bought another rental - then deductible against that new rental. If you bought toilet paper - then not deductible, unless the TP is for your AirBnB.

You cannot have 0% taxable income with high salary and $1.5M non-RE business.

Also, you cannot expect useful tax planning advice for a multi-million household from a free online resource. The only advice I can give you is to hire a tax professional.

@Matthew Orton

I agree with your risk assessment, however every risk means an opportunity. The MF prices should be negotiable under the current situation.

As to your tax question, you other alternative is Qualified Opportunity Zones funds - look into them. 

Deferred sales trusts have always been and continue to be controversial. Search this forum, and you will see many threads debating their benefits and risks.

Reminder: we're dealing here with an investor and an agent who do not sign contracts! What books and 1099s do you expect here? Want to counter my bet that books do not exist?

I did mention in my earlier comment that it was not technically correct. However, if these folks are audited, all they have to show is a $9,000 deposit. If I'm hired to defend them in an IRS audit, which I have done plenty in 20 years, I'd much rather defend $9,000 income supported by bank statements than undocumented $10,000 income and undocumented $1,000 commission.