All Forum Posts by: Paul Allen

From a 'pure math' standpoint, if you can invest that excess cash flow at a higher return than your mortgage interest, then it makes more sense to reinvest it than to pay off the mortgages.

We don't really live by pure math, though. If we did no one would ever go to Italy or buy a boat.

The problem with answering your question is that you have not clearly articulated your goal(s). You seem to be saying, "My goal is to pay off the properties, should that really be my goal?" We can't answer that for you. We can only offer alternatives to paying off your mortgages. Only you can decide what is right for you. 

Don't feel bad about that. Most of my clients struggle with articulating their financial goals. In many cases I spend the bulk of my time with a client trying to get him/her to define what "I want to retire comfortably" means. It's impossible to make a cogent plan without a quantified goal, though. So, squirm as they do, I drag them through that process. (My wife, by the way, is my absolute worst 'client' in this regard!)

Best of Luck with Your Real Estate Investing!

1. S-Corp election for the Wyoming holding company could have negative tax consequences. At best it was unnecessary.

2. Any (operating) LLC that has more than one member is treated as a partnership requiring a 1065 be filed UNLESS you elect (by filing form 8832) to be taxed as a corporation (S-Corp or C-Corp)

3. S-Corps file form 1120S

4. There is no tax benefit to your structure. There may be a legal benefit in terms of liability coverage, but I suspect a decent insurance policy would cost you less than the cost of preparing three 1065s and an 1120S every year. [Insert standard "that's not legal or insurance advice" disclaimer here]

Best of Luck with Your Real Estate Investing!

There isn't a 25% bracket in 2018.  :-P

It's possible to short sell those markets. Or....

If you just wanted to mitigate downside risk you could purchase put options against your positions.

I'm not recommending either of these as an investment strategy. Just bringing up possibilities.

@Kirk Bausch

The SEC registration requirement was raised to $100M of assets under management a few years ago. Below that and you're regulated by the state(s) where you do business.

There are multiple companies that assist with RIA formation/compliance paperwork. The costs typically range from $3K to $5K. Google will find them for you easily enough. 

Separate from my tax business, I also have a registered investment advisory. I opted to file my own compliance paperwork for RIA formation in the Commonwealth of Virginia. About 3 months into that process I was really wishing I had hired someone else to do it. Expect to spend dozens of hours on it. But, when it was over and my RIA was approved, I was glad I had done it myself. I learned TONS and made personal contacts in my regulator's office. Now when I have a question I can pick up the phone and ask what's the easiest way for me to stay out of trouble if I...

As a state-regulated entity I can have as many Virginia clients as I can handle, but only 5 clients in any other state (where I don't have a physical office presence) before I must also register in that other state. The exceptions are (I think) Texas and Louisiana where you can have just 1 client before you must register there. If you are SEC-registered you are covered in all 50 states.

Make sure you're talking to a securities attorney. Like real estate, it's a highly specialized field. I am NOT a securities attorney.These are just my personal experiences.

Best of Luck with Your Investing!

Sale price - (Purchase price + Cost of improvements + Cost of sale + Cost of purchase) = Capital Gain

If it was a business property you would also subtract the depreciation allowed or allowable. (Form 4797 Part III, Line 22)

There are sometimes other adjustments to CG, but that should cover most of it.

The $500K section 121 exclusion on CG is for married couples filing jointly. Both must have lived in the property for 2 of the last 5.Only 1 needs to be on the title. A single person gets a $250K section 121 exclusion.

Best of Luck with Your Real Estate Investments!

You should get out more, my friend. Things are changing.  Although, I do wish I was skinnier. 😊

As a financial planner I will tell you with a high level of confidence that if you are looking for help with your real estate investing, you will get much more value from a real estate knowledgeable tax professional than a financial planner. @Linda Weygant and @Michael Plaks have explained why. 

Point of clarification, though: If you want a financial planner (we are good for SOME things!), then you want a "fee-only" financial planner. "Fee-based" financial planners will charge both fees and commissions. (Commissions mean they have an economic interest in selling their clients specific products - which can taint the advice they give.). "Fee-only" financial planners do not receive any commissions or referral fees. It's still not perfect, but it's the best fee structure out there for clients.

Best of Luck with Your Real Estate Investing! 

@Kafui Athiogbey unless you have chosen some (highly complex and ill-advised) strategy that requires your entity to pay it's own taxes, there is no taxable consequence to taking a distribution from your LLC. The income from the LLC is taxed in the year it is earned (getting reported on your individual 1040), not the year it is distributed.

Best of Luck with Your Real Estate Investing! 

Thanks @Adrie Moses-bailey 

The timing/frequency of the distributions generally does not impact your tax situation with a partnership. The income from the partnership is taxable to the partners even if you leave it all in the partnership's bank account and don't distribute any of it. Because the partnership itself does not pay taxes, the income from it passes through to the partners in the year it is earned, regardless of whether it is withdrawn from the bank and handed to a partner. 

Distributions matter when it comes to tracking a partner's capital account. This is an important concept from a business standpoint. It can become a significant tax issue if your partnership gets large enough that partner capital accounts get reported to the IRS. (I have no idea what NY law requires on that matter, btw.)

You would likely be well-served to get an accountant involved early.