All Forum Posts by: Michael Plaks

@Cade Schacher

If you have to move due to a work promotion, you will be eligible for a partial exemption, which may be enough to avoid the entire capital gain.

@Dale Orcutt

The only way to defer capital gain taxes on your homestead, outside the $250k exemption, is to sell it with owner financing, on installments. However, you won't get the upfront cash which defeats your goal of reinvesting the money.

Other than that - nothing really.

Sweet! I PM-ed you my address.  :) 

@Tom R.

So you're buying a house and have no idea what you will do with it. This is rarely the best idea. I'd recommend having a plan first. 

Taxes should not be a consideration at this point. Besides, the answer changes depending on how you will end up using the house.

For example, if it will be your residence, you usually can sell it tax free 2 years later, so deducting repairs is not really an issue. If you flip it - all repairs will come out of the selling price, ending up as a deduction. If you rent it - the answer is more complicated: repairs will be deductible, but maybe right away and maybe later. House-hacking is the trickiest one to answer.

Wyoming is the best state for asset protection. Nobody can even find it on the map - so you're totally safe there. JK :) 

@Ashish Acharya - thank you for providing free research. :)  You win, I lose.

A follow-up though. This situation of a semi-conflict between the two sections kind of forces us to disregard the IRS instructions and report AirBnB on Sch E and not Sch C. 

Because you can report non-passive losses on Sch E to be compliant with 469, but you cannot block SE tax on Sch C to be compliant with 1402. It would not be an issue if ran thru a separate company, but most AirBnB operate without such. 

Agree? @Brian Schmelzlen?

The agreement can be whatever you want, just like an online advice :) 

However, for taxation purposes, this idea of @Carl Fischer will not work without modification. In order to be recognized as a rental activity with operational losses, you will need to rent it to your S-corporation as the fair market value. I cannot argue with a straight face that the market value fluctuates monthly and equates the actual monthly collection.

The overall idea of using an S-corp to control SE tax is valid, but it needs to be implemented differently. 

I'm not in agreement with @Ashish Acharya and @Brian Schmelzlen on self-employment tax for short-term (7 days and under) rentals.

We all agree that there's no self-employment tax for rental activities. However, two specific situations are NOT considered rental activities and therefore are NOT exempt from self-employment taxes.

These two situations are:

#1:  7 days or less - regardless of substantial services provided or not

#2:  30 days or less  if substantial services are provided (effectively making it relevant only for 8-30 days)

Colleagues, please correct me if I'm wrong.

@Darren Gregory

Your friend refers to a very old (and long dead) rule, which is why it's best not to ask friends for legal, tax or medical advice :)

There are only two ways to control capital gain taxes on selling your own home, and they can be combined. Neither rule is tied to buying another house. It does not matter what you do with the money.

#1 - exclusion of the gain. Basically, if you lived in your house for more than 2 years and you're single - the first $250k of your gain is tax-free. (There's a lot of fine print going with this rule.)

#2 - owner financing, aka seller financing, aka an installment sale. If you allow the buyer to pay you over several years, instead of the whole amount right away - then you can spread your tax over several years and maybe even reduce it in the process. Of course, you will be risking not getting paid.

You also want to calculate your gain carefully. It's not simply the difference between the sale price and the purchase price. You will also subtract part of the closing costs on both ends, cost of improvements over the life of the property, and costs of preparing the property for sale.

@Daniel Suarez

Like @Ashish Acharya said, how much complexity do you want?

You started by admitting that photography was your hobby. Therefore, you cannot claim (not with a straight face, at least) that you bought a $1,000 camera just to make pictures of your properties. You have to allocate based on business use. So, if you use the camera 2/3 for fun and 1/3 for real estate - you can deduct $333 against your rental properties.

How do you establish (and prove to the IRS, if it comes to that) your usage % - that could be a long conversation, and ultimately it is still subjective and debatable.

You can also try a more advanced strategy that avoids the business use % hassle. Have your real estate business charge yourself for making the pictures, using roughly the going market rate for professional photography. Create an invoice and transfer money per invoice, from your business account to your personal. It will be a deduction for your real estate business. It will also be income to your hobby which can be erased to zero by equipment costs. The net result is a deduction.