All Forum Posts by: David M.

Here's a question that must be a no-brainer to others, but I'm drawing a blank and thought I'd put it out to the BP community.  How do you handle tax reporting for an office space?  That is, how do I handle the taxes if I owned a small, commercial office space from which to "run my operations."  I could store some supplies maybe, etc...  What if I had some space and I rented out a room or something?  For the former, would I just include it on SchC?  For the latter, would it be both SchC and SchE, or perhaps just SchE?

Your thoughts and/or expert opinion would be appreciated.

@Andrea Weule

Not to be a wise ***, but if you search the forum or even Google, you will find very thorough info on the specifics for this. But in short, you need to be doing real estate for half of your income producing business or trade, so you almost need to be a full time investor and/or real estate agent (amongst other criteria)

I don’t know what your goals are for investment, but just remember if you try to take all the losses up front to decrease your taxes now, you effectively “pay for it later” unless you are able to defer, such as 1031 exchange.

You should find a good tax professional to help you through this planning

Let me pose this thread a different way:  I do you "want" from a "great" Realtor?  

Aside from the broker talk, "homes really sell homes." At least on the East Coast, every home is unique and presents their own "challenges." Similiar to Thomas Edison and the invention of the light bulb, you just need that one buyer to come along that wants to buy your property. I'm sure every market is slightly different, but once a listing is put on the MLS, its automatically marketed out to Zillow/Trulia, Redfin, etc. If the Realtor is a "great" salesperson, then pretty much "Everybody" calls them slimy because they convinced a buyer to buy a home that they really didn't want, or at least not at the price they would have wanted it if they realized everything.

To make a comment on price...  What is your carrying cost monthly?  Lets say for sake of argument it is $1k a month.  Is it worth it for you to lower your price $10k to sell in 2 weeks or stay where you are at and maybe sell in 3 months, or 6 months?  Hmmmm....  Only you can really answer that since it depends on your goals / business plan.

If you are investing in residential properties, then more than likely you are working with a Realtor, a member of the National Association of Realtors.  While you maybe skeptical about the application / execution of the Realtor Code of Ethics, at least is applies.

While agents love to "double end" a deal, many times other agents bring the buyer. Thats the point of broker cooperation, the MLS', etc.

For some, a "great" Realtor is one who provides value by helping to vet incoming offers, taking care of inspections, helping with negotiations (depending on whether you use attorneys, sometimes the realtor provides another helpful line of communication), and being an experienced guide to a real estate transactions.  That being said, if you are an investor or an investor with a real estate license, then perhaps you don't need a real estate agent.  Pick any profession, and you will find crappy practitioners.  I don't dispute that.  Additionally, real estate sales generally has a pretty low barrier to entry and for residential sales is geared towards your "average" home buyer.  Investors have different requirements/needs.  Does it benefit you to find a "compatible" Realtor to handle the sometimes time consuming tasks to get a transaction done, or you spend time doing it yourself with your own license?  Is your business where you are the jack-of-all-trades?

Good luck

@Marsha Kellogg

Not sure what is your concern. I would think with the extra income you would be able to service more debt, this making it easier to get a loan. Normally, you’ll need to provide two pay stubs...

@D Turner

We should add that not all agents are Realtors. For example, commercial agents don’t have to be Realtors. That’s pretty much anything that is not a 1-4 family residential property. Commercial agents specifically don’t join the National Association of Realtors so they don’t have to “play by the rules.” I’ve heard even some residential agents aren’t Realtors as well, although I’m not sure how they pull that off

@Zocky Zhang

You really need to talk to tax professional. With no rental activities and probably no documentation to attempt to substantiate, this can look like a flip deal which makes it active income. That is, ordinary income subject to self income tax and basically. no different than ordinary wages/salary. While if federal audit is pretty low nowadays, but three years and no prior SchE filings and then you try to claim as long term capital...

Good luck

@Michael Smith

Honestly, that's just way too much accounting for me.  Look up or have a tax professional explain to you the Completed Contract Method.  IRS has an Audit Strategy Guide you can download (I think its the "Construction Industry" one) that explains it as well, more or less.

@Zocky Zhang

So let me get this straight:

1.  You were living in Maryland (renting)

2.  You purchased a property in PA.  You didn't live in and never rented it.  It took 2-3 years to fix it up.  You sold it in 2019

3.  From the proceeds of the sale, you then stopped renting and bought your current primary residence in Maryland.

@Zocky Zhang

I see you are trying to claim residency by having the utilities in your name.  But, you really should talk to a tax professional about your proper course of action.  I'm sure the rest of your mail (e.g. bank statements, credit card statements, etc.) were mailed to your other residence.  Where are your tax forms being mailed to/from?  You'd have to cover a good deal of avenues to be able to support that you lived there.  Were you filing Pennsylvania state taxes or Maryland State taxes??  Where you working relative to the two domiciles?  See what I mean...

For Federal tax purposes, look up 1040 Schedule E which is how you report rental income properties.  There is another form for declaring the sale of real property.  You need to talk to a tax professional.  You probably are going to need have to file amended tax returns for 2016, 2017, and 2018.  I think you lucked out since you can amend the past three years of tax returns --- again, check with a tax professional if its too late to amend the 2016 return.  I THINK its in your best interest to file amended returns to record your depreciation and expenses.  On the sale, which you have to report in your 2019 return (the return you file by this April 2020), you are going to have to report the sale and, to be legally correct, you will have to pay for the depreciation recapture (the IRS makes you take depreciation, so they calc depreciation recapture regardless of whether you filed your prior returns properly with the depreciation).

@Zocky Zhang

Did you live in it for at least two years? Either way it has to be reported. But primary residences have exclusion ($250k single and $500k for married). Had to have been primary home for 2 of 5 past years, and my accountant told me you can’t use as rentals (although others in bp seem to think differently)