All Forum Posts by: Ashish Acharya

@Imran Shahzad Since your flip is under an S-corporation, you'll need to file Form 1120-S for 2024, even if the project isn’t sold yet. Because flips are considered inventory (not capital assets), profits will be taxed as ordinary income rather than qualifying for long-term capital gains treatment.

For tax filing:

• Report expenses like construction costs, permits, and interest as part of your cost of goods sold (COGS)—these won’t be deductible until the property is sold.
• Since no revenue is expected in 2024, your S-corp may show a loss, but that loss won’t reduce personal taxable income until the sale occurs.
• Each partner will receive a Schedule K-1 every year, including 2024 and beyond, as long as the S-corp remains active.
• Unlike an LLC, S-corp shareholders do not pay self-employment tax on their share of profits. However, if actively working in the business, the IRS requires taking a reasonable salary (W-2) before taking distributions.

Since this is your first project, it's a good time to discuss with your CPA whether an S-corp is the best structure for future flips, or if a different entity type (like an LLC taxed as an S-corp) might be more beneficial.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Wen ChenTransferring your single-family home (SFH) to an SMLLC (single-member LLC), which is a disregarded entity for tax purposes, will not impact your ability to claim the Section 121 capital gains exclusion, provided you sell within three years of moving out (by 2026, not 2028). However, if you transfer the property to an S-Corp, you could potentially benefit from a step-up in basis while still qualifying for the Section 121 exclusion, though you would still owe depreciation recapture tax.

If maximizing tax benefits is your goal, consider the following options:

• Selling before 2026 to claim the $250K/$500K exclusion while reducing taxable gains.
• Selling to an S-Corp to get a step-up in basis and claim the 121 exclusion, though depreciation recapture still applies.
• Keeping it as a rental and using cost segregation for depreciation but knowing that selling later will trigger recapture and capital gains taxes.
• 1031 exchanging the rental property to defer taxes if you plan to reinvest in another investment property.

Transferring to an SMLLC offers no tax benefit—only potential legal protection. If you plan to sell, keeping the property in your name or transferring to an S-Corp before selling may offer the most tax advantages. Consult a real estate CPA to determine the best approach based on your long-term investment goals.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Donald Hatter Creating an LLC for rental properties offers liability protection, but the best approach depends on financing, legal structure, and state regulations. Buying directly under an LLC ensures separation but often requires commercial loans with higher rates and larger down payments. Purchasing personally and transferring to an LLC later can secure better financing but may trigger the due-on-sale clause, though enforcement is rare.

Alternative Strategies:

• Land Trusts: Some investors use a land trust to hold title while keeping financing in their personal name, avoiding lender restrictions. However, state laws vary, so consult a real estate attorney.
• Hard Money to Conventional Refinance: Purchasing through a hard money lender in an LLC, then refinancing into a conventional loan after the rental history is established, can help secure better loan terms.
• State-Specific Considerations: Some states impose transfer taxes when moving a property to an LLC.

From a tax perspective, LLCs are typically pass-through entities, meaning rental income and expenses flow to your personal tax return with no direct federal tax benefit. If liability protection is a priority, keeping properties separate (LLC per property) or using umbrella insurance may also be worth considering.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Yael Fuerst Yes, if you sell for $100K, your taxable gain would be roughly $25K ($100K sale price - $55K purchase price - $20K renovations). However, you should also factor in closing costs, depreciation recapture, and any selling expenses, which could adjust your actual taxable gain.
A 1031 exchange allows you to defer capital gains tax by reinvesting the full proceeds into another investment property, but it comes with strict timelines (you must identify a replacement property within 45 days and close within 180 days). If your goal is to scale into multi-family, a 1031 exchange could be a great way to preserve capital and avoid taxes. However, if you want more flexibility (like buying land, which may not qualify for 1031), it may be easier to pay taxes now and reinvest on your own timeline.
Ultimately, it depends on your long-term strategy—if you're actively building a portfolio, deferring taxes and leveraging the full amount can be more beneficial. A real estate CPA can help run the numbers to see if a 1031 makes the most sense for your situation.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Steve Schaeffer 
For Question 1, your basis calculation in the DST (Delaware Statutory Trust) generally carries over from the old property under the 1031 exchange rules. The adjustments you're making—subtracting the old mortgage, adding exchange-related costs, and applying cost segregation percentages—are reasonable, but confirm with your CPA to ensure you're not missing any adjustments. Since the DST uses cost segregation, your depreciation breakdown appears correct, but the calculation is little more involved than this.

For Question 2, distributions from a DST are typically not additional taxable income beyond what’s reported on the Substitute Grantor Letter (SGL). The SGL reflects your share of rental income, expenses, and depreciation, which is what gets reported on your tax return. Distributions are cash flow, not necessarily taxable income, as they often come from net rental income (already reported) or return of capital. However, if a portion of the distributions comes from gains or other taxable sources, they may be subject to tax. Always match your distributions with what’s reported on your SGL and consult your CPA to confirm how it impacts your tax situation.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@James Huff Congrats on your first multi-unit purchase! Since you're owner-occupying the duplex, most lenders won't allow you to put the property into an LLC while you have a residential mortgage, as it could violate loan terms. If asset protection is a priority, you can explore umbrella insurance as an alternative while living there. Once you move out, you can transfer it into an LLC—just check with your lender first.

