All Forum Posts by: Natalie Kolodij
Natalie Kolodij has started 63 posts and replied 3635 times.
Post: Question regarding long term capital gains and depreciation
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Quote from @Andrew Syrios:
We are thinking of selling a couple houses we've owned for a few years and they will have fairly significant gains. We have a fairly large portfolio of other properties too though. Does the depreciation loss for those properties count against long term capital gains or does it only count against ordinary income/short term gains?
Thank you in advance!
If you have other rentals with prior suspended losses, or losses in the year of sale those can offset the gain on the sale.
There's more complexity to the ordering and such- but that's the meat and potatoes of the meal.
Post: Bonus Depreciation: Tax value or Purchase Price
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Quote from @Trent Barga:
Hoping one of you great people can clarify something for me. Looking at bonus depreciation and wondering if it is based on the county assessed value or purchase price?
We purchased a commercial building for $420k and the county has the improvements at $115k. I my mind doing a bonus depreciation wouldn't make sense if it is only on the $115k value. We have 6 other single family homes and have 2 high income earners so trying to bring our taxes down as much as possible.
Thanks!
Also- if you are both high income earners.....your passive losses from rental properties will not reduce your taxable income.
If you apid $420k your depreciable basis won't be $115k. You need to divide that $115/ the total value of the property per the assessor. Then whatever that % is is what you'll apply to the $420k to get your depreciable basis.
You may want to work with a good tax strategist.
Post: Issue with CPA understanding Real Estate Professional
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Quote from @Julie Washburn:
Thank you all! This is so helpful. We were advised by a lawyer to set up the structure this way a few years ago (LLCs funnel into an S Corp), and now realizing that this was poor advice due to the tax implications down the road. We really need more than a tax filer, and instead a tax planner/strategist to avoid these things in the future.
Biggerpockets now has a tax pro directory and most of us lean heavy on the planning/strategy side. It's pinned at the top of the tax forums.
Post: offsetting passive losses ( rental) with w2 active income
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Quote from @Nirmish Sharma:
Hi, I have three rental properties in Houston (TX) and all three have passive losses. I have regular W2 job and thus active income. I file jointly with my wife. She does not have active income.
what is best and easy way to offset these rental losses to my active income, I researched and found two ways.. but not sure what is correct
1. If my wife obtains a real estate agent license, will we be able to offset these passive losses with my active income. All 3 rental properties are managed by Property management services.
2. or is this possible to offset losses by she just talking to property managers.
Thanks in Advance.
1. her getting her license won't qualify her as a real estate professional. She'd acutally need to work as a real estate agent and acrue at least 750 hours in RE.
2. Even if she could qualify as RE professinoal she'd also need to materially participate in each rental for it to qualify for the loss deductions. And with them being fully property managed this likely doesn't qualify either.
Post: Issue with CPA understanding Real Estate Professional
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Quote from @Tony Kim:
Quote from @Julie Washburn:
I am a Real Estate Professional, but I seem to be having trouble with my CPA understanding how to account for this. 2022 was my first year as a Real Estate Professional. My husband has a W-2 job with a large amount of tax withheld. In 2022 we did a cost segregation study to capture a massive amount of depreciation on multiple properties, so there's a lot of bonus depreciation to be taken. Our tax structure has each property in an LLC that is owned by an S Corp, and my husband and myself both own the S Corp. Our CPA is telling us that she did not see any additional ‘basis' or money that you personally invested in the LLC's, so we cannot claim the depreciation from the properties. She is also saying that she set us both at the "no limitation non-passive status" so the Real Estate Professional status is "immaterial".
I would love any help I can get here! I was at the MidTerm Rental Summit this past week and checked in with others, confirming that she doesn't seem to know how to do this. But am I missing something here? I've invested a lot into the cost segregation studies, and I really want to figure out how to capitalize on these tax incentives.
When your CPA says that because you didn't invest any additional basis or money into the LLC's, hence you cannot claim the accelerated depreciation, she is not taking into consideration that your RE status will allow you to deduct passive losses from your properties against your husband's ordinary income. If you didn't have RE professional status, then she would be right. You'd have to carryforward any losses that went beyond your LLC's basis. But I find it hard to believe that any CPA would not understand this.
This is not the issue.
In an entity your losses are also limited by your basis in the entity.
You can not deduct losses in excess of basis -this is the basis limit.
Separate fromthe passive loss limit which RE pro circumvents.
Post: Issue with CPA understanding Real Estate Professional
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1. You should NOT have rentals effectively in an S corp- who advised that setup?
2. If you don't have enough basis in an entity that disallows deduction of losses, even before you get to apply the test for potentially deducting them if you qualify as RE pro.
3. She is saying she has you set as re pro in her software, but it sounds like the losses are being disallowed at the entity level.
You should work proactively with your tax professional becuase a cost segregation did not help your tax situation due to this limit.
Maybe geta second opinion- but based on facts given your CPA understands everything, they're not clearly explaining it in a way you're fully understanding though.
Here's a graphic - so your loss becomes a business loss becuase it's now non-passive. But that first step...is the basis limitation. So even though it's non-passive ...if there's no basis it won't be a recognized loss.
Post: When Can RE losses not be taken against ordinary W2 income?
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Quote from @Brandon Labordus:
I am NOT a CPA! Hard to say without some more details, but having just gone through this the first time myself:
My understanding is that if the Ohio property is an LTR, you can only use losses from that to offset against LTR gains and rollover the rest. The only exception to this is if you earn Real Estate Professional Status.
The losses on your Delaware STR vacation property may POTENTIALLY offset against your W2 income. If your average rental period for the DE property was <7 days, and you didn't personally use the property for any more than 14 days, this gets classified as business activity income (as long as you materially participated in managing it). There are some hoops to jump through, but since this is active income you can then use any loss (including depreciation) to offset your W2 income.
A great many CPA's that are not real estate specific will not understand the STR loophole. Do your research on here and you will find lots of info on this. My rule of thumb - if you can't find a CPA that understands what you want to do, call 10 more!
The only exception isn't RE pro- You can also use losses up to $25k if your AGI is under $100k.
Post: When Can RE losses not be taken against ordinary W2 income?
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Quote from @Jacob Graves:
I dont believe for any income level you can use passive loss to offset w-2 income.
Only works to offset other passive gains. I'm not an accountant but thats how my taxes have worked the past few years.
That's not correct.
If your AGI is under $100k you can offset w2/earned income with up to $25k a year of PAL , if between $100-150 it phases out. Over $150k is when the passive loss rules come inot play.
Post: Qualified Opportunity Zone Tax Defferal
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Already owning an asset that happens to be in a QOZ doesn't offer any benefit.
If/when you sell it could offer potential benefit to the buyer if they are deferring a capital gain by purchasing your asset and forming a QOF.
Post: Knowledgeable Vs Less Knowledgeable CPA's (where to draw the line?)
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It's always best to have a tax professional specialized in your biggest income generator.
If you're really tied into REI then I'd find someone with specialty there
But for what it's worth....I'm real estate specailzied and have worked exclusively with investors for almost 10 years now and the term "Step down depreciation" means nothing to me.