All Forum Posts by: Ricky A.

Depreciation is always based on purchase price.

Think of it this way:  Business assets (whether a piece of machinery or a house) are purchased to generate income.  These assets are assumed to have a useful life over which they will produce that income.  Therefore, the IRS lets you expense the cost of that asset (i.e., the purchase price) over the assumed useful life of that asset.

So, I don't think of depreciation as some magical gift from the IRS.  To me, it's simply a recognition that the cost of the asset should be spread over the assumed useful life.  However, depreciation is especially great when it comes to real estate because, unlike machinery and other assets which tend to go down in value over time through use, real estate goes up in value while we still get to use the deduction for cost.

@Kristine Eickman

Short Answer:  I suggest engaging a CPA/tax planner and/or a financial advisor.  What's best in your particular case likely involves a dozen nuances of your own personal situation that simply cannot be adequately considered by respondents to an online post. 

Great thing is that you're ahead of the curve since you need this for the next tax year.  Engaging a CPA or tax planner in the near term will allow you to make moves this year that wouldn't be possible if you wait until after year end, and these professionals will be a lot more available after May 1.

Longer Answers:

- As has been stated before, simply moving your profits into another type of account will not (necessarily) change the (inherit) taxes due.  The best way to lower taxes is to have legitimate offsetting expenses.

- How are you holding title to the property? When you say "What is the best way to pay yourself?" I assume the property is held in a separate entity. However, if it is held in your name or if it's in a disregarded entity (e.g., a single-member LLC), then the profits are already being "paid" to you and are simply a part of your own tax bill (regardless of if it's flowing into a property-specific bank account).

- Is the 30K true taxable profit, or is it actually cash flow?  Perhaps your 30K cash "profit" is already going to be offset from a tax perspective by depreciation.  If not, could/should you accelerate your deprecation?  For example, a cost segregation (alone) may be enough to to shelter the 30K profit.  Or perhaps doing a cost seg plus using bonus depreciation could shelter it.  In either case, there is a cost to doing a cost seg that may or may not be justified by the tax savings (which are really deferrals).

- The ability to lower taxes by investing in an traditional IRA will depend on other income factors. Perhaps you already make too much to be able deduct investments into a traditional IRA. Perhaps you don't philosophically want to in invest into a pre-tax IRA.

All in all, I think a good CPA or tax strategist will help you maximize your profit.

@Dominick Johnson, we started paying our kids for a marketing engagement which allowed them to max out Roth IRAs in 2019 when they were ages 5 and 2.  We would have started earlier if our CPA had mentioned the strategy earlier.

In late 2020, we (and the company) got SSA notices for the kids asking to verify the reported pay info.  The notices seemed to be directed toward the younger kids.  For example, my business partner only received a notice for his youngest kid who is a year older than my oldest, and he didn't get notices for his two older kids.  My CPA said this was the first time he knew of that his clients received such notices, but they seemed solely meant to verify that the earnings were being reported on the correct SSN like to prevent SSN theft.  Once we (and the company) verified the info was being reported on the correct SSN, the earnings were credited to their SSA accounts.

No.  You can't use a 1031 for property you already own.  You have to transfer into new property.  And yes, the property would have to be held for a trade like rental.  You couldn't even acquire a new property that you intend to be your primary residence.

@Cameron Tournear, you could also plan to extend your filing which will give you an additional 6 months to file your return.  The local tax preparers are already getting busy, so this would allow you to hit them after their busiest season.

Note, even though you'll have additional time to file your return, in order to avoid underpayment penalties, you'll still need to be paid-up by the original deadline.  So you may still want to do a ballpark estimate in case you need to pay anything when you file for an extension.

I'd suggest using a payroll company letting them take care of all these filings (including 941) and any equivalent state-required forms.  If you already use QuickBooks, their payroll service would be the easiest to use as I think you can use it directly from QBO (or QBD).  If not, then Gusto would likely work for your needs.

BTW, if your kids were able to make $6500 on their W-2 this year, they could max out a Roth IRA.

@Belinda Liu, does your center provide on-site staff/support?  If the center operates more like an active business, you may be able to use SBA loan programs as a potential lending source.  504 for real estate and 7(a) for operating company.

504 Program: https://www.sba.gov/funding-pr...

First step would be to find a local bank that's an SBA lender and have a quick convo to see if it's a possibility under the program guidelines. 

This doesn't solve any issues with up-front capital required, but perhaps you could also get a (commercial) LoC from the SBA lender based on the current center's performance.

Quote from @Rashid Khalil:

Quote from @Michael Baum:

I agree with @John Underwood. There is just too much great info here that those kinds of courses are pretty much moot at this point. 

thank you for your response 

 what about the Bootcamp at BP?

I second the Bootcamp.  The book has everything you need to get started, but the Bootcamp also offers you the chance to ask Avery and her team questions and to hear nuanced questions from other Bootcamp members.

I didn't do the accountability groups, but I imagine they could be a great resource for someone who's just getting started.

BiggerPockets STR Bootcamp (Avery Carl)

https://www.biggerpockets.com/blog/real-estate-investing-bootcamps

We use Roku TVs and provide live TV via cable/DirecTV boxes.  Rokus are in Guest Mode, and guests can log into their own streaming services if they want anything more than live TV. 

I'm a bit old-school, and I think that live TV is a minimum. Not everybody uses a streaming service for their own home, so not everyone will have an account they can use when they're staying in an STR. For that reason, we provide it. Given how Guest Mode works, we use actual boxes, so we don't have to provide log-in credentials for a live TV streaming service provided by us.

BTW, I've never stayed in an STR that didn't have live TV...and if my parents ever had to, I know what rating they would give it! :)