All Forum Posts by: Michael Plaks

Quote from @James Ryan:

I'm completely new to real estate investing and going to try my hand at some rental properties. I asked my accountant if he has experience with this - he has some clients who do rentals but doesn't seem to think there is much of a tax advantage for me because I make too much (W2) to offset my wages via depreciation. I can roll over the depreciation to offset my gains later on, but is there any benefit for me to do cost segregation and maximize my early depreciation if it's not going to matter until I sell?

Separate questions, separate answers.

1. Is there an immediate tax benefit from cost segregation? Almost certainly not, although I do not have the full picture.

2. Is there a potential future tax benefit at some point, including when you sell? Possibly yes.

3. If there is - how much, and is it worth paying for cost segregation? No way to tell.

4. Do you need to do it right now or wait? Most likely wait.

Everything I (and other commenters) said is generic and could be wrong once we examine the full picture.

Here is an intro to depreciation which might clarify some of the issues: 
https://www.biggerpockets.com/forums/51/topics/1121063-expla...

Quote from @Ben Szafran:

I just cash out refinanced a rental home so I could buy a partner out of the property.  I was the only person on the loan to start with, and I am the only entity on the loan now. I paid the partner out-does he pay captial gains tax on the earnings?  My understanding is no taxes to pay.  Any advice welcome.  (by the way I wrote my CPA, but he is out of town for the long weekend)

You're describing it like an investor presenting his deal at an REI meetup, with a superficial overview, happy ending and a slightly intoxicated crowd cheering on you. Taxes however require clarity on what actually happened.

1. "I just cashed out refinanced..."   No, you could not if you truly had a partner. At that point your partner was still on the deal. So it had to be refinanced by both of you in some way, even if only one name is on the loan. Which brings us to...

2. "... to buy a partner out..."  What does it mean you had a partner? What was the specific design of your agreement? There are many ways it could have been structured.

3. "does he pay captial gains tax on the earnings?" - we know nothing about his participation in the deal and nothing about your buyout. Generally, if he received more money than he invested, he owes taxes. And it is not necessarily capital gains, it could be another type of income.

4. "I wrote my CPA, but he is out of town for the long weekend."  Why is it so urgent that it required an answer before your CPA returns?

Quote from @Jay Hinrichs:

Michael,  quick question   Doctor tenant wants to buy the building her bizzness is in .. Can Doctor use cost seg when they purchase the building and go from tenant to Owner ??? 

Jay, I'm just seconding @Sean O'Keefe: yes, he can. Does not matter that he already occupies the building. Now, whether or not it is recommended is case by case.

Quote from @Victor N.:

Hi all, I have a W2 job and this year I started buying SFH rentals under my LLC. How much in business expenses can I write off? Is there a limit? Thanks.

You posted a question that sounds simple but it is not.

1. Need to be clear about what "business expenses" mean. Some items may be deductible right away, others may be deductible later, and some may not be deductible at all. No way to explain all this in a forum post.

2. Need to be aware of timing. Expenses before you purchased your first property may not be deductible, because you did not technically have a business yet. Business starts not when you form an LLC but when your first property is ready for occupancy. And if you bought properties that needed work before being rented, it gets even more complicated.

3. Even if an expense is deductible and your business has already started, you may run into income-based limitations, as Joshua explained.

Sorry, this stuff is not intuitive. You either need to do a good amount of self-study or hire one of us tax professionals:  https://www.biggerpockets.com/forums/51/topics/1222774-expla...

Quote from @Mark Haw:

Thank you all for the support and suggestions! Super helpful. 

Hello again, Mark. 

Now, when you post has been moved to Classifieds, the rules allow me to say: my tax firm works exclusively with investors, and STRs is our specialty. Will be happy to help.

@Alex Murkes

Intuit software does not allow Box 1 and Box 2 on the same worksheet. You will have to use two.

No, TT is merely following the letter of the IRS instructions. And it can make a difference under some circumstances, but almost certainly not yours,

@Alex Murkes

...I hope a kind soul will be able to point me in the right direction...

You're looking for kind souls in the wrong place. This is a tax forum. We're a bunch of arrogant unhelpful a**s.  :)

Q1 - $2 is a rounding discrepancy, and you don't need to do all these calculations anyway.

Q2 - Yes, two K1 worksheets. One for Box 2, the other for boxes 1/5/6a

No, not really required to create 10 different worksheets. You basically do not lose anything - which is a short practical answer. No motivation for either of us to pursue a very long and very technical alternative answer.

Q3 - They will not make any difference anyway, but keep them on the worksheet linked to Box 1.

Quote from @Sara Murphy:

Thanks @Michael Plaks & @Sean O'Keefe— your insights are incredibly helpful and much appreciated.

We’ve been working with a CPA who recommended we explore Real Estate Professional (REP) status, given our current and projected real estate activity.

• My husband earns $500K W-2, and I currently earn $40K W-2. He will cover our $15K/year family health insurance if I step away from my job.
• We have three young kids, and being home with them — while also focusing on our real estate — would give our family more flexibility.
• For 2024, we have about $30K in passive losses that will roll into 2025.
• Our plan is to continue acquiring properties and utilize cost segregation to accelerate depreciation.
• Most properties in our area range from $400K–$600K, so each acquisition will likely generate a meaningful paper loss with bonus depreciation.

does this sound like a sound strategy?

Lifestyle-driven decisions is exactly what I was advocating for. The concept makes sense. The implementation matters, and the numbers matter. 

But since you have a CPA to work with, you have someone who should guide you through this. Otherwise you might need someone else who can guide you. Best luck.

@Collin W.

Because you have been renting it since 2019, nothing else from your story matters. You don't get any exclusion, sorry.