All Forum Posts by: Michael Plaks

@Joe Wood

The best way to increase deductions is to buy my $50,000 course on how to find more deductions and deduct the cost of this course.

Just kidding. I don't have such course, although maybe I should. @Ashish Acharya already wrote the first chapter above. :)

Your question is phrased in a way that you probably did not mean. I don't think you meant - what else should I spend money on, to manufacture more deductions? (And in case you did mean it - then don't do it.)

I believe you meant how to squeeze more deductions out of what you're already spending. The shortest answer is: examine everything you pay for from the perspective "would I have paid for it if I was not an investor?" If the answer is no, then it is probably some kind of deduction that you may be overlooking.

There're couple good books about tax deductions for real estate investors.

@Ouman You

Monetized installment sale might be your only option - provided that this controversial approach works for you. I suggest you do a search on this forum for "monetized installment sale", as it has been discussed in several threads. Don't just rely on an opinion of someone whose business is M.I.S., do your due diligence and get various opinions.

To be clear: I'm not dismissing M.I.S., I'm simply starting that there is some controversy around this solution.

@Anthony Wright

You are almost certainly referring to webinars by Clint Coon, an attorney from Anderson Advisors - a company (in)famous for recommending highly complicated entity structures from your Day 1 in real estate business. I'm sure there're benefits for such solutions for some investors, especially the bigger ones. I suspect that for a beginner investor, they're an overkill. However, I'm not an attorney, and my opinion on legal protection is not worth much, if anything.

I'm in total agreement with @Eamonn McElroy: practice KISS. It may even be no LLCs at all initially, as long as your attorney approves of it.

Also, for a beginner investor, I highly recommend starting investing in your own backyard - i.e. driveable distance from where you live and work. Not in other states.

@John M.

I will assume you're single and are talking about a single-member LLC you started, and you're buying 4 rental properties.

There will be no tax benefits in using the LLC, neither for the 4 new properties nor for the existing rental.

The reason to use the LLC will be legal protection, not taxes. There have been several threads recently on this forum debating various issues of asset protection. Please read them, with one caveat: ignore legal opinions of anybody except actual attorneys.

A major part of the discussions was whether you would need one or multiple LLCs for proper legal protection, or maybe even an out-of-state Series LLC. Again, this area is for attorneys, and I'm (luckily) not one of them.

@Paolo F.

I understand trying to save money by avoiding tax professionals, but this discussion should have illustrated why it might backfire.

1. As everyone said - depreciation is not optional. You must start in 2017.

2. And you depreciate the whole building, as @Natalie Kolodij pointed out.

3. Not sure why you are "afraid" of that - there should be no negative consequences of starting depreciation in 2017.

4. Rents "held by" your property manager does NOT mean zero income. It is still income to you. The property manager is merely an agent acting on your behalf.

5. Suggestion by @Basit Siddiqi is problematic. It implies you can forego 2017 depreciation and catch up in 2018. Not really. You will need to amend your 2017 tax return if it has already been filed. The "change of accounting method" procedure does not apply when you only missed 1 year of depreciation.

6. Finally, if you're indeed living in Malta, there're additional complications of being a foreign investor. This really needs to be handled by an expert. Have a look here. 

7. But frankly, I do not recommend trying to go thru the IRS documents on your own. I admire your determination to learn these things - depreciation, international treaties etc. - but it is far more difficult than you probably expect.

PS. If you think this was self-serving - it was not. I don't even work with International clients.

 Really? So why do you charge 6% commission? Isn't it just a few forms?  ;)

@Jiang Hu

In my opinion, an extra $150 for a 1031, as @Basit Siddiqi suggested, would be a great bargain. Precisely because, as Basit said, not many accountants have experience with 1031 calculations and forms.

A correctly prepared tax return with a 1031 exchange should cost $500-$1,000 more than the same tax return without a 1031. For $150 you should expect either an incompetent job or an accountant who grossly undervalues his/her unique expertise. 

And this phrase is the root of the problem. Unless your friend is an accountant, you should ignore his advice on taxes.

While well-intentioned, he took something that possibly does help HIS business into yours - where it does NOT apply. As my colleagues explained, the short story is:

1. there are no tax benefits from LLCs for rental properties
2. you may still want to create an LLC (or several) for legal protection reasons, not for taxes
3. asset protection is for attorneys only, not for friends and not even for accountants
4. if your business becomes something other than rentals - then you might need an LLC for tax purposes, but it's a separate conversation

Good luck!

Thank you for the mention, @Dmitriy Fomichenko

@Jay N. - if you prefer someone local, contact @Brian Schmelzlen in La Mesa

@Brandon Reffett

Kiyosaki and many others who repeat this phrase are full of it, basically.

There're many investors who highly leverage their properties (meaning huge loans) and show zero or almost zero taxable income, due to accelerated depreciation and other tax strategies. They borrow based on their assets's (properties) values and their credit strength, not on income. Which means private or commercial lenders, not banks.

There're also many successful investors who have great cash flow that is not erased by depreciation, and they happily pay income tax on their positive income. 

There's no one "right" way to do real estate investing.  Only for a salesman who is peddling his training.