All Forum Posts by: Paul Caputo

The only way to get that smell out is to tear out the carpet, replace the padding and apply KILZ or something similar to the subfloor. Not really an economical route considering the randomness of "pet accidents" Dogs and cats will be able to smell it even if you can't and think that's the spot to go. Some carpet is "resistant" to dog urine, but not cat urine. I'd never have carpet and pets in the same unit. 

Beyond that it's highly likely that if you rent it out you'll have to replace the carpet after the first tenant moves out. I think it's better to be proactive and get rid of the problem before it gets worse. 

If you put in the vinyl planks still get some KILZ and paint over any pee spots on the subfloor. That'll kill the smell and keep future animals from thinking it's the pee spot. 

Also the vinyl planks are basically the toughest thing you can put on the floor so it'll handle basically anything tenants can throw at it. A lot of high traffic commercial spaces use vinyl plank, that should tell you something.

I sold floors for 3 years and saw stuff like this very rarely. The house looks at lot better when all the floors are the same. I think putting real wood against anything wood-look looks bad, and this 2.25" medium oak vs full plank gray is about the clashiest it can get. 

Another thing is that while the all-gray color motif looks cool and is popular right now it's definitely trendy. In 10 years you'll be able to pick out houses that haven't been updated in the past 10 years by how gray everything is. 

You should probably figure out what you're going to do with the house before moving forward with a big renovation. Different way of looking at things if you're going to keep it (how do you want the house to look?) if you're renting it (How do renters in the market want the house to look?) or selling it (How do buyers in the market want the house to look?) Basically if you do everything how you like it, it may not work out so well when you try to sell or rent it. If you're selling, put in nice stuff to attract buyers. If you're renting, put in durable stuff to guard against tenants. If you're living there do whatever you want. 

But it's just a doorway. If you don't mind tenants probably won't mind, but this will push buyers away.

Hi @Micah P. Welcome to BP! Multiple member LLCs are taxed like partnerships, back you can make elections to be taxed differently. It would definitely be a good idea to talk to a CPA who understands real estate to see what works best for your situation. I'm not a CPA, but most of the tax benefits should be the same, just split in half. 

There are many great CPAs on here who may have some more insight. 

I'm sure it'll be much nicer in there, but no that doesn't change anything. 

Nope. An air conditioner is necessary for the general operation and maintenance of the building since it provides human comfort, making it real property. You'll have to depreciate it over 27.5 years. What you can do is fully expense any remaining depreciation on the old air conditioner that was removed, and since that's a retired asset there's no recapture. 

There are a lot of things bonus depreciation does apply to, but not an A/C unit in a rental. If it was nonresidential you'd be able to use section 179 to get the same result. 

I'm not a CPA, but I do know the depreciation rules.

@Shlomo Trachtenberg it's actually 100% bonus depreciation for assets placed in service after 9/27/2017 and before 1/1/2023, that was changed in the new tax law. Before that it was 50% for several years. 

Bonus used to only apply to new property, but with the new tax law it also applies to used property. Bonus also only applies to property with a 20 year or less recovery period, meaning it does not apply to the actual structure of a building. In general it only applies to land improvements (15 year) and tangible personal property (5 year) when talking about a rental. 

To really take advantage of it you need to have the assets classified individually through cost segregation. I can answer any questions about that. You can't just take 50% or 100% depreciation on an entire building in the first year, but if the assets are properly classified you can take it on the parts that qualify. 

It doesn't matter if you own it or your business owns it. Only thing that matters is if it's qualified. 

Of course talk with your CPA to make sure you aren't missing anything, but you're gonna have to run the numbers and see what makes the most sense. Do you plan on keeping the van for 5 years? 10 years? longer? How many miles are you going to put on it per year? How much did it cost? If you do depreciation you'll be able to take it over 5 years probably with 200% declining balance, but no depreciation deduction after that. If you put 10,000 miles per year on it you'd get a $5,450 mileage deduction at 2018 rates. You gotta put it all together and see which way gives you a better position overall. If it's high cost and low miles it'll probably make more sense to depreciate. If it's low cost and high miles it'll probably make more sense to deduct mileage. There's no better way for everyone, there's only a better way for you.

Yep! That's the magic of real estate, your taxable income can be far less than your actual income. 

@Nicholas Norris I understand the confusion, in fact I deal with it regularly :) Depreciation is tricky, but once it's explained should all make sense. Depreciation is a "phantom expense" meaning you take it like an expense but you're not actually paying anything out for it. 

1. Depreciation lowers your taxable income and it's only there on paper. It isn't eating your profits, it's actually improving your cash flow by lowering the amount of tax you pay. This is one of the reasons real estate is a great investment. You can have a positive cash flow while showing zero (or negative) taxable income due to depreciation. The key here is taxable income, not actual income. You want taxable income as low as possible and actual income as high as possible.

2. Yes depreciation is required on rental and commercial property. Again it's actually a tax benefit so there's no reason not to take it. Furthermore when you sell the property depreciation is recaptured. You get the benefit because you own the property, when you no longer own it you're no longer entitled to the benefit. The IRS will hit you for depreciation recapture when you sell whether you took it or not, so it's best to take as much as possible. Lots of people get surprised by a big tax bill after selling and not taking depreciation. 

Here's a simple example. Say you have a rental property with a $275,000 depreciable cost basis, that's purchase price less land value. The depreciation schedule for rental property is  27.5 years so in this case you'd have $10,000 depreciation per year. So if your profit per year on the property is $10,000 after all other expenses, the depreciation brings the taxable income down to zero. But you still put that $10,000 in your pocket, you just don't pay any taxes on it. 

Depreciation is my specialty so if you have any other questions or need further explanation just let me know. 

@Tandi H. I'm by no means an expert on the topic, but I'd be happy to put you in touch with my contact that focuses on this.

Your situation and plan sounds ideal for this strategy, as it's meant to provide annual income by disposing of appreciated property in later years. 

No need to set it up decades in advance. As I understand it takes a few months maximum and generally about a month to get everything setup. Since it generally works like an annuity (there are several "flavors" some aren't like annuities) it has to be setup so it doesn't "run out" with less than 10% to the charity or else all the benefits are retroactively lost. 

In the meantime are you taking advantage of the currently available 100% bonus depreciation? That will significantly mitigate taxes now and get you closer to your goals. On that I can help you out. Feel free to PM me.