All Forum Posts by: Aaron Zimmerman

There’s a lot of real estate CPAs on here and on this thread. I’d recommend reaching out to a few and seeing who you connect well with. If you’re open to them not being local, you will open up the talent pool a bit more as well. 

For the STR rental loophole, which is what you appear to be referring to, you need three things:

1. Average stay 7 days or less

2. Materially participate in the property - this is the big one. You’re likely not hitting 500 hours (one of the tests) so you’re relying on the 100+ hour and more than anyone else’s time or substantially all the time in the activity. This means you’ll need to track the time of others and also can’t have a property manager as well. 

3. You can’t use the property personally for more than 14 days or 10% of days rented, whichever is more. 

I would recommend finding a real estate cpa even for one property. I have a prospective client that didn’t put their properties on the return and now need to amend.

Potential pitfalls:

1. Not calculating your basis properly between building and land, which impacts depreciation. 
2. Improper reporting of capital expenses and repairs 

3. Improper reporting of big items such as mortgage interest. 

Even if you’re not getting money back on your taxes, you’ll have the peace of mind knowing your return is accurate.

It depends on your risk tolerance and what other assets you'd like to protect. For lending, your rates are going to be higher than if you were to buy under personal name. If you already have existing property and transfer property to an LLC, then it could trigger the due on sale clause the bank. I would consult with your bank before making any moves if this applies.

There a lot of real estate tax professionals/CPA on BP. I'd recommend interviewing a few and seeing who you connect well with. I would not limit your geography to your local area. Nearly all tax professionals can handle most states nowadays.

I think anytime someone has one rental, they should get professional help. There's a lot that people mess up. Entity structuring, basis calculation (i.e. breakout between building and land), deductible expenses, etc. I've seen some horrendously self-prepared returns. Better to get it done right and treat your rental properties as a business. 

Agreed with everything @Michael Plaks said. One thing to add is that you mention having a multi-member LLC. This will necessitate another tax filing for form 1065. You will each receive a K-1 from this and report on your return. There will be an additional fee for your CPA.

If possible, you'd want to have a single member LLC to avoid filing an additional tax return when the benefit is the same to you.

Like others have said, it all depends on when the property was placed in service. Placed in service means when the property was available for rent (i.e. certificate of occupancy or first advertised). If the expenses occurred after the placed in service date, then they are deductible. If they occurred before, then they are not deductible and instead capitalized and added to basis. 

There's a lot of nuances with house hacking. I wrote an article that I think you'd find value in that will provide some answers to your question: https://www.straightupchicagoinvestor.com/blog/6-must-knows

I would recommend getting with a CPA to go through your tax liability. If you do have gains, you may be able to offset other properties losses to reduce the tax burden. @Michael Plaks as always is spot on with his analysis.