All Forum Posts by: Michael Plaks

You did not quite understand what Dave said. You itemize personal deductions only, on Schedule A. Your second property, the one you rent, has nothing to do with itemization - you simply deduct all its expenses, including taxes, on Schedule E. 

For Schedule A you have $10k of taxes (your residence plus SC state taxes, capped at $10k combined) plus whatever mortgage interest on your residence (if any) plus charitable donations. It will likely not exceed the new $24k standard deduction.

@Kevin D Hooks

I second @Brian Eastman. No, period.

@Christopher Smith has a valid warning about CA.

@Joseph Heimann - the best way to structure it is to have the properties as 100% owned by you (or by an LLC of which you're the only owner), and your friend will be either a lender to you if he is bringing money or a contractor to you if he is bringing labor.

50/50 LLCs are the second worst way to do business, only behind a handshake partnership. Why? Because it is a (business) marriage, with all the risks and problems.

@Alik Levin

No, you're not really reading the article correctly, especially since it does not address business vehicles at all.

1. The fact that you run your rentals yourself does not necessarily qualify this as a business. There is more to it, mostly the size of your portfolio and the amount of work it requires.

2. Your wife's brokerage business is far easier to attach your vehicle to than your rentals, even if they do qualify as a business.

3. You can only deduct the business portion of the car. If your Volga ;) costs $40k and is used 60% for business, you can never deduct more than $24k, which is 60% of its cost.

4. There are two ways to deduct it: Section 179 or 100% bonus. The bonus is usually better.

5. In its first year, you're still limited to $18k, no matter which method you use. Just a quirk of the law for regular automobiles.

6. Consider buying a heavy (>6,000 lbs) SUV instead. You will be able to apply 100% bonus depreciation to its entire business portion, no matter how high it is.

7. Warning A: after taking this huge deduction the first year, you will only have a very small deduction from Year 2 forward. 60% of actual costs, like gas, insurance and maintenance. No more depreciation and no option to use mileage allowance.

8. Warning B: whenever you sell or trade-in this new car, you will have a taxable gain.

Yes, splitting the property tax accounts would be cleaner, but it is not required for the IRS purposes. I would certainly feel strongly defending such a case in an IRS audit.

To add to what @John Woodrich said about cash in general - yes, avoid it.

It is possible to win a battle with the IRS when you paid cash, but it is not easy. I have won such battles for my clients who paid cash, but I have over 20 years of experience fighting the IRS, and my help was not cheap. Don't put yourself into this situation.

As I said before, $1k is not a big deduction though.

@Dylan Mathias

Not sure if this was a typo: "I am moving most of my money into more conservative investments in the economical environment we are in."

Real estate is far from conservative, particularly flipping. Within the real estate world, there are more conservative and more aggressive ways to invest. More conservative would be buying shares of large commercial investments thru various funds, trusts and similar instruments. It's an entirely different conversation and is not about taxes. Investments ideas that were discussed in the earlier comments are more on the aggressive side, with higher potential but also higher risk.

At 24, you probably should not be overly conservative, but I'm alarmed by your mention of it.

A self-directed 401k has a lot of advantages over a self-directed IRA, including higher contributions and not having to worry about taxes on debt-financed investments. If you're going to be self-employed, look into the 401k, including the Roth 401k option.

There're many experts on this BP forum who can offer both advice and top quality service, including @Brian Eastman, @Carl Fischer, @Dmitriy Fomichenko and others.

Good luck.

@Colby Mulry

Before we can have any solution, we need to define the problem. 

If your partner intends to act as a lender - he will have a guarantee of his investment (secured by the property) but have no tax benefits whatsoever.

If he is primarily after the tax benefits, he will have to be a part-owner of the property. Directly or indirectly, with entities or not - those are details. The key concept is that he will have to be an owner.

The disadvantage for him is that his investment will no longer be guaranteed - it will only be as good as the property he owns. And while generally real estate appreciates in value, it's not a guarantee, and it is not liquid. What if he wants his cash out during the market downturn? For example, in Houston right after Hurricane Harvey.

The disadvantage for you is that you will be giving up some of your profit from appreciation. It's a big deal. Are you willing to sacrifice your long-term wealth build-up for the access to his money?

Once you decide to go ahead with this plan, then you will need to decide the equity split - 50/50 or otherwise and get with a local attorney to pick up the best structure for legal protection.

@Kimi Ho

While you're having trouble getting answers, I'm having trouble getting questions. :)  What is your question about this exchange?

As @Dave Foster said, you will basically split one purchase into two. One will be an investment property, part of the exchange, and the other will simply be a purchase of a personal homestead.

Thank you for the mention, @Yonah Weiss.

@Steven Hume - will be glad to share some pointers about Houston networking. RICH is one of the organizations, and there're several others.

As to cost segregation - I'm a big supporter of the concept when commercial properties are involved. Your best source of specific information are BP resident experts: Yonah Weiss and @Paul Caputo.