For your current home that you plan to rent, setting up a separate LLC can help limit liability and keep finances organized, but it depends on your risk tolerance and long-term plans. If you’re financing the rental with a personal mortgage, the same lender restrictions may apply.

Each state has different LLC costs and legal protections, so consider consulting a real estate attorney and CPA to structure things properly. If keeping things simple is your priority, strong insurance coverage and separate bank accounts for each property can be a solid starting point.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Steve Chaparro Your Live-In Flip strategy is a smart, tax-efficient way to build wealth through real estate. IRC Section 121 allows you to exclude up to $250K in gains ($500K if married) when selling your primary home, as long as you’ve lived there for at least 2 of the last 5 years. This approach can help you scale your portfolio while minimizing taxes.
Key Tax Considerations:

• Tax-Free Profits – Each sale qualifies for capital gains exclusion if you meet the 2-year rule.
• Watch for Depreciation Recapture – If you rent it out before selling, any depreciation you claimed will be taxed at a maximum of 25% for Section 1250 property.
• Choose Properties Wisely – Focus on homes where renovations bring real value—avoid over-improving beyond the neighborhood.
• 1031 Exchange Option – If you decide to hold a property instead of selling, a 1031 exchange can defer capital gains taxes.
• California Taxes Still Apply – Unlike federal law, California may still tax a portion of your gains.

Potential Risks:
Market Fluctuations – You may need to hold longer if the market shifts.
Renovation Costs in LA – Budget carefully, as construction expenses can be high.

This strategy has worked well for many investors, but success depends on smart acquisitions, timing, and careful cost management. A real estate CPA can help optimize tax planning at every step.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Vincent Pflieger When starting out as a real estate investor, tax preparation costs should be balanced with the complexity of your situation and long-term goals. With W-2 income, short-term rental (Airbnb) earnings, and two rental properties, your tax return is becoming more complex, but you may not yet need high-cost services unless you’re actively scaling quickly.

A qualified CPA familiar with real estate investing can help maximize deductions, correctly report depreciation, and ensure compliance with tax laws. It’s crucial to set up your rentals correctly from the start for proper depreciation treatment, as mistakes can be costly to fix later. The $1,500 option that includes year-round tax guidance could be beneficial if you need strategic planning. The $2,800 package with a monthly fee may be better suited for larger portfolios or investors needing extensive ongoing support.

If you plan to expand, investing in a real estate tax strategist early can help you structure your investments for long-term tax efficiency, such as using cost segregation, optimizing passive loss rules, or electing Real Estate Professional Status (REPS) if applicable. If you prefer a more cost-effective approach, using tax software for basic filing and hiring a CPA for consultations as needed can be a good starting point. Consider the complexity of your portfolio, your future growth plans, and how much hands-on tax strategy you require before committing to a higher-cost service.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Jeremah Graupman For high-income W-2 earners, minimizing taxes through real estate requires strategic planning. Since your combined income exceeds $300K, passive losses from long-term rentals are limited unless either you or your wife qualify as a Real Estate Professional (REPS). If your wife can meet the 750-hour and material participation requirements, rental losses could offset W-2 and business income, significantly reducing taxes.

The Short-Term Rental (STR) loophole is another powerful strategy since STRs are not classified as passive if you materially participate (100+ hours and more than any other person). This allows you to use depreciation, including bonus depreciation from cost segregation studies, to offset active income. Purchasing and managing STRs strategically could provide substantial tax benefits.

Renovation and improvement costs are typically capitalized and depreciated over time, but a cost segregation study can accelerate deductions, increasing your ability to offset income. Additionally, structured asset acquisition and 1031 exchanges can help defer gains, maintaining cash flow while avoiding immediate tax liabilities. Working with a tax strategist can help ensure you're maximizing every available deduction and tax-saving opportunity.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Guillaume Vidallet Yes, you still need to file a tax return for your C-Corp LLC, even if there was no business activity in 2024. The IRS requires Form 1120 for all C corporations, even if no income or expenses were recorded. Since your company was formed at the end of December 2024, your first tax return is likely due by April 15, 2025 (or October 15 with an extension).

The good news is that with no activity, your return should be simple and inexpensive—you might not need to pay $2,000. Some accountants offer minimal or discounted fees for filing zero-activity returns. Alternatively, you could file it yourself using tax software if there are no complex factors.

Also, check your state’s requirements, as some states impose franchise or minimum taxes, even with no revenue. California, for example, has an $800 annual minimum franchise tax for LLCs and corporations. It’s worth confirming to avoid penalties.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.