All Forum Posts by: Michael Plaks

@Kim LeJeune

If you lived there and sell shortly after (within 3 years), you may not owe capital gain tax.

When you ask about the form, it sounds like you intend to wrestle with forms. Don't. It is a job for tax software and accountants. The questions you ask are good ones, but they cover too much territory to answer in an online post.

PS. Forms involved are 6252, 4757, Sch B and Sch D.

@Mark Mahoney

Our system is called income tax, not bank balance tax. 

You pay taxes on your income, such as 1099 and K1, regardless of what you do with that income after you receive it - keep it, reinvest it or blow it in Vegas.

That said, if you buy a $500k rental property in the same year, you will get some deductions, but they will not erase your taxes from the $100k income, not even close.

May be worth it to connect with a tax expert to develop an investment plan and a tax plan.

@Kim LeJeune

I have to assume that it was a rental house, as opposed to your personal residence or a flip.

Each monthly payment has 3 components: 

1. interest - taxable as ordinary income
2. return of your principal - not taxable
3. capital gain - taxable at various rates

Your down payment has components #2 and #3.

Interest should come from an amortization table. The formula dividing the taxable and non-taxable portions of the principal is not for manual calculation. It should be handled by your tax software or, better yet, by an accountant.

You also have an option of paying the entire capital gain upfront, which is usually not to your advantage, however in some situations it could be.

@Stephen Rager

Books by Stephen Fishman and Sandy Botkin on Amazon

The best one is to put each property into a separate land trust, with the beneficiary being a multi-member LLC, consisting of an offshore C-corporation general partner and a minimum of 10 revocable trusts as limited partners - per property. Don't spare any costs when your generational wealth is at stake. 

Almost forgot - each of these entities must have a minimum of 3 separate bank accounts, located in 3 different banks. At least one of these banks must be overseas or in Wyoming. Otherwise, it's commingling funds, and the big bad guys will be hauling off your furniture tomorrow morning. Be safe.

@Nicholas Aiola

In the OP case, they already had an LLC operating as landlord. They included extra properties that the LLC did not legally own, but could have owned if only they transferred the title. Except the legal ownership, the LLC acted as an owner.

And everyone asked for the CPA's head. I still do not understand why.

Stumbled upon this old thread and want to stir the pot a little. 

Let's distill just one issue that was part of the discussion: can a multi-member LLC report a rental property on its partnership tax return if the title has not been transferred to the partnership? 

Before clarifying my question, here're the issues that I'm intentionally ignoring:

• all legal issues, including asset protection, validity of lease and inheritance
• all mortgage issues, including due on sale and title insurance
• all insurance issues
• passive activity loss implications (good point though, Nick)
• 1031 implications (be quiet, @Dave Foster  :)  )
• whether the partners are a married couple or unrelated
• whether they have other properties remaining outside of the LLC
• bookkeeping details

So all of those complications aside, let's take an example. Bill and Susan bought a rental house under their own names and split everything 50/50. Let's say no mortgage, to make the issue as unobstructed as possible.

For whatever reason, which is not the point of my question, Bill and Susan form an LLC and start running all their rental operation thru it. The rent is deposited into the LLC account, all expenses are paid of the LLC account etc. So the LLC acts AS IF it owned the property, except it does not on the title. (To soften the protests of the purists, we can even document the assignment of the ownership rights and responsibilities to the LLC via an LLC resolution.)

So why would NOT the LLC report this property on the partnership return now? Would not it be even proper to do so? And what are the dire consequences of doing so, besides PAL and 1031?

Frankly, I'm surprised by the collective quest to crucify that CPA. What say ya, @Nicholas Aiola, @Natalie Kolodij, @Steven Hamilton II, @Linda Weygant, @Lance Lvovsky, @Stanley Bronstein?

@David Kuhlke

The biggest benefit of a local CPA is that you can spend 2 hours in traffic going to and from his office and transmit the coronavirus in person.

Everything else can be accomplished via phone or video conference and secure portals. Even local clients almost never visit my physical office.

It is my understanding that 15-yr property, including land improvements and qualified improvements, qualifies both for 1031s as real property and for bonus depreciation. Do you disagree, John?

@Teresa Thomas

Most of us accountants who contribute to this forum work remotely and nationwide.

You do have a fantastic local one: @Daniel Hyman