All Forum Posts by: Paul Allen

https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations#SafeHarborElectionforSmallTaxpayers

Safe Harbor Election for Small Taxpayers

You are not required to capitalize as an improvement, and therefore may be permitted to deduct, the costs of work performed on owned or leased buildings, e.g., repairs, maintenance, improvements or similar costs, that fall into the safe harbor election for small taxpayers. The requirements of the safe harbor election for small taxpayers are:

• Average annual gross receipts of $10 million or less; and
• Owns or leases building property with an unadjusted basis of less than $1 million or less; and
• The total amount paid during the taxable year for repairs, maintenance, improvements, or similar activities performed on such building property doesn't exceed the lesser of-
  • Two percent of the unadjusted basis of the eligible building property; or
  • $10,000 (for questions about how to calculate the unadjusted basis, refer to "Figuring the Unadjusted Basis of Your Property" in Publication 946
• You make the election to use the safe harbor for each taxable year in which qualifying amounts are incurred.
  • The election is made by attaching a statement to your income tax return for the taxable year. See When and how do you make an election provided under the final tangibles regulations?
  • An annual election is not a change in method of accounting. Therefore, you shouldn't file Form 3115, Application for Change in Method of Accounting, to make this election or to stop applying the safe harbor in a subsequent year.

I enjoy a good academic discussion on the nuances of the Internal Revenue Code.  However...

One thing I learned early on in my membership here at BP (under the loving [key]strokes of @Steven Hamilton II) is that these forums are a great place for delivering tax tips to real estate investors, but they are a  really bad place for academic discussions on the nuances of the Internal Revenue Code. 

I've never posted here about how complying with the IRC makes me feel, but I'm going  to venture a guess it is also going to seem awkward and misplaced.

Best of Luck!

@Account Closed for a variety of reasons I would do each property as its own business. Lack of sub-categories and ease of using the reports feature come to mind.

However, if I had more than 4  or 5 properties I don't think I'd be using Wave. I'd pony up for QBO or Xero. 

My $0.02

If I had read your post when I was 22 I don't think I would have even understood it, so good for you for being so on top of your financial situation.

Some things to think about:

1. A 35/65 allocation is no guarantee of safety. Your principal is still at risk when it is invested, even if you have chosen an allocation with historically low volatility. If I intend to spend/use that money in the next year or three I put it in the bank. 

2. After the Roth has been funded for 5 years you can withdraw all your contributions without tax implications. (Unless, of course, they aren't there because your investments lost money.) 

3. There's no one correct answer to your questions. Some people can't sleep at night if their money is earning 0.1% in a savings account. Some people can't sleep if their money is at risk in securities.  Different strokes for different folks. You'll have to decide if you'd rather risk not being able to afford the property purchase for another year or two because your investments got smacked, or if plain old banking is just too boring (or your regret level would be too high if you didn't invest and the markets continued to rise during that time - FOMO.)

Best of Luck with Your Real Estate Investing!

Do you have a C-corporation, an LLC that you've elected to have taxed as an S-corporation, or just an LLC?

@Account Closed I do not fully understand your situation. You used personal money to purchase a house, and have now sold it. Where is this money that it is not yours and needs to be paid back? It seems to me like the money is already yours. Can you provide additional details so I can understand what you are asking?

What is your goal in transferring the ownership to your daughter? Is there a specific financial benefit you are trying to accomplish?

Most accounting software has the ability to securely connect a bank account to a book of accounts. You establish a separate book of accounts (Wave calls this a 'company', I think Quickbooks calls this a 'case') for each property and connect the property's bank account to its set of accounting books. If you do all your transactions for that property through it's dedicated bank account, then the software will automatically do all the tracking for you. 

Nobody gets into real estate investing because the bookkeeping is so dang fun.  However, you can go to USTaxCourt.gov and read hundreds of tax court cases every year that end with the tax payer forking over additional taxes and penalties to the government because they didn't bother to keep good records. (Or you can read my BP blog where I summarize some of the court cases.)

Figuring all this out is worthwhile, and I salute you for the asking the questions. This is important stuff.

Best of Luck with Your Real Estate Investments!

@Emeric Harney  take a deep breath, my friend. If you are 30 and you have been investing for 3.5 years you are ahead of 95+% of your peers. That doesn't mean you shouldn't want to get better at taking care of your future, but your situation is the opposite of dire.

You have time, so educate yourself. There are a ton of free resources at Bogleheads - this is a group of people who follow the investment philosophy of John Bogle - Patriarch of Vanguard Investments and inventor of the passive index fund. 

I'm not very popular at investment adviser meetings because I frequently tell people they don't need an investment adviser. You might want one, but you don't need one. If you want the service so you can go golfing (or focus on your next real estate deal, or whatever), go for it. I know how to change the oil in my car, but I pay someone to do it because I want the service. Likewise, I have some clients who simply want the investment management service I provide. It works out for both of us. 

Best of Luck on Your Journey!

@Jeffrey Cervi can you explain the transaction you are planning more fully? Are you gifting this property to your daughter or selling it to her?