All Forum Posts by: Ahad Ali

Hello,

This is doable as from a tax standpoint the owner is a separate entity from the LLC whom he will be renting the property he personally owns out to. This will not be reported on the Schedule C but rather on the Schedule E as it is primarily passive rental income. Having rental properties be reported on the Schedule C has a multitude of requirements to prove the active involvement and treatment of the property as a business, similar to how hotels operate.

The other information is true as the owner will be able to claim the rents claimed from the LLC as well as the expenses incurred such as mortgage interest, taxes, insurance, repairs, depreciation etc. on the Schedule E. Likewise, the LLC will be able to claim the rent as an expense to reduce its overall net profit.

It is highly suggested to speak to CPAs who are experienced on these matters directly so you can go over the information in detail which is not advised to be done on an online forum. There are some variables that need to be considered and accounted for to make sure this option will actually be beneficial and not detrimental.

In the beginning you may not need to keep a PM (helps you save some cost in the short run). Do a proper screening of the potential tenants and go from there. Later on, if you get busy and can't seem to manage your rental property, then you can hire a PM. If your first tenant in headache free and you build the trust over time, then you may not need a PM also.

Hope this helps and goodluck.

Hi, 

If you are willing to work remotely, there are lot of CPA firms in NYC area who are specialized in real estate section. Just keep in mind real estate loss can be used to offset your ordinary income.  

Hi Julie,

Passive loss can be used to offset ordinary income if your income is under threshold. If you are open to work remotely, there are lot of CPA firms in NYC area who are specialized in this sector.

 Hi Jordan,

Two properties sounds like a landlord, not small time at all! I am curious about your screening process and whether you do the screening yourself or you use a service/company to assist with the process? 

Hi Jon,

Glad to meet you! 

I am located in the Bronx where I own a small multi-family unit myself. I am looking to expand my portfolio, possibly in the Brooklyn area. Have you considered Bronx investing? I am curious about the neighborhoods you specified in Brooklyn and what makes these areas attractive over other spots? 

Hi Bob,

As others have mentioned, it is best to either form a new LLC in any state you have income generating property in or register an out-of-state LLC as a foreign entity in those states. You would definitely want to consult an attorney or CPA (or both) in the state where the properties are located for a better understanding but from a purely tax perspective, any state that imposes income taxes most likely would require you to report the income from a property in the state they operate in on an accompanying tax return.

Additionally, if and when you decide to sell or exchange any property in a state, most likely there will be closing documents issued by the lender or agents involved in the sale, including a 1099-S which will be reported to the IRS and will likely list the address of the property involved and may trigger a capital gains tax. Many states also require such forms to be submitted to their taxing authorities which would mean the sale would be a matter of tax record and without a corresponding tax return registering the sale, this may result in an inquiry by the agency involved, leading to a lookback into prior year reporting. 

Hello @Cliff T.

1) You most likely do not need a LLC in CA and just having one in PA should suffice but I would suggest speaking with an attorney to determine what the exact details are especially regarding what CA considers as income in the state of CA.

2) You do not really need to transfer any funds to a business account when purchasing an LLC, especially if you are the only person involved. If others are involved, it is still possible but may require additional agreements to be done. I would highly recommend to transfer the fund to your business bank account. The transfer of the funds to the business bank account would be your equity into the business which in turn is used to purchase the property under the LLC. This would typically benefit you more than having the funds in your personal account and utilizing it to purchase the property under the LLC.

3) It really is as simple as having the LLC formed and taking the documents to a bank to have the accounts opened. The only thing to really consider here is which bank you want to open up with.

Hello @Evan O'Brien

All of your transactions relating to the real estate property should be tracked. Whether its income, expenses or transfers, having a clear, legible record of what's happening if very valuable for you.

You can get either a bookkeeper or CPA or even do the bookkeeping yourself if you are comfortable with it. The main purpose is to make sure the books are being recorded properly on a consistent basis (typically monthly) so you can refer to them to analyze and make any decisions needed. This would help with determining if any changes need to be made or if things can continue to proceed.

A big plus of having your books in order is that it makes filing your taxes much simpler. Even if there are transactions that aren't deductible for tax purposes, having the information pre-organized and summarized will save a lot of time and effort.

I would highly suggest for you to have separate bank accounts (if not already) to make the bookkeeping easier and avoid confusions with other unrelated transactions.

Hello @Tammy Ginsburg

Both what Ethan and Joseph stated are great advice to begin with. Definitely speak to tax advisors and CPAs to get better insight on how to proceed and what it could mean for you. You don't want to dive into this without the necessary information and get blindsided down the road.

Having a 3 unit property and residing in 1 unit means you can claim the expenses incurred for the other 2 units along with partial depreciation, mortgage interest, taxes etc. to offset the rental income for tax purposes. Depending on your overall tax details, this can potentially help your tax return filing. 

While breaking even for the property may be difficult since you are residing in 1 unit, its not impossible. Depending on how you proceed you can utilize this property as leverage for future investments.