All Forum Posts by: Steven Hamilton II

IThere hasn't been an initial return filed. 

I would remove the second and just respond to an IRS notice  received. The Partnership hasn't had any activity. 

@Josh Dixon @Natalie Kolodij, thanks for clearing this up for me! Much appreciated. I reviewed the IRS letter for my EIN number and it does confirm they want a 1065 filing for it. I did some research with my state and found the proper form needed to file an amendment to my Articles of Organization to remove my wife as a member. There's only a $50 filing fee. Would this be sufficient to avoid a separate filing requirement before year end? I'm hoping this will be the solution to all this. Goes to show that not all CPAs are created equal. Had I listened to my CPA's guidance, I would've been in the hole. Needless to say, I will be needing a new CPA!

@Navid A. (@Natalie Kolodij) removing her from the Articles will update the state's records but will no longer fix the IRS. Normally that would cause what the IRS calls a technical termination, but those are no longer allowed. So you would need to also file a Form 8832 (Entity Classification Election) which can take a while for the IRS to process and get approved, or file a final return and then apply for a new EIN and a new name and re-file with the state (usually cheaper and faster, but stinks if you like your company name). Or you could just keep it a partnership with your wife and you'll just have to file 2 returns each year. 

It is customary for an appraiser to instruct the seller to provide any comps that support the asking/contract price.  This is normally done BEFORE the appraisal report is issued, not after the fact.  The comps go through an analysis process by the appraiser to ensure that they are in fact comparable in all acceptable factors before their acceptance.

If I was the buyer, I would ask the appraiser to provide me with both of the completed valuation reports and inquire why the seller provided comps were not identified by the appraiser in compiling the initial report. Valuation is so critical to buying right that I would want the appraiser to "sell me" on the final number.

Again, it's not unusual for an appraiser to give a seller a chance to provide comps as part of the appraisal process - but it is unusual that it occurred after-the-report was issued.  I would want to know why.

In reviewing my taxes for the upcoming year, I've been looking more closely at my Schedule E and reading more about depreciation and cost basis. I know that your cost basis needs to be accurate, a number the IRS agrees with you on, but what constitutes due diligence in choosing this number? 

In my situation, most of my property's market value comes from the land, not the dwelling. Additionally, I have 2 recent appraisals showing different values as well as 2 years of tax statements where the tax assessor placed significantly different value on the dwelling. On top of this, I house hack so I only attribute a percentage of the dwelling as eligible for depreciation. 

All that said, it seems I have a significant amount of room to choose my cost basis and provide evidence for each. What is the most proper approach in this situation and what would the IRS want to see in the event of an audit? 

Nope. 

You added two of you to an LLC- now it's a partnership and you need to file a 1065.

The only time this isn't the case is if you're in a community property state. 

You DO need to file a separate tax return now. A pass through just means that income/tax payment is passed through to your personal return- and you pay tax based on your 1040. 

You may way to see about changing to a SMLLC potentially. I'd consult with a tax pro and see if a Pship makes sense for your situation.

There is no "right" way to do this. You need to find an attorney and an accountant that know their stuff and that you trust, and move forward with the set up that they recommend. Everyone you talk to with have a different opinion on how you should set up your business, and the bottom line is that you need to understand and support that structure and have a team in place who does the same. 

Best of luck!

@Steven Hamilton II

hi Steven,

Is this related to same topic or a seperate tax law to the 750 hour Real Estate Professional benefit (in my case something to consider for spouse in future) tnk you.

https://www.claconnect.com/resources/articles/2019/irs-safe-harbor-on-section-199a-impacts-tax-filing-for-rental-real-estate

Completely different provisions. This one you can ignore as I do not find it to be applicable to most cases. Most rentals will qualify as a business activity. 

Hello,

I am relatively new to bigger pockets and real estate investing. Some background, I'm active duty military and recently purchased my first rental property. This property is currently rented, with the start date of June 2019. My family and I used a house hacking strategy and plan on continuing this strategy moving forward. This is the first year my wife and I contemplated using a CPA Vs. H&R Block, which is our usual method. Also, we have not formed an LLC but plan to within the next two years.

Question:

1. How should I search for a CPA with a focus on real estate and military?

2. What are the risks of not having a local CPA?

- we move every two or three years.

3. Is it worth hiring a CPA with only one rental property?

4. How much does normal CPA services run and is it a upfront amount Vs. monthly?

5. Curious: when should I form an LLC?

6. What states are the best to form them?

Thank you ALL in advance!

Sincerely Josh