All Forum Posts by: Nicholas Aiola

@Kyle Scholnick The platform doesn't determine the tax treatment; the nature of the activity and level of involvement do. The investment itself is not a deductible expense and, if you're a passive investor, any passive tax losses would not offset nonpassive income.

@Christopher Nemlich You have some flexibility with the operating agreement regarding ownership vs. profit/loss splits but the cleanest way to handle it might be to have separate LLCs, especially if some investments will only have 2 partners. 

@Kyle Scholnick There are several items to note here. I'll include a bulleted list of the main items that jump out at me but you should consult a CPA for more specific advice, as the numbers you have presented are unreliable:

- If you're renting only a portion of your home, the common home expenses (mortgage interest, property taxes, insurance, utilities, etc.) must be prorated between rental and personal. Only the rental portion is deductible against rental income.

- If it's a single-family home and you occupy one room, the net rental loss will not be deductible against your other income, regardless of your income (see Sec. 280A). If it's a multi-family and you occupy one unit, your net rental loss may be deductible, depending on your income (<$100k - up to $25k/year; $100k-150k - up to 25k/year, phased out as income approaches $150k; >$150k = $0 allowable deductible net loss).

- Net rental losses, if deductible, will not reduce SE tax.

- Upon sale, you can still apply the Sec. 121 exclusion to your personal portion of the home (10% in your example) if you meet the requirements.

Hope this helps.

@Tuan Phan I'd have to defer to your attorney regarding any liability questions. I'm failing to see how the liability would be sourced back to you (the individual) with or without the LLCs if the owner of the LLCs would be a C Corporation. You are already protected by the C Corporation; what additional protection is a single-member LLC under that C Corporation offering you? Again, I would defer to your legal team but these are the questions I would be asking.

From an accounting standpoint, disregarded entities (e.g., single-member LLCs) often do keep separate books and records, and have separate bank accounts/CCs.

@D. Gozman As long as the property hasn't been converted to personal use or otherwise abandoned/retired, it is still considered a rental property, albeit in an "idle" state.

I'd have to double check relevant case law to see if there are any examples of a property being idle for "too long" to the point where its use changed, but your situation as you described it doesn't seem drastic at first glance.

@Tuan Phan If the LLC is wholly owned by the C Corp, it would be considered a disregarded entity for tax purposes and all activity will be reported on the C Corp's tax returns.

If your intent is to utilize the LLCs for the flips only and then dissolve them after the sale, your presented structure may be overkill. A flip business doesn't commonly form a separate entity for each flip, especially if the parent is a C Corp because of the strong liability shield of the C Corp by default.

Additionally, for tax purposes, flip properties are treated as inventory - think of it like a t-shirt business forming a separate LLC for each t-shirt sold. I understand the value of and exposure regarding real property is exponentially greater than t-shirts, but you get the idea.

An attorney would be able to clarify why it may be superfluous better than I could but I can tell you that single-member LLCs would not change the tax impact and would not create any additional tax filings.

@Vickie Vargas Property taxes in NY and NJ are certainly high compared to most other areas of the country. Only you can analyze the numbers on the properties you are considering and what works for you and your budget. Best of luck as you proceed along on your journey.

@Jack Berg Rental activity for a REP is nonpassive and would not be considered investment income for purposes of the EITC. Capital gains, on the other hand, are considered investment income. See Publication 596 for more info/relevant worksheets and use the EITC Assistant on the IRS website to check your personal numbers/qualifications.

@Account Closed Good question. Some of the most common advantages are noncash tax deductions like depreciation and amortization that typically lead to tax-free cash flow, it's an appreciating asset, you have the ability to use leverage (other peoples' money) to purchase it and have your tenants pay down that debt, there are preferential tax rates sell after holding for >1 year, there are opportunities to defer or exclude gains in the future (1031 exchanges, opportunity zones, etc.), etc.

I can go on and on, so I guess it would depend on how long the elevator ride is. But very basically, there aren't many barriers to entry, you can earn cash flow and appreciation, and there are tax-friendly exit strategies.

@D. Gozman Yes, capital losses from selling stock can offset the capital gain from selling real estate.