All Forum Posts by: Nicholas Aiola

@Simon S Marthinsen @Bjorn Ahlblad @Hadar Orkibi

This is a common misconception with "depreciation recapture" by investors and CPAs who do not specialize in real estate.

There are two types of depreciation recapture, depending on the asset type: Section 1250 (real property) and Section 1245 (personal property). Unrecaptured Sec. 1250 gain is the depreciation recapture most people are referring to when talking about depreciation on a residential rental property. This does qualify for installment treatment - each year's reportable share of the gain must first be allocated to the unrecaptured Sec. 1250 gain until it is extinguished and the remainder will be taxed as a capital gain for the duration of the installment period.

See Reg. 1.453-12 for further guidance and examples.

@Jenny Sung There are a good amount of tax professionals who specialize in real estate here on the forums and I believe most offer a free intro meeting (we do). I'd recommend shopping around a bit to see if there's a good fit for you and your business. 

@Matt Rohr Tax professionals do not have to be location specific. Most, if not all, of us here on the BP forums work with clients nationwide. It's more important to find someone who specializes in real estate and who is a good fit for you and your business.

@Lalainya Rawlings Costs related the flip (purchase price, rehab, holding costs, etc.) are not deductible until the property is sold. In other words, you will not report any expenses related to the flip in 2019 - it will be inventory. Once the house is sold (2020), the total cost will be removed from inventory and deducted as cost of goods sold.

This is true whether you have an LLC or not.

@Ari Newman The structure you describe is fairly common but it's important to make sure it's the right structure for you based on your specific scenario. As you and @Carl Fischer both mentioned - converting passive rental income into ordinary income subject to SE tax by way of paying your PM company a management fee could be costly if the proper steps aren't taken or if your tax situation doesn't allow for any benefit of your proposed structure.

You also want to be sure an S Corp election is right for you. The main benefit of an S Corp is mitigating SE tax but there are associated costs (additional tax filings, payroll, etc.) and potential tax disadvantages (how will an S Corp affect your QBI deduction? What benefits are you intending to capitalize on - how will health insurance premiums, retirement contributions, etc. be affected?) that come along with it.

In order for this type of advice to be meaningful, you will have to work with a CPA who can dig into the numbers and have a conversation about your goals to ensure the structure is right for you and your business specifically.

@Luke H. Reach out to @Michael Plaks

@Noah Garza +1 for @Steven Hamilton II if you're looking in the Chicago area. He's great, despite his bad taste in football teams.

@Tyler Ruppert You're in the right spot. Most of us tax pros here on the forums work remotely and specialize in real estate.

Shop around and speak with a few to see if there's a good fit for you. 

Thanks, @Michael Plaks !

@Hong Y. Happy to help however we can. 

@Marissa Staller Not a long shot at all - you're certainly in the right place. There are around 20+ of us to professionals here on the forums who specialize in real estate (including house hacking).

Reach out to a few and see if there's a good fit for you.