All Forum Posts by: Ashish Acharya

@Brendan M Hornung If you purchased a subject-to (sub-to) rental property, filing taxes correctly is key to maximizing deductions and staying compliant. Since the original loan remains in the seller’s name, you may need a nominee interest allocation to deduct mortgage interest, as the Form 1098 will likely be issued to the seller. Your depreciable basis is determined by your purchase price and expenses, not the seller’s loan balance.

DIY tax software like TurboTax may not handle nominee interest, depreciation, or LLC structuring correctly, so working with a real estate CPA experienced in sub-to deals is recommended. If transferring the property to an LLC, be mindful of the due-on-sale clause, and note that an LLC itself does not offer tax savings unless electing S-Corp status, which is rare for rentals.

To maximize tax benefits, consider cost segregation, bonus depreciation, and short-term rental (STR) strategies, which could allow you to offset W-2 income if structured properly. If your AGI exceeds $150K, passive loss limitations apply unless you qualify for Real Estate Professional Status (REPS).

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 Thompson Transferring property from your in-laws to you can be done through a gift, sale, or trust transfer, each with different tax implications. If they gift the land, it falls under the annual gift tax exclusion ($18,000 per recipient in 2024) or the lifetime gift exemption ($13.61 million in 2024). However, the property’s cost basis (what they originally paid) carries over to you, meaning if you later sell, you may owe significant capital gains tax on appreciation.

Alternatively, selling the property at fair market value eliminates gift tax concerns, but your in-laws may owe capital gains tax on any profit. A trust transfer allows for smoother estate planning, and if inherited after their passing, the land receives a step-up in basis, reducing future capital gains tax.

Each method has pros and cons depending on their estate plans and your long-term goals. Consider consulting a real estate attorney or CPA to determine the best strategy based on tax efficiency, future sale plans, and estate considerations. Also, check state-specific tax laws, as some states impose additional transfer taxes.

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.

Quote from @Cameron Marmon:

Quote from @Ashish Acharya:

@Cameron Marmon Since you're married and living in Texas, a community property state, you have the option to treat your 50/50 LLC as a disregarded entity for federal taxes. This allows you to report the rental income and expenses directly on Schedule E of your joint tax return, simplifying your tax filing process. The IRS automatically classified your LLC as a partnership when you requested the EIN, which requires filing Form 1065 and issuing K-1s to both of you. However, you can file Form 8832 (Entity Classification Election) to change the LLC’s status to a disregarded entity, provided you act promptly.

If you don’t make the election, you’ll need to file Form 1065 by March 15, 2025, adding complexity but retaining the same tax benefits, such as deductions for depreciation and repairs. Electing disregarded entity status avoids additional filings while achieving the same tax outcome.

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.

Thank you, Ashish. I was thinking Form 8832 is the one, but I am confused when I get to question #3 since this entity is technically owned by more than one individual. So I dont think I can say No here, or can I since we are married in a community property state?

3. Does the eligible entity have more than one owner?
Yes. You can elect to be classified as a partnership or an association taxable as a corporation. Skip line 4 and go to line 5.
No. You can elect to be classified as an association taxable as a corporation or to be disregarded as a separate entity. Go to line 4.

Since you and your spouse live in Texas, a community property state, you are eligible to treat your 50/50 LLC as a disregarded entity for federal tax purposes. This allows you to report rental income and expenses directly on Schedule E of your joint tax return, avoiding the need for Form 1065 and K-1s.

When you applied for an EIN, the IRS automatically classified your LLC as a partnership, which is why it instructed you to file Form 1065. However, you do not need to file Form 8832 because IRS rules allow a married couple in a community property state to elect disregarded entity treatment by default. Instead, you can send a letter to the IRS requesting that your LLC be treated as a disregarded entity. Some IRS agents may still require filing Form 1065 for 2024, so be prepared to file for this year before transitioning in future years.

For Question #3 on Form 8832, you are correct that it asks whether the entity has more than one owner. Since you are married and live in a community property state, the IRS treats your joint ownership as a single owner for tax purposes, meaning you can answer "No" and proceed with disregarded entity classification.

If you want to eliminate confusion going forward, you could dissolve the current LLC and set up a new single-member LLC under one spouse’s name, ensuring automatic disregarded entity treatment without needing to file Form 1065 in the future.

@Josh Dickson If your brother earns $700K annually, real estate investing can significantly reduce his taxable income. Since rental losses are typically passive, the best way to offset W-2 income is through Real Estate Professional Status (REPS) (750+ hours) or Short-Term Rentals (STRs) (100+ hours and more time than anyone else managing the property), which allow real estate losses, including depreciation, to offset active income.

A cost segregation study accelerates depreciation, generating large upfront deductions. If selling properties, a 1031 exchange defers capital gains taxes by reinvesting proceeds into another investment property, while Opportunity Zone investments can defer or eliminate capital gains tax over time.

Long-term rentals should be held in an LLC for liability protection and tax efficiency. Self-Directed IRAs (SDIRA) or Solo