All Forum Posts by: Andrew C.

following.... we're about to have a Freshman attending NU next year, and were wondering about rentals in Evanston. A quick look did not produce much. I'm super curious what you found - everything I saw was co-ops or similar.

NU grad students also have reliable income - the university asserts it funds all PhD students for 5 years, including a housing budget that students can take to whomever they wish.

but accelerated depreciation looks like passive loss, doesn't it? I didn't think I could offset capgains by passive loss. Wouldn't I need a cap-gains loss?

If I’m reading things correctly, I can’t do a 1031.  I could invest the cap gains above 500k in a QOZ fund I assume?  Any other options?

Hello.

   I’m considering a property, and want to understand what all is impacted by the decision to str vs ltr it.

- I'd buy cash and plan to cash out refi soon after. Will rates or LTV limits differ if I decide to str vs ltr it?

  - will insurance rates be impacted?

  - I understand depreciation is different btwn the two, and one can take bonus depreciation on a str but not a ltr, also qualifying for an active loss with a str is totally different than with a ltr.  Would a cost seg study be different, depending on which I choose, or the study results will be the same I use those results differently?

  - can I easily change between the two? Is this just a year-by-year determination based on average rental length that impacts that year’s taxes only

- Are there fees, issues with a holding llc, or other impacts of having a property be str one year, ltr the next, str the year after (say)? 

something will have to give, but I suspect it'll be rent going up not house prices coming down. I many many markets I'm poking at in various states, the asserted 'market rent' is on the order of .5% of the price of buying the house which obviously won't cash flow for anyone. Anecdotally, I'm hearing about more and more people who are long term renters and their landlord is selling the house. This is, I suspect, why. If you bought 4 years ago (at 1/2 or 2/3rds current price) and refied at 3% a year ago, you can cash flow at the rents I'm seeing in several cities. If you didn't to that, you can't sanely buy to rent. That situation can't last forever. It looks like it's rents are are adjusting, though, not house prices.

@Nicholas Aiola, Thanks!

Next Q: are there any implications, or restrictions, for changing a property from ST to LT rental?

Can I purchase (via a single-owned LLC, though I gather that doesn't matter) a property this year, meet the requirements for actively participating in it as a ST Rental, and take the accelerated deduction as active loss, and then next year rent it out long term taking the typical residential property depreciation and treating the resulting income/loss as passive(as I'm not an RE Professional)?

Does the property effectively get treated as a business asset in year 1, and a residental real estate property in year two (as reflected in how the income(loss) is handled and the allowed depreciation)? Is that switch OK?

Anyone have a suggestion for tracking/recording time spent on activities? Not for payroll (no employees) or for billing (not getting paid by the hour), so I don't care if it integrates with quickbooks, for example.

Just looking to 1) know what I'm spending time on 2) maybe establish prof RE status or as evidence that another venture I'm trying is, in fact, a thing I'm trying to run as a business even though it is currently losing money and hence might be viewed as a hobby.

does it have to be a single transaction to qualify for 1031? Or, as long as it's all done within the required timeframe, could one purchase multiple properties that collectively meet the 1) more than you sold it for 2) use all the cash proceeds?

...and a follow up question, if it's OK.
Are there reasons to make the main LLC in a series, not own property but act as a business mgt entity and opt for S-corp status?

The advantage I'm wondering about is if she'd then be paid wages by the S-corp, some of which could be contributed pre-tax to a retirement, and also setup a nice health insurance program as a company benefit if/when I leave my W2 job, rather than us just paying for it out of pocket as an individuals?

Would that disqualify her from being a materially participating RE professional, since she's doing those hours as an employee rather than as a business owner of the grouped LLCs, and hence preclude deducting the depreciation losses against my ordinary income? If so, that would definitely NOT be worth doing.

OR, would the time she spends as an employee of the mgt s-corp be not RE time, just some other job she's doing, and hence not cause problems unless it became per primary activity? Is this worth doing?

@Nicholas Aiola much thanks for 5 years of fielding questions! I'm new here, but have read from page 65->now, so hopefully not a repeat of a recent topic.

We're in the planning, hoping to do something soon stage, so it's easy to adjust approach. I'd like to confirm a few things. Context:

Q1) I am a full-time W2 employee in a high marginal tax bracket, (MFJ) spouse is not employed. We're looking to get into long-term SF rentals, with equity growth as the objective. Expect eventually it'll be several. The plan is for her to do most of the finding, managing, etc of them - in excess of 750 hrs/yr. Since she's not otherwise employed, it'd be her primary business. 

That would make her an active RE professional, and hence losses (depreciation + costs, above cash flow) can be used against my ordinary income, correct?

Q2) We do need to protect our current assets. I've got an umbrella policy, which we'll keep up to date. Beyond that - how effective in practice is the Serial LLC setup at asset protection? In that structure, does one create a 'master' LLC, that handles billing and everything else, and a subordinate LLC / property that does nothing but own a property? LLCs are pass-through, so it all just flows up and this is really only for asset protection (isolation)? Billing and such would be done by the master LLC? What other considerations are there around this, like difficult in getting a lender to fund property owned by a new LLC, complexity of managing expense writeoff, etc? Can you recommend a good lay-person (non-CPA) reading material that explains the approach?

Q3) in other business areas, you run into issues if your 'business' has a loss year after year. This seems super likely for the first many years of SF rental, given the magnitude of depreciation. Does/can the IRS decide that you don't have a 'real estate business' you have a 'real estate hobby' because business are supposed to make money and you aren't? That would seem to have unfortunate tax implications in our situation, right? (e.g. can't deduct against my W2)

TIA for any insight!