All Forum Posts by: Sasang Doc

Hey Michael,

I'm grateful for your reply, but let's not jump to conclusions. The fair market value for commercial rent in my area is $27 a square foot and my business would be paying $3000/month rent to the LLC. That would reduce the taxable self-employment income we earn at the property by $36000/year! The property itself depreciates at $21,000/year and if we add rent loss, every little penny of the remaining rent income is deducted. With the reduction of AGI, I would also quality for a lower tax bracket. Of course there's depreciation recapture later on down the line, but that's a different story. My final payment to the IRS would be almost half of what I'm paying now. This isn't wishful thinking, its IRS math.

Hello Fellow BPers,

My LLC owns a business property where I've run another LLC business for the last 17 years. I'd like to start renting to myself (my LLC commercial prop renting to my LLC business running out of it full time). This seems like a perfectly legit thing to do in the eyes of the IRS but here are my IRS audit concerns…

1. By renting (at fair market value) to my LLC, my tax bill will suddenly reduce to almost half of its current amount (Yay! But we've been paying a similar amount for the last 17 years and renting to myself would be the only changed variable – red flag?)
2. I’m hoping to apply this change to last year’s taxes but we do not have a paper trail for one year yet. Perhaps we should start from here onward with lease written, account open, and monthly paystubs to avoid audit nightmare?

Thanks for the advice ya’all!

Hello Nicholas,

Thank you so much for offering this opportunity to ask tax related questions. I purchased an investment property less than a year ago that turned out to be a money pit. We would like to exchange it with another investment property via 1031 before it causes us more loss. Do we still have to wait more than one year before 1031 exchanging it (to avoid short-term capital gains tax) even if net income is negative?
Our intent was to hold onto the property for several years and we did not do any improvements (same tenants and property condition as when we purchased it). Sale price will be significantly lower than what we bought it for in order to get it off our hands quickly.

Thanks in advance for your input.

Thank you so much for your insights Joe. What, in your opinion, is the most efficient way to strip equity on an investment property? Would it be simply to refinance or obtain loan with least amount down?

Hello BPers,

I'm an LLC hoping to jump into bed with a sexy HELOC loan and strip down all my equity in an investment property.

My question for ya' all: Is the entire amount of HELOC credit protected from creditors? Or only the amount that I draw from it?

Thanks!!

-Gary

Hello Nicholas,

Thanks you very much for your insights! Yes, I meant to say "fall through" - thanks for noticing. The relinquished Property A was vacant land (without improvements) and my lower tax bracket doesn't qualify me for investment income tax. Keeping these things in mind, is there any way to calculate how much in capital gains I'd be liable for if Ohio property doesn't fall through? Thanks again.

Hello Again Nicholas,

Again, thank you so much for sharing your expertise with us.

We are currently in the process of doing a 1031 tax exchange. We sold Property A for $275,000 (bought it for $120,000 paid off entire mortgage) had $273,000 to spend based on sale of Property A. With the 1031 account, we bought 1 house in Utah for $315,000 (payed $150,000 in mortgage) and are about to close on another in Ohio for $105,000 (all cash from 1031 account). While this would take care of exchange, I'm wondering how much capital gains tax I'd have to pay if the Ohio property doesn't fall through?

I believe we're in the 15% tax bracket. So would this mean 15% of the leftover money in the exchange?
$273,000 - $150,000 = $18,450? Or would it $273,000 - $120,000 (Price we paid for Property A) - $150,000 = $3000

Thanks so much!

-Gary (Sasang Doc)

Hello Swanny! Thanks so much for the information and for reaching out. I'll be giving him a call. All the Best!

Hello @Kevin Romines, Would you mind PMing me the information about a DSCR lender in the Ohio area too? We are investing in the Cleveland area and looking to get a commercial loan on our next property. Thanks!

Hello Nicholas,

First, we really appreciate your generous offer to answer CPA related questions. 

Been reading Amanda Han's Advanced Tax Strategies book and she talks about Real Estate Professional status as an option for a couple who earned more than $150,000 annually in the medical field who otherwise couldn't offset income with RE expenses. My question is if someone earns less than $150,000 annually (adjusted gross income) is it still worth becoming a Real Estate Professional, or can they automatically deduct all rental losses against active income? (In short, not sure I understand the $150,000 AGI distinction).

Again thank you so much!

-Gary