All Forum Posts by: Michael Plaks

@Crystina Milici

Try @Nicholas Aiola and @Basit Siddiqi

@James Rose

Like @Bill Hampton said, remote relationships are the way of life nowadays. But if you insist on local, attend local REI events or ask on the Seattle forum here:
https://www.biggerpockets.com/forums/770-seattle-real-estate-forum

@Bob Stein

You send the owner a 1099-MISC for $10k, Box 1 - Rents.

On your taxes, if you're using Schedule C, Line 1 reports $10,000. Then you subtract $9,500 to arrive to $500. Where $9,500 is subtracted is debatable. I recommend Line 2.

Do not put $500 on Line 1 if you do not enjoy dealing with the IRS inquiries.

If you're scared of $50, maybe real estate business if not for you.

Let me jump in between two Arizona Mike Ms - maybe I can make a wish or something from such rare coincidence, especially since I'm yet another Mike myself, albeit from Texas.

The Paradise Valley Mike makes a good argument on behalf of the IRS, but luckily for the Tucson Mike, this is not how the tax law works. You're entitled to deduct labor regardless of issuing 1099s. The IRS does want you to file 1099s, and they specifically ask you on the tax forms whether or not you did. During an IRS audit, they may raise this issue, because it is legally your responsibility. You may have to pay penalties for not issuing 1099s. However, the 1099 reporting requirement is separate from the right to deduct labor costs. 

If audited, you would have to prove that you actually made these payments, so receipts and good records are very important. Avoid cash if you can. 

All of that said, the Paradise Valley Mike describes what good business practices should be. Hiring cheap illegal labor can backfire in many ways: IRS scrutiny, dealing with immigration authorities, exposure to legal liability for injuries and accidents and generally low quality of work. Sometimes, it ends up costing more.

@Michael King

On your taxes, report according to your records: $48,595 rent income and $6,025 management fee expenses (or, if possible, break it out between management fees and commissions for leasing). You should also deduct all maintenance/utilities and whatever else they may have paid on your behalf. 

They should have reported gross income. But however they figured their numbers for 1099 does not harm you, since their number is below the actual number.

@Ryan Russell

Too early to start tax planning at this stage. In fact, too early to even think about taxes.

Figure out the investing game plan first and get some deals under your belt. Then taxes.

@Harrison Biddulph

It seems that you want to change the optics of this joint ownership without actually changing said ownership. In other words, you both will continue to share the economic benefits of your inheritance, as in splitting the $20k income, while telling the government and the lenders that it is not the case. I believe you understand why this is not an idea that professionals can endorse.

If you're planning to actually alter the ownership, all for DTI purposes, then it may not be worth the benefit. You mentioned that you had multiple other reasons. Maybe they warrant a change of ownership, but I doubt that DTI alone does.

@Denisse Gonzàlez Fontecha

Unfortunately, out of luck. 

@Andrew S.

My criteria is - will you ever consider selling a part of this property, as opposed to the whole property? If not, then I'd report it as a single property, as long as all 6 units will be residential, i.e. people sleeping there.

Zoning does not matter for federal taxes. The actual use does, because residential and non-residential properties have different tax rules. So, if you're considering using one or more of the units as non-residential (rent it as a business office, for example), then it may be to your advantage to separate the residential from non-residential. At that point, I'd recommend professional advice.