All Forum Posts by: Steven Hamilton II
Steven Hamilton II has started 25 posts and replied 5110 times.
Post: Any high performing Realtors taxed as S-Corps
- Accountant, Enrolled Agent
- Grayslake, IL
- Posts 5,272
- Votes 2,325
Originally posted by @Eamonn McElroy:
@Michael Plaks brought up an important issue that shouldn't be ignored. Some states don't allow RE agents to operate through an LLC or corporation. Clarifying your state's regulations is step one.
This is 100% correct especially after the Tax Court Case Fletcher V Commissioner, it is a bigger issue with them. The assignment of income personally earned. So the state MUST allow it.
Once that is determined we review which entity is appropriate.
Post: Any high performing Realtors taxed as S-Corps
- Accountant, Enrolled Agent
- Grayslake, IL
- Posts 5,272
- Votes 2,325
Originally posted by @Patrick J.:
@Dassi Lazar
Do you pay your accountant to do payroll and bookkeeping or do it yourself?? I think once its set up, it's easy.
I know some accountants that charge like $1000/month for payroll, bookeeping and taxes and at that point, its not worth paying the Accountant because the costs outweigh the tax benefits.
My single payroll S-corp clients run about $300/Year for payroll. Most handle their month to month bookkeeping. However, with a corporation you MUST maintain a balance sheet and income statement. You also must not commingle expenses. You can arrange detailed reimbursement policies etc. For some a C-corp might be a better idea due to certain fringe benefits.
Post: Any high performing Realtors taxed as S-Corps
- Accountant, Enrolled Agent
- Grayslake, IL
- Posts 5,272
- Votes 2,325
Originally posted by @Dassi Lazar:
@Patrick J. I am the only one on Payroll so he doesn't charge that much (not sure exactly because I pay a lump sum with my rentals and flips). But he did the math and said the break even point was at $60k which I surpass so it definitely has been worth it.
I would be VERY Careful as you may be undercutting your Social Security Benefit down the road. And who knows what might happen in your situation down the road. Not to mention what happens if you become disabled. There are significant issues with that and if he says you only need 60k as compensation. He's a downright fool and could be liable for damages in the future.
Reasonable compensation for your personal services to the entity. If you are creating the income I'd have a hard time saying a large portion is not subject to SE Tax.
Post: Any high performing Realtors taxed as S-Corps
- Accountant, Enrolled Agent
- Grayslake, IL
- Posts 5,272
- Votes 2,325
I'd advise any of you considering an S-corp to consider a C-corp instead.
Also you are required to do bookkeeping anyway.
Post: WHO has helped you on BiggerPockets?
- Accountant, Enrolled Agent
- Grayslake, IL
- Posts 5,272
- Votes 2,325
Thanks for the mentions. I've loved my 9 years here helping everyone out.
Post: Capital gains tax based on income?
- Accountant, Enrolled Agent
- Grayslake, IL
- Posts 5,272
- Votes 2,325
Originally posted by @Josh Dixon:
Originally posted by @Natalie Kolodij:
Originally posted by @Josh Dixon:
Hi Matt,
I would probably look into getting a CPA. I don't think you will have much gain, but it might be good just to make sure it all gets reported correctly. Your basis would have increased to the fair market value of the property at the time that you started renting it, and you would also be able to include any selling costs to reduce your gain. You will have some depreciation recapture (whether you reported depreciation each year or not) and that will get taxed at your ordinary tax rate. If you weren't taking it, then there is a way to catch-up that depreciation, so they can offset.
The capital gain tax rate (if you have any gains) should be based on your taxable income, which is your income minus the standard deduction or itemized deductions whichever you do. But any gain and depreciation recapture do get added to your income in determining where you fall in the range. I think you'll still be ok, but based on the income amount you gave, it sounds like you are single and the 0% CG ends at $39,375 so you are kind of on the bubble.
If you do end up with some capital gains, it may end up being 15% if not 0%, but I'm not sure it would be worth doing a 1031 for little to no gain even at 15%, and you only have 6 months (180 days) to complete it so you are probably out of time anyway.
Hope this helps! If you need me to explain something more/different, just let me know.
When you convert a primary residence to a rental it's basis is the LOWER of FMV at time of conversion or original purchase price.
So his basis would not have stepped up to FMV.
IRS Pub 551
Thank you Natalie for the reference, but I think you're just splitting hairs here. The FMV of the house would likely be lower than his adjusted basis after splitting out the value of the land, unless it increased a lot in the year and a half that it was a personal residence.
Pub. 551, pg 11:
"Your adjusted basis in the house when you
changed its use was $178,000 ($160,000 +
$20,000 − $2,000). On the same date, your
property had an FMV of $180,000, of which
$15,000 was for the land and $165,000 was for the house. The basis for figuring depreciation on the house is its FMV on the date of change ($165,000) because it's less than your adjusted basis ($178,000)."
Dude, Natalie is correct. It never increases to FMV except on date of death. It is possible it is lower due to FMV. You directly contradicted yourself.
Post: Anyone have experience selling a deeded parking spot?
- Accountant, Enrolled Agent
- Grayslake, IL
- Posts 5,272
- Votes 2,325
If they are part of the same area/structure or building I'd consider it. To add to @Natalie Kolodij's example you are using it as part of your home.
§1.121-1(e)
(1)Dwelling unit definedFor purposes of this section—(A)In general
The term “dwelling unit” includes a house, apartment, condominium, mobile home, boat, or similar property, and all structures or other property appurtenant to such dwelling unit.
Post: What due diligence in determining cost basis for depreciation
- Accountant, Enrolled Agent
- Grayslake, IL
- Posts 5,272
- Votes 2,325
Originally posted by @Wayne Brooks:
@Brian Nel Just an observation.....on your back, unless you plan on it being a pure rental property before you sell....whatever portion you depreciate will not be eligible for for your 121 primary exclusion. And remember, depreciation write off saving are essentially an interest fee loan that you have to pay back if you sell....not as good as a cap gains exemption.
@Natalie Kolodij BTW, is a certain portion of your primary, that you house hack/rent out, subject to Required depreciation and recapture like a pure rental property?
Actually it depends if it is inside your dwelling and not an accessory building it is considered all eligible except you will have gain from the depreciation taken.
If it is an accessory building you do not get the 121 exclusion on that portion.
Post: What due diligence in determining cost basis for depreciation
- Accountant, Enrolled Agent
- Grayslake, IL
- Posts 5,272
- Votes 2,325
Originally posted by @Natalie Kolodij:
Originally posted by @Boomer Philbrick:
What the IRS asks is for you to be reasonable when it comes to land value. It's recommended to look at other similar properties in the area and see what value or % they are using for land. And you can also do what Jaysen recommended above and look at town property records. Again, it all comes back to is the value you designate for land reasonable relative to other properties around and if you get questioned, can you defend it.
I don't think I've seen the IRS allow OTHER properties land v. building splits as your basis
Because unless your house and it's value/ improvements/ overall condition is EXACTLY like that one- you can't say it's allocation to land v. building is comparable - I'd just be a little cautious with this one.
You can use recent land sales though- prove what your land value is based on comparable properties .
The most important part is to be ready to back up your method. Nielsen V Commissioner. https://ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11211
In this case the taxpayer lost as they completely winged a method and then their numbers did not line up.
You want to document the method in which you allocated land value. The easy or safe methods are the appraisal or assessors value.
Post: Bookkeeping For Roth IRA Owned Single Member LLC's ?
- Accountant, Enrolled Agent
- Grayslake, IL
- Posts 5,272
- Votes 2,325
If you are going to be keeping a set of books you should be keeping a balance sheet and profit and loss statement like any other entity. The fact you opened an LLC encourages this for state purposes. I will mention my only concern would be if there is debt at all.
In order to maintain the sanctity of the LLC, by state law you should be maintaining those records appropriately for annual report purposes.
For debt instruments you need to maintain accurate records of payment etc.