All Forum Posts by: Ryan Lane

Investing in a 401K still has many benefits, and I'd recommend contributing to it. Certainly up to your company's match. Here's the most important thing to remember with a 401K: it's a very long-term oriented investment structure. It's built to incentivize you to stay invested for 30+ years (that is, if you start in your 20s).

Once you setup your 401K with the right investments, the best idea is to set it and forget it. Only look at it on a quarterly or yearly basis. It's important to remember that we're currently in a highly volatile time, so you should expect to see some large upswings and large downswings. But, over your investment horizon, these returns will smooth out (at least historically).

I think real estate is a great investment, but I think it's best to do both if you can. I would just say to keep putting money away, and over the next 10, 20, 30+ years, you're likely to see an average return of 8% or more. But remember, as an average, you're unlikely to see that exact return every year.

I'm a CPA with experience in QuickBooks, Xero, and other accounting softwares, but I understand the big property management softwares also have the ability to track financials and so much more. I've gone on to Buildium's website and Appfolio's website, but I can't find learning sections (similar to QuickBooks) with resources on the software. It seems you need to have an account.

I'd like to learn these softwares to better help clients, or at least be able to take clients on that mainly run off these softwares. 

I'm wondering how others learned the software and if people have any ideas of how to learn these softwares and get experience going through them?

Thanks!

From a taxable income perspective, you'd take the gross rent ($1350) and subtract out the interest ($474), tax ($90), and insurance ($87), for taxable income of $699. From a cash flow perspective, you'd further subtract out your principal ($143), so your monthly cash flow is $556.

From a taxable income perspective (for instance say on your schedule E), you wouldn't deduct an expense until you pay it. Escrow "payments" haven't been paid, it's more that they have been set aside. You would pay and incur the true expense when you pay out of the escrow. For instance, say you put $2,000 in escrow in January for property taxes, but you don't pay the property tax bill until October. In January, you wouldn't incur an expense, but in October you would.

You can also look at LegalZoom or ZenBusiness. LegalZoom is more known, but you'll pay a premium for the service. ZenBusiness is a bit cheaper. The LLC is a good choice if you ever want to bring in a partner and it does provide another layer of protection. From a tax perspective, the LLC will be disregarded on your return until you bring a partner in, then it becomes a 1065.

Hi, @Nathan Doherty! The $250/mo seems a little low in cash flow (generating just $3,000 of profit a year). You may have already thought about all this, but you should look to factor in the following expenses: advertising costs, maintenance (for normal wear and tear), repairs, property taxes, rental insurance, interest expense, any legal/accounting costs, and the like. If you are moving across the country, you may want to look into a property manager that is closer by to look after the property, some prefer this while others still self-manage the property. 

Quickbooks is a great option. It’s fairly affordable and easy to learn. Most people don’t leverage it to the full extent possible. You can connect a variety of apps to increase automation and efficiency. For instance, you can connect PayPal or Square for payments. You can utilize their own payments software. You can connect to Bill.com and many other applications. This would streamline the process and reduce your manual effort. It’s highly customizable if you need. 

In terms of typical expenses, you may expect to incur advertising costs (for listing the rental), cleaning and maintenance costs (either between tenants or normal wear and tear like grass mowing or a now removal depending on the type of property or the way you setup the lease), insurance, utilities, property taxes, etc. 

You could also elect to take depreciation. This will increase your capital gains when you inevitably sell the property, and the depreciation amount will get recaptured upon sale (If you sell for a gain).

That's great news then! And you are right, the CARES Act provided some nice benefits. Sounds like you're on the right track. Sorry I can't be more help.

Hi @Benjamin Nitz, from a tax perspective, you would want something in writing. In order for the loan to not be classified as a "gift" you'll need similar terms to a normal loan. Typically a payoff period with a normal market interest rate -- I believe the IRS states the specific loan interest you'd need to charge (but I could be mistaken, this is just off the top of my head).

Either way, there is some validity to your dad's concern. Without a proper loan, with interest, in place, the IRS could come in and deem this a loan. Now, that's not the worst scenario. He'd have to file Form 709, but the gift exemption level right now is substantial. So there's a good chance he'd never run into gift tax unless he is extremely wealthy.

I agree with the others. Depreciation isn't a tangible product that can be "carried" over. It's function derives from the "matching principle" in accounting. So it allows you to deduct part of the cost of the property over the course of the assets life.

This depreciation however reduces your cost basis in the property. Your cost basis is typically what you bought the property for, plus improvement costs, minus depreciation (with some other additions and subtractions in there). 

By not taking depreciation, you don't reduce your cost basis. Thereby reducing the gain you'd recognize upon sale of the property.

As another poster mentioned, depreciation doesn't create tax credits. By not taking depreciation, you are reducing an eligible expense in the short-term. In the long-term, you're potentially reducing the capital gains tax you'd have to pay out. So you're accountant may be referring to that tax savings, which you could utilize as a down payment.