All Forum Posts by: Nicholas Aiola

@Ann S. I can't speak to the passive vs. nonpassive aspect without understanding the full scope of your tax situation and time spent on the activity, but rental income is not eligible for Solo 401k contribution regardless of if it is passive or nonpassive. In order to tie a Solo 401k to a business, it needs to be a self-employed business with self-employment income. Rental income is not SE income, even if you are a REP.

@Jeffrey Infante In what capacity? For tax purposes, rental income is still taxable regardless of whether it is received from the tenant or a state-run relief program.

@Shannon S. Miscalculation (or complete omission) of a rental property's basis and depreciation. It is the most common, and can be a costly fix.

@Suzanne H. Quarterly estimated taxes could be required if you earn income without proper withholding, but they are not always required. You can read more about estimated taxes here. I doubt the rental property will result in a requirement to pay estimated taxes. BP is a great starting place to look for a real-estate-specific CPA, if you are open to working virtually.

@K Luu Tom is right. In his example, the $40k is capital gains - could be short-term, long-term, Sec. 1250 @ 25%, etc. That depends on the facts and circumstances within the investment. If there are suspended losses from prior years ($30k in his example), those are "freed up" when there is an entire disposition of a passive activity, and are deductible in the year of disposition. This deduction is reported on its own line of the tax return, separate from the capital gains. 

@Ashley Isabell Forming an entity in a different state alone does not always exempt you from the $800 tax in CA. LLCs are tax neutral (no tax benefit), so you are better off consulting an attorney than a CPA for this question.

@Bill Jones No, those would be capital contributions to the business and would be reported in the equity section of the balance sheet on the entity return. 

@Andrew C. 

1) If she meets the qualifications for REPS, the rental losses will be nonpassive and can offset any type of income.
2) The functionality of Series LLCs differs from state to state, since some states do not recognize the Series LLC structure. The structure is disregarded (one owner) or pass-through (multiple owners) and, therefore, tax neutral. With this in mind, I would defer to your attorney for more info on its asset protection effectiveness.

3) The hobby loss classification would not apply to rental RE.

4) It's possible it would benefit you tax wise. It's also possible it would cost you more than it saves you. That said, if the goal is to have a W-2 for your wife to be more bankable, or health insurance to run through the business, you may accept the trade off of higher taxes for those benefits. If she owns > 5% of the business, the hours will still count towards the 750 but they may take away from the material participation hours on the long-term rentals. There are too many variables to address in one response (especially without all details), but those are a few high level points to consider.

@George Habator These costs will be a part of the property's basis. 

@Henrietta Lee I won't be able to offer much help here because your specific tax liability is dependent on all factors included in your tax return, not just a few. But I can tell you that you should make an estimated tax payment if you expect to owe taxes. The easiest way to make a payment is online via Direct Pay.

The adjusted basis of the capitalized improvements (remodeling costs) will be factored into the gain calculation. The $30k you put in while you were living there should have been capitalized as part of the initial basis when first converted it to a rental.

It does sound like next year will be a more favorable tax year for you. Based on your numbers, it seems the $120k gain would be taxed at 20% in 2022.