All Forum Posts by: Michael Plaks

@Donovan Lietch

Whatever the investor receives over and above his $10k investment is taxable income to him (and also a deductible expense to you.)

Seeing how little you know at this point about recruiting investors, I highly recommend you don't try it on your own. Get some help, please: from an attorney, an accountant, or an experienced investor.

@Junior Soares

Translating from the CPA speak - yes, it is a disregarded entity.  :)

@Alejandro Garcia

Not really. Husband and wife can choose to file a partnership return and issue K-1s, but in most cases they do not.

Thank you for the mention, @Yonah Weiss!

@Rudy Estrada

Everything is fine. Your LLC is a Texas LLC for legal liability purposes, and it is treated as a partnership for the IRS purposes.

No changes needed.

If the second member is your wife - you will simply report your rentals on your personal joint return. If it is someone other than your wife - you will most likely need to file a partnership tax return using this new EIN. Again, leave it as is. Your tax accountant will explain the correct filing next year - just make sure to discuss it before March 15.

Thank you for the mention, @Dmitriy Fomichenko

@Chris Kinney

As @Natalie Kolodij said - you cannot deduct interest against your rental property if it is used for your personal residence. You cannot deduct it against that property in any case, actually. You can only deduct it against other investment properties if the loan is used for buying them.

Also a very good point that you may not be able to itemize in 2018 anyway, whether your loan interest is deductible or not. 2017 numbers do not matter much, because the standard deduction doubles for 2018, and there's a good chance it may be better than itemizing.

Thank you for the mention, @Carl Fischer

@Peter Kopchik - there are not that many accountants who specialize in REI. If you're in a major metro area - you can probably find someone local who knows real estate business. But even in a big city it can still be a hassle to drive across town. I'm in Houston, and the joke (correctly) says that "Houston is actually an hour away from Houston."

These days, technology allows us to work remotely, never having to meet face-to-face. Browse this forum and see who you like. There are about 20 REI accountants here, most of us working nationwide.

@Jack B.

You need to read slower, my friend.

Yes, you can rent it for three years and retain the full exclusion - as long as you do not move back in.

Once you move back in - this is when NQU is triggered, even if it was one year later. Do NOT move back in.

@Bruce Gardner

Short answer first. The IRS does not really care how much you pay the other person, as long as it is reported by you and him. It is always deductible for you, but it becomes taxable to him. In other words, you merely shift your income from you to him. The IRS still gets paid.

Now, a longer answer and caveats.

1. The payment has to have some business reason. You cannot simply shift income to someone not involved in your business. Otherwise, we all will be shifting income to some low-income relatives or friends. You need to have a reason why he deserves half of the income, and there could be many reasons.

2. Be careful treating him as a contractor. If you treat him as a contractor, he will owe Social Security and Medicare taxes. It is only fair if he provided actual work to earn his half. Otherwise, you will add taxes where they did not exist, because rental income is not normally subject to SS/Med taxes.

3. Additional reason to consult a tax accountant: you seemingly do not understand the difference between a 1099 contractor, a partner, and other ways to structure to it. Your best bet is probably to issue a 1099-MISC with Box 3 "other income" - but this advice may change if I knew more about your arrangement. That's why I say - ask a pro.

4. I suspect that you're not telling us the whole story. There's likely something else that you're trying to accomplish, and you decided that paying him half of the income solves that problem. There could be better ways if you disclose the full story.

5. Your deductions could be limited on your side, for various reasons. For example, high income.