All Forum Posts by: Natalie Kolodij

Florida doesn't have state tax

So I would recommend looking for someone who specializes in REI- most of us work with clients all over the US. If you check out the right side of the forums it gives a list of top providers in the tax category 

I own a few properties (SFR, duplexes) in various states: CA (2 multis), FL (2 multis), TN (1 SFR). All are sole-proprietorship. Some are paid off, others have mortgages.

1: How would you structure these in LLCs (I know the answer varies, just looking for your personal opinion and why) Attorney Q. NO tax benefits for LLC's on rentals. But if you add 2+ people to it you'll have a separate more involved partnerhsip tax return to file annually. 

2: I travel to different sites looking for new investments. How can I write these off on my taxes? As sole-prop, I can only write off travel as misc expense which tends to be a red flag for IRS. The answer here is it depends. If you're not already operating in the location where you're visiting to look at properties those costs can't be written off yet. If you live in Ohio and own 1 rentals there, but visit Florida 3x this year to look at houses- you can't write those travel costs off. Once you BUY something in Florida those costs get added to the basis of that property. 

I manage my properties online myself. I have a lot of write-offs like internet, office, websites, etc. However, splitting these write-offs into individual properties isn't realistic. Can I create a "management company" LLC that I own, then pay that LLC from each property, then pay myself from that LLC? You can make the payments from a separate management LLC for purposes of keeping it clean/LLC separation/ but tax wise it's still bestot just split things appropiately. Don't report a separate "management company" for these costs. If you spend $100 on internet and have 2 rentals- put $50 on each schedule E. Not $100 on a third one called "management" or such.

3: Main question: considering all the above info (I own properties in multiple states that I manage myself), what's the best structure to write off my expenses in a way that minimizes any IRS red flags? Nothing above should trigger a red flag in my experience - work with a REI tax expert if you're unsure.

You get to take either mileage or actual- and once you do actual you can't change to mileage later. 

Commecial plates won't change any thing 

You'll still need to track mileage for business vs. personal allocation of the actual costs if under 100% business use 

Also depending on what type of structure you have may change the how of what's deductible- like if you're using a corporation. 

So you'll get to write off that $50k across several years if it is 100% business use, then only take gas, maintance, insurance, ect.  But at 2500 miles annually you're only getting about $1300 write off annually. 

Rev Proc 2021-31 

For passenger automobiles to which bonus first-year depreciation deduction applies and that are acquired after Sept. 27, 2017, and placed in service during calendar year 2021, the depreciation limit under Sec. 280F(d)(7) is $18,200 for the first tax year (an increase of $100 from 2020); $16,400 for the second tax year (an increase of $300); $9,800 for the third tax year (an increase of $100); and $5,860 for each succeeding year (an increase of $100).

For passenger automobiles to which no bonus first-year depreciation applies, the depreciation limit under Sec. 280F(d)(7) is $10,200 for the first tax year; $16,400 for the second tax year; $9,800 for the third tax year; and $5,860 for each succeeding year.

Second vote for @Steven Hamilton II

That's only on inherited. 

Your basis = Your parents adjusted basis when they gifted it to you - any depreciation taken + the cost of the renvations you just did 

It's going to depend on the nature of the "renting on and off" At least part of the proceeds should qualify for a 1031- I'd work with a tax professional to ensure it's all done correctly. 

You will need to split expenses based on business/ personal use
Depreciation can only be taken on business use only spaces 
Your taxable amount would be any net remaining after all of those expenses 
It would be taxd at your ordinary income tax bracket

Do not put it into an LLC, there is no tax benefit, and you are already comingled since you'd be occupyin the business asset- So no legal separation either.

Quote from @Michael Plaks:

Originally posted by @Joe Splitrock:

Two knowledgeable tax professionals have already responded this thread. Both @Natalie Kolodij and @Michael Plaks are regulars here in the forums. Ask them for the Joe Splitrock discount if you choose to work with them. 

Can't speak for Natalie, but we might have to renegotiate this arrangement :)  PS. Thank you, Joe. 

 I make people send me a rock in the mail in addition to their normal fees if they mention

@Joe Splitrock. I could really use a smokey quartz if anyone is interested in working with me. 

Don't. 

You'll have no portection- the LLC won't own the house. 
And you're going to be co-mingling by default since you are peronally occupying and renting. 

Just get good insurance coverage. You will need a specific short term/transient policy for good coverage. 

The LLC won't do any thing. 

Trying to read the actual internal revenue code (which is all published) is like trying to read any laws without training on it. The reaosn there's so much debate in tax and what you can/can't do is because it's very rarely clearly stated. 

Quote from @Bonnie Griffin Kaake:

@Jon Fletcher Residential rentals can be active or passive. If they are being rented for less than 30 days, such as an Airbnb, and you are materially participating in the management and maintenance of the property, it is an active investment like a hotel or other business. It also has to be depreciated over 39 years, not 27.5. Most tax professionals are getting this wrong and it could trigger an audit. 

If you do not have W-2 income, or your spouse does not, you or your spouse may qualify as a Real Estate Professional. This could make all your properties active rather than passive. You MUST keep very accurate records as RE Professional or risk audit. 

You can usually expect 6% to10% of your purchase price on a commercial or residential rental in tax benefits & cash flow the first year you do a cost segregation or Tangible Property Regulation (TPRs) study. This is whether you are a real estate pro or an investor in one property. 

 
It has to be an average stay of 7 days or less, and material participation to qualify as non-passive and stay on Sch E. 

Adding in services makes it more like a hotel - and then it moves to schedule C and alos pays SE tax.