All Forum Posts by: Nicholas Aiola

@Walter Mosley Admittedly, I am not familiar with Colombian tax law, so I can't say with any certainty how a US LLC would be treated for tax purposes in Colombia.

Cross border tax law has become increasingly complex. There are several variables involved, so it would be advisable to speak with both a Colombian tax professional who is familiar with US tax law and a US tax professional who is familiar with Colombian tax law.

@Eddie L. Schedule E is a good place to start for common rental deductions. You could also Google chart of accounts for landlords to get examples of more detailed lists. If an expense is not "ordinary and necessary", it cannot be deducted.

@Justin R. Thanks for the kind words!

You are correct about the receipt of cash out refi funds being nontaxable. The deductibility of interest is governed by the "interest tracing" rules, which basically means the interest expense deduction follows the use of the money, regardless of which property secures the loan.

So, if you pull money out of the equity of a rental and use it for personal reasons (spending, vacation, savings, etc.), the interest would not be deductible. Your CPA is correct in asking you to track all uses of the cash out refi funds.

@Eddie L. You are correct, but that would be outside the scope of @Francisco Sanchez 's question since it isn't really an inherent tax benefit/drawback of TIC/LLC. Additionally, this is easily alterable prior to partaking in a 1031 exchange, meaning you can distribute the property from an LLC to the partners to be held as TICs prior to an exchange without consequence.

@Francisco Sanchez Neither offers tax benefits (or tax drawbacks). An LLC is tax neutral and will result in the same tax liability as a TIC structure.

@Jason Gonzalez The latter! You can use a CPA local to you or in any state, regardless of where your investments are located.

@Jacob A. It sounds like you are active participants. Be mindful of the income limitations regarding the $25k special allowance. While not authoritative, Publication 925 describes active participation. The IRS's Passive Activity Loss Audit Technique Guide is also a good resource.

@Eddie L. Sometimes it makes sense, sometimes it doesn't. It depends on the situation and investing strategy.

@Kumar R. If you close in January 2021, you will have the full year to materially participate, whether it's test #1 (500 hours) or test #3 (100 hours but more than anyone else). With a full year, I would target either of those tests instead of test #2 (substantially all) because tests #1 and #3 have quantitative measures to hit and, as a result, are less subjective.

If the property is acquired and placed in service in 2021, but you do not materially participate in 2021, you can still take bonus depreciation on the personal property from a cost seg study in 2021, but the STR activity would not be nonpassive (because you did not materially participate).

I don't have all the facts about your tax situation but if you or your spouse (if you are married) do not qualify as a REP, a passive STR activity will not allow you to deduct the loss generated from bonus depreciation against nonpassive income. Said differently, you can take bonus depreciation in 2021, but you will not benefit from the deduction in 2021 if the activity is passive.

If you acquire and place the property in service in 2021, do not materially participate in 2021, but you DO materially participate in 2022, you cannot take bonus depreciation in 2022. Bonus depreciation is only available in Year 1.

@Eddie L. I am biased, but I always say it's better to have advisors (not only CPAs) on your team earlier rather than later. Each tax situation is different; Person A with one or two rentals may benefit from tax advice, whereas Person B with one or two rentals may not. Other sources of income, investment strategies, intent to scale, willingness to be open-minded to different ideas, etc. all play a part in possible tax saving opportunities.

If you are looking for tax strategy, you want someone who will tailor advice to you specifically, not offer blanket "one size fits all" tax strategy — that does not exist.