All Forum Posts by: Tony Kim

Thank you very much! I find that at this level of doing your returns, I utilize the 'forms view' mode much more often than the interview or step by step mode. I hope I can get it to work!

Hi Michael,

Can you elaborate on how it would be more complicated? I'm trying to finish my taxes right now. I figured that I would continue the depreciation schedule on the relinquished property, except I would be calculating it on the Excess (Additional) Basis found in form 8824 instead of the Exchanged (Carryover) Basis. And for the new property, I would calculate it the same as I normally would, except I would subtract whatever amount carried over from the relinquished property. Am I on the right track?  Thanks.

 Ahh, got it. Sec. 469(i)(5)(B). Thanks Eamonn.

Hello,

I was hoping some of you experienced tax professionals could help me with a question. When looking at the way we manage our properties, I think we would easy qualify as active participants as we are 100% owners and pretty much take care of everything. The thing that disqualifies us is the AGI limitation rule. However, if my wife and I were to file married but separately, my wife would qualify as she does not work full-time and her AGI was below 75K. 

Would filing separately allow us to utilize some of our accumulated passive losses from this year (at least the portion that will be allocated to my wife's return)? Since we live in community property state, I figure we would split and assign the RE income & expenses 50/50 to each of our returns. My returns would calculate the RE income as passive and carry forward any losses to next year. However, in my wife's return, we could utilize the passive losses by categorizing them as non-passive and deduct that portion against her W-2 and 1099 income.

Can anyone tell me if this is a viable strategy? I'm just worried the IRS might view this as too much of a work-around in order to harvest some of our passive losses this year. SALT limitation imposed beginning this year is really killing us.  Normally I'd be content to carry-forward all passive losses. However, the amount I owe this year is shockingly high and so I just thought I'd look into possible ways to soften the blow.

Thanks!

Tony

@Linda Weygant

SALT is going to really hurt. It's going to hurt a lot of folks in the coastal states. Part of me thinks it was partially driven by Trump's dislike of California. Changing your primary residence to a state outside of CA is the most effective strategy, but that isn't an option for me unfortunately. I know that many states were working on a work-around, but I don't think that amounted to much. Also, I doubt the IRS is going to look kindly on any of these sort of tactics, let alone accept any of these types of returns without triggering an audit.

Also, some tax situations happened in 2018 that were out of my control which are also going to hit me hard...namely, a hard money lending fund in which I had a very large investment converted to REIT. This basically converted what was originally passive income to 1099.

With 40K, you aren't going to get any positive cash flow anywhere in So Cal, no matter where you look. Are you currently renting or do you own? If you are renting and want to get started, my suggestion would be to house-hack a multi-plex. The way I see it, you can either buy a SFR and pay a monthly mortgage or buy a 3-4 plex and pay a monthly mortgage, partially offset with your rental income. It would be hard to say which would result in a lower net outflow because there are too many variables involved and I have no idea where you are targeting. But if you are serious about getting started and are looking to get exposure to the RE market with 40K, this would be one way to get started.

As mentioned above, OOS turnkeys are also an option, but don’t get overly influenced by the low prices. TKs as an asset class are an excellent option for some people because they are convenient, allow for a low-entry point in terms of initial capital required and provide (in most cases) a modest amount of immediate cash flow. But there are plenty of downsides also, which I really won’t get into here. I will say that I have one TK property in the Midwest. It’s performed about as well as I could ever hope for and the PM has been fantastic…but I’m pretty sure it’s the last TK I will ever buy.

Those numbers look like numbers for a C or D class property. The last time I ran the numbers for a good quality property in Memphis with 20% down non recourse, cash flow was minimal...significantly less than your numbers. 

Also, keep in mind that if you truly are able to get 260 per month, then that is actually a pretty decent return on your investment (3,120 ÷ 18,000 = 17.3%). However, like @Jay hinrichs alluded to above, you'll be taking on some significant risk due to the inherent volatility of cash flow from maintenance items and tenant turnover/vacancy. Properties in the Midwest that rent for well under 1,000 tend to be more volatile. 

Yeah, but you're being allowed to deduct, on an admittedly long amortization schedule, a cash outlay that does not immediately affect your BS.

It truly is mind boggling. One point of clarification however. Interest expense and PM fees aren't cash-less charges and thus would not be a true tax benefit. Your tax liability would go down, but so would your income and cash flow.

I don't mean to be rude or overly blunt, but if your parents do not have $10K in liquid cash available to lend you, I would urge you to reconsider borrowing money from them at all. It sounds like they aren't in a financial position to lend you money, let alone dip into their retirement account. Also, BRRR is one of the riskier types of RE investing for people just starting out. Unless you are experienced at this and have a good team of contractors with whom you have an established relationship, the chances of them recouping their 10K via income generated from the property aren't that good.

If it's a duplex, why not just trying house-hacking?