All Forum Posts by: Scott Vance

@Radha Shankar Kallakuri I need more information. Is this a Roth or traditional IRA?

@Lem Diaz  I whole heartedly agree with @Cameron Skinner .  I know as an Enrolled Agent I have looked at several tax situations similiar to what you describe and taken the deduction and thought I would have no problem defending it in an audit.  I would suggest you talk to your tax professional to ensure you are staying in bounds and not taking a too aggressive position.  

@Pauline Misiak Dividend payments made out by the REIT are taxed to the

individual ordinary income, unless they are considered to be qualified dividends which are taxed as capital gains. Otherwise, the dividend will be taxed at the unitholder's top marginal tax rate. So there is no advantage to using an LLC to invest in a REIT, it would just further complicate the situation. Also while REIT's are invested in real estate they do not provide the same tax gains as being a direct owner of real estate.

Read more: The Basics Of REIT Taxation | Investopedia

@Jim Madden Also be aware of the penalty for withdrawing funds from an IRA early. If you are not eligible to withdraw the funds penalty-free.

@Nathan Christensen  Generally the depreciation expense taken each year will push you into a passive activity loss, especially in the beginning.  If you meet the requirements you will be able to deduct that loss up to generally $25,000 against earned income.  If you incorporate you lose the ability to deduct this passive loss against your earned income and generally funds from a corporation are taxed twice.  Once by the corporation itself then when the corporation distributes the funds to you it is taxed again.  I would speak with a local CPA or Enrolled Agent specializing in taxes and real estate.  

@Rafael Lopez  Regarding the travel.  Don't forget you can claim 1/2 the cost of meals since it sounds like you went somewhere overnight as well as the actual travel costs (Flight and hotel room)

@Carlos Perez You would only expense the actual HOA fees. The Special Assessment fees would be totaled up and depreciated using the appropriate depreciation schedule.

@Carlos Perez You can depreciate the cost of the condo itself, you can never depreciate land. The HOA fees would be expensed and taken care of that way. If you have a "Special" assessment, say to put on a new roof, build a new pool or something like that then those "Special" assessment fees are totaled up and depreciated.

@Jake Thompson  I am retired from the Army.  I wish I had paid a little money through the years to have a tax expert and financial expert to advise me on ways to save money, especially when I had only a little.  For the fees I would have paid I would have made more by following good advice and had many less sleepless nights.  

Dealing with this question can be complex.  I pulled a quote from my tax materials.  A tax court judge once said of the issue  “If a client asks you if the sale of a piece of property will generate ordinary income or capital gain, tell them you don’t know. Then tell them that no one else in town does either.”  In my practice if a client comes to me with this question, and they have a background as a flipper I am going to lean toward income, if they are brand new to real estate and this happens I might go with a long term gain if held over a year.  I think alot of the answer depends on your intent when purchasing the original property and numerous other factors as outlined in this article;

Forbes Article on Cap Gains vs Income

I would recommend getting a trusted tax advisor involved sooner rather than later.