All Forum Posts by: Ryan Lane

It sounds like you may have a partnership situation on your hands, as you said you and your team have an LLC. If multiple people are invested in the LLC, you'll likely need to file a 1065 return. Outside the situation where you have a single investor with just a few properties I advise investors to seek outside counsel. Tax is one area that can get complicated very quickly and the liabilities can be significant. I wouldn't want that burden falling upon you.

In terms of books and records, I would try and pay for a QuickBooks Online subscription or something similar. When you have multiple investors, it's good to have professional looking books -- it helps reduce the chance you are missing something. This is because you are typically by law required to maintain books and records. Also, output from QuickBooks will be easier for the CPA to follow and advise on.

Some say to just do excel, but the QBO Plus membership is just $35/mo which isn't too much when you put it in perspective.

I would ask a CPA about your situation. The transfer can be viewed and treated like a sale of property.

Outside a sale, a single member LLC ("SMLLC") will be "disregarded" for tax purposes. That essentially means it's ignored from a tax perspective and treated as if you owned the property directly. In this situation the property would be listed on your federal 1040 Schedule E page 1.

If the LLC has multiple members it's typically treated as a partnership (though there are elections to treat it differently). In this situation the LLC would file Form 1065 for partnerships. Each investor would then be issued a K-1 and the income would flow to your federal 1040 Schedule E page 2 (where K-1 income is reported).

A lot of CPAs may dabble in real estate -- that is, they may have clients with a few schedule Es -- but you'll want to look for a CPA that is well-versed in real estate. The more focused on the niche the better. There are some great CPAs on these forums and many of them are virtual. Don't settle for a CPA just because they are local to you. I'd suggest looking around these forums and making a list of CPAs you'd like to vet and then setup a 30 min phone call with each to discuss your situation.

I agree with @Will Fraser. I think you'll get many different opinions on this topic. I also agree with him that at a minimum you should separate your different business activities (that is, flipping, renting, etc.) into different LLCs. You should also ensure you are carrying adequate insurance for the properties. This will help a tremendous amount.

This can depend also on the attorney and CPA you use. I've seen investors with 100+ properties, and nearly all of them are in separate LLCs. Then I've seen people carrying multiple properties under a single LLC. This is partly driven by your preference, the advisors you use, and your situation.

I would say you can assume most interactions are billable. It’s at the discretion of the practitioner to not bill certain work. But CPAs make money by selling their time. To boot, I’d say that $450-500 is fairly cheap for quality corporate tax services. Particularly with any foreign work involved. 

The first caveat, I would speak with a knowledge CFP who can help you determine the best course of action for your situation. They'll take into account your risk tolerance, goals, objectives, and values to determine how to best use that windfall.

Now, it also depends on how risk adverse you are. I'm a fairly risk adverse investor. And I hate having debt. So I would go with option 1. Pay off the debt, get the guaranteed return (certainly at 10%!). 

I would pay that 401k loan off because you're stealing from your retirement funds and having to pay yourself interest that doesn't match the stock market return. In addition, the 401k loan is risky because if you lose your job, that loan could become due immediately.

I would leave the mortgage because that's a great rate.

Paying down both these pieces of debt will certainly free up a lot of monthly cash flow, which you can then save for a down payment. It also delevers you, reducing your risk. 

@Mary Jay I agree with others have said. On the most simple level, that is how you would determine your marginal tax rate. That is, the tax you would pay on the next dollar earned. To determine your effective tax rate "ETR" you would look at the 1040 publications and tax bracket tables. They'll help you determine the amount of tax you pay at every level. You would then sum up the total tax you paid, divide it by your total income and that gives you your ETR. Your ETR, in almost every scenario, will be less than your marginal tax bracket.

Like others said, don't forget your state income taxes either. That will increase your tax burden significantly too (unless you live in one of the few states that doesn't have income taxes).

Hey @Matt W., the depreciable amount of property is typically determined by taking the purchase price and subtracting some portion of that price out for land (which isn’t depreciable). The remaining cost is the value of the building which is depreciated over 27.5 years for residential and 39 for commercial. Any updates or improvements made will be capitalized and depreciated too. Typically you’ll see Lon costs capitalized and amortized over the term of the loan too. 

Hi, @Joshua Knapp. I think @Bjorn Ahlblad had good suggestions. It's different in each locality, but you can often go the county website and look up what taxes the previous owners paid. Some are easier to find then others. Then you can use this to assess any potential increase in taxes when you try and rehab the property, etc. The county will also list out all the various taxes they charge on a property, but sometimes this isn't straight forward and can be time consuming, so the first method might be more of an estimation, but quicker.

Hi, @Swastik Tripathi. Welcome to BP! I think you are referring to a 1031 exchange. A 1031 exchange allows for the deferral of capital gains tax, if you purchase a similar property. This is subject to numerous rules however, so I would suggest you work with a CPA who is well-versed and experienced in that area. It's easy to mess up without experience.

Also, there aren't tried and true rules on the holding period for 1031s, but the IRS looks down upon people trying to use the 1031 deferral for flips and short-term holding periods. I believe most people advise holding the property for at least a year, but this opinion might differ from practitioner to practitioner.