All Forum Posts by: Natalie Kolodij

@Natalie Kolodij, Thanks for your input. Yes, I am aware of the lack of protection under these circumstances, and I am ok with it in the short term. However, I was made aware that RE gains especially loses can be fully passed through even when our household income is above 150K. Another perk that I was told that it is much easier to treat certain trips (for property hunt, etc.) as business trips if you do operate as an LLC. Is this not right? Having an LLC in place now will also help establish our business credential for future needs (biz credits, loans, etc.)

You're misinterpreting allowable activities with potential business types. Acquisitions= a business would be someone who buys properties for a hedge fund or similar activity. They specifically address rentals as a separate type of business. 


In reading through the TC memo you cited above it's because he didn't have a traditional w2 job. He didn't just work 2080 hours a year. He worked a schedule of 7 days off, and then 7 days on (but he was really on standby for those times). And in a log he was able to show that he spent more time on his real estate than on the ship essentially. 

https://casetext.com/case/mart...

Here's a memo from 2018 where they disallowed it due to having normal full time jobs and not showing additional hours spend on the rentals vs. their job.

Absolutely not on time spent reseraching new acquisitions, especially not browsing zillow. 

In numerous cases the IRS has evaded to this Jafarpour 2012-165, Padilla 2015-38 are both ones where reserach hours were thrown out by the courts as not qualifying as investor hours. 



“Most of the hours for each month were in the following generic categories: research properties near properties already owned; refinance research; foreclosure research (which appears to be considering properties that could be purchased); and researching new businesses…. They were not activities involving the taxpayer in the operation of his existing rental real estate activity, such as finding tenants, making or overseeing repairs, etc.”

And even on existing properties, you're only allow to count time spent on administrative elements IF you also control the overall management of the property. 

@Account Closed

The Auditor (local in Charleston) claimed that unless all the properties were grouped together as an entity, I would have to show 750 hrs on one property.  My tax defender agreed with that but did not agree with the commuting ruling of the auditor.

As it happened one of the Government "shut downs" happened at that time.  The IRS folk were all not working (paid later but did not work) so the office got waaay behind was the statement of why there was no response.    She dropped the differences from ~$40k to $5k after I had supplied hundreds of files of records and receipts.  We still fought but she had passed my 2014 up her food chain into another office, so I paid and moved on to 2015 and 16.  I got close to agreement on 2015 paid and moved on to fight 2016.  The fine for the 2014 refund was refunded, not the difference in our numbers, just the fine for having a difference.

The appeal to get the fine refunded for 2015 went in to a black hole and I never heard any reply.

We took the 2016 to the Tax Court because the auditor just did her thing without every looking at the all the files of records and receipt I had sent her.   The Tax Court has an arbitration group that steps in to try to settle with out the court.  This was a MUCH MUCH kinder group that my defense helper had to make paper copies of all my files to mail to them. (The office told me I could mail e-files on a stick to them which I did)   Without specifics the said we could settle on a low figure for 2016 and no fine so I did.  This nightmare went from mid 2017 until December 2020, 3 1/2 years!

I have seen other Tax experts since then say that you could combine all your properties into a LLC to count time on all of them for the 750 hrs. But who knows. I never saw any written rule on this.

@ Natalie Kolodij I thought the activities to qualify as a REP are rather broad such as acquisition, sales, reconstruction, conversion etc...  I understand your point but I thought it's more appropriate for the material participation of the 500+ hr  in the rentals that I own. I believe there are seven tests to determine if you meet this second requirement. 
Do you think I can include my hours spent on surfing the MLS or driving around in search for new properties?

Best thing I ever did! I am an LLC with a Sub S Corp. I pay myself and my assistant through the same company who created the Smart Square for charging credit cards on your phone. They do everything including payroll taxes and our W2's at the end of the year. I pay myself a set amount. In my case $2000 every 2 weeks. $1000 goes into my bank account, $1,000 goes to pay taxes. I draw from the rest of my commission as needed. With my rentals and expenses for depreciation I now get a refund every year and save a ton in self-employment taxes.