All Forum Posts by: Natalie Kolodij

I had a flight with a layover in LA last month and the joke was "great since I received a client email while I was here I'm now going to have to file a CA tax return this year". 

California's tolerance for when a filing is required is pretty miniscule. Unless someone is providing a clear, cited  reason why something wouldn't be required there....assume it is. 

Like Michael mentioned the actual reality of how longs things last vs. their depreciable lives are unfortunately unrelated. 

Carpet and LVP fall under the same category of 5 year assets that aren't permanently affixed so you can put onto a shorter life and utilize accelerated depreciation methods. 

Flooring like hardwood or tile would be 27.5 typically because it's pretty permanently affixed. You can't quickly and easily remove it without any residual damage, etc. 

Also with the mention of talking to a few CPAs- If you were just reaching out and asking a question you may have just been getting the over simplified answer vs. if it was a CPA who was your CPA that you retained/paid to complete your tax strategy and preparation. 

Quote from @Mike Klarman:

So, if I'm in for 20k on a property and at a refinance I can pull out 100k let's say.  The investor would not owe any earnings tax on that 80k margin, just it would cancel any cost deductions?

 Yes. 

If your pay $20k for something worth much more 

And a bank gives you $100k against the asset 

You just now have a loan for $100k. 

That's not taxable. You didn't earn any money- you have to pay it back to somene. 

If you sell it 5 years later for $125k you would have to pay the bank back say $85k left on your loan balance. 

So when you sold it your gain would be $125-20 = $105,000 taxable gain when sold 

But the cash you'd get when you sold it would only be $40,000 

You should reach out to @John Hyre - but after 4/15. 

I'm not sure if he's taking new clients; but he's an expert on SoloK

Quote from @Mike Klarman:

So, there is a cost basis to these projects.  All the costs get to be deducted from the gross.  That's why it important to keep good books on all projects.  Does refinancing matter?  That depends, did you get any cash out besides your initial investment?  Refi doesn't matter in terms of of you leave money in, what would you owe on?  If you have 20k in a house on a bridge loan and at the refi you get 50k back.  Your 20k and 30k more, then yes you have a tax liability for that 30k.

If you do things out of a straight LLC you will pay 35% - 40% in inclusive taxes. If you do it out of an S-Corp and become a W2 paycheck employee of the company then you can do it at like 20% - 25% tax, or whatever your federal tax rate falls under.

Taking on debt isn't a taxable event. 

If you have a loan for $20k and you a Cash out refinance for $50k. There's no taxable event.

The taxable event is the sale of the actual asset and based on it's basis-unrelated to the debt amount.  

The interest on the new $30k may not be deductible, but that's a different situation. 

Quote from @Yi Chu:

Thank you all for the reply. Very helpful! Can I use the suspended passive losses to offset the passive income in future years?

 yes

Correct. 

That's a passive loss in a business you do not materially participate in. 

If you have other rental income it can offset that income-but likely will not be able to reduce your W2 or other income sources. 

You do not have a Schedule C business. 

Any qualifying mileage would be on Schedule E for the property it relates to. Also note going from home to a rental does not qualify for mileage (it's commuting). If you have a qualifying home office that may change. 

For realtor giving you part of their commission related to your purchase of a rental property using them I would net that into your basis on the property. You paid $200k for a property but received credit on your purchase almost for say $10k from the agent. 

So your starting basis would be $200k-$10k =you paid $190k for the property (plus any other closing costs etc) 

If this property is going to be a rental then all of those costs you'll typically capitalize and add to the basis of the property. To the IRS an asset's basis is allll of the costs it took to get it ready for it's intended use. 

There is nowhere to deduct those expenses this year. You don't have a rental yet to deduct them against. 

2 Big things: 

Cash in your pocket  =/= taxable profits. 

So paying off loans does not reduce a gain. 

Taxable gain/profit is Sales price - Cost of the item. 

For a flip your cost will be purchase price + closing costs + holding costs + renovations +selling costs 

Also worth noting....

You said this is an LLC to do fix and flips - this is going to be ordinary income tax; subject to SE tax. Not capital gains.