All Forum Posts by: Michael Plaks

@Jason Powell

To add to an excellent answer by @Ashish Acharya, in addition to the $100k short-term gain, you will have a small amount of depreciation recapture tax.

Even if the second payment was received in Jan 2019, you would not have achieved the long-term treatment. You'd only spread the tax over 2 years, following the calculation described by @Wayne Brooks. But you would still end up paying the full short-term tax rate.

In order to achieve long-term treatment, you'd have to wait on signing the agreement to sell out your share until 1 year anniversary.

@Samuel Schell

Reach out to @Natalie Kolodij - she is in Everett

@Mark S.

In my 20+ years of working exclusively with investors and representing clients before the IRS, I have never seen the IRS raising an issue about 1099s for Schedule E landlords - despite the fact that the form itself has a specific checkbox.

Also, there were proposed rules a few years ago that specifically required 1099s from landlords - which sort of hints that the IRS did not consider them mandatory without the new rules. Those rules were killed before they reached their effective date, so we're sort of back to the status quo. Which is essentially that the landlords can get away with not filing 1099s.

That said, however, I concur with my colleagues on this thread who advise their clients to file 1099s regardless. I do, too. The reason is that filing 1099s can be an important factor if you have to defend treating your rental business as a true "trade or business," in the IRS definition. If you fail this test, then you cannot really deduct business overhead, such as training or marketing. And having filed 1099s will be another argument if you have to defend yourself.

Filing 1099 is very simple and cheap, so there is no good reason to NOT file them - other than hiring undocumented labor. Which is not the best business practice anyway.

@Account Closed suggested. Better get it treated right away. ;)

Your understanding is correct, however there's small print attached to all of this stuff. Ashish brought up one of the issues: a requirement for material participation that can be a problem for hands-off investors. There're other gotchas, too, so getting professional advice would be a good idea.

Very important to understand that qualifying for REPro is much trickier than most people realize. For example, if you both have full-time jobs - you're out of the game.

@Don Spafford

As far as whether you wear the sock inside or outside the shoe - attorneys suggest different setups.

Clint Coons from Anderson practices one religion, and other attorneys practice different kinds. We mere mortals cannot decide which attorney to follow. Roll a dice.

Land trusts do not exist for the IRS.  They cannot create any benefits or disadvantages because they are simply ignored.

They create some benefits which have nothing to do with taxes: anonymity, facilitating transfers etc.

@William Huston

It sounds like this CPA was looking at cash flow thru his tax deduction glasses. As in - let's figure out how much interest you can deduct, and let's get a loan that generates this exact amount of interest, regardless of the size of the loan and its interest rate.

If this is what he had in mind, I consider such approach very counter-productive.

The starting point in this discussion should be leverage. There're actually two mutually exclusive schools of thought on this subject. Some people (a minority) frown upon debt and preach minimizing leverage. Their arguments are higher cash flow and lower risk of default. The majority's opinion is that leverage is what allows you to grow your portfolio and equity, so get as much debt as possible, but of course watch the terms and cash flow.

Once you choose your religion, assuming you choose leverage, you're looking for the funding. Seems like you're limiting your search to either conventional financing or cash. You have more choices, and BiggerPockets has forums dedicated to financing, such as this one, and some good articles like this one or this other one.

Tax deduction for the mortgage interest should really be at the bottom of your list of considerations, if at all.

Thank you, @Dmitriy Fomichenko and @Nicholas Aiola.

Unfortunately, people outside Texas do not realize that there is a 5-hour drive and not much love between Dallas and Houston. :)   If this will not stop you, @Alicia Yoder - feel free to reach out.

These days, we real estate accountants work remotely and nationwide. Pretty much any one of us on this board can help, including Nicholas.

Thank you for the shout out, @Basit Siddiqi. Congrats on surviving another tax season.

@Kim F.

Your interpretation is only partially correct, but all accountants, me included, are underwater these days due to Oct 15 IRS deadline. Ask me in a few days. :)