All Forum Posts by: Adam Rasmussen

The main thing to keep in mind regarding the $130k is that it is per taxpayer. Meaning you have a $130k Social Security wage base and your wife does, as well. 

If you are at $100k and you are the one getting the $50k in commissions, this means $30k of the commissions will be subject to the full 15% Self-Employment tax but the remaining $20k will only be subject to the Medicare Tax of about 3%. 

Of course the entire $50k is still subject to your ordinary rates no matter what tax bracket you are in. 

Henry - definitely a fair question and there are a few variables here. Short answer is yes, you are definitely tracking with the percentage there. Having said that, with you being the 24% bracket you may have already maxed out (or close to) the Social Security wage base of $130k. 

This means that if your W2 earnings are over $130k, you have already maxed out the social security wage base and will only need to pay the Medicare portion of the Self Employment income. Why is this a big deal? The Social Security tax makes up 12% of the 15% SE tax. If you have $130k of W2 earnings and $50k of commissions, then you only pay about 27% in tax (24% bracket + 3% Medicare tax) on the extra $50k.

Also, each taxpayer has their own social security wage base so it is dependent on how much you have in W2 income and who is claiming the commission income. Best to talk to a CPA to do some planning. Could look into filing your business as an SCorp but it may not make sense if the extra tax is only 3%. 

Hope that makes sense. 

If the property is available to rent in 2019 then you are able to take the deductions in 2019. Sounds like this qualifies. 

I'm really biased but I have to agree with @Dennis Wasilewski. A good CPA should be able to advise on certain moves you are making and can educate you on the tax benefits of being a landlord. 

Such a great write-up. Really agree with the point you make about being on the safe side and sending the wholesaler a 1099. The IRS doesn't send fines for sending a 1099 when you didn't need to but they will certainly send fines if you needed to and did not. 

One thing to add is 1099s are due one month after year end (January 31st). This catches people off guard because they always think they have a few months to get them taken care of. 

Not worth it in my opinion. You would need to have some really good returns on that money to make up for the 10% penalty. And keep in mind this is in addition to your normal tax liability. So it really is going to cost you as low as 20% or as high as 47% depending on your tax bracket. 

Very true! I was thinking of the market we are in with prices rising. Thanks for adding that.  

Your total cost basis (building + land + everything else) will be the original purchase price. Regardless if you convert immediately or later down the road. Your math appears to be correct when calculating the annual depreciation. Having said that, it doesn't necessarily mean it is the best way. With a purchase price of $306k I imagine you could break that down even further than just building and land. Look for components you can separate out and write off immediately (appliances being one that I see missed a lot). 

I believe the rules are if the rental is "available for rent" you can deduct expenses without having income. 

The short term capital gain rate is determined by your total taxable income. Your wages and flip less deductions come up with that marginal rate. Short term capital gain rates are the same as your ordinary income rates. 

You will also need to factor in the self-employment taxes on the flip. Which is an additional 15% on the net income from the flip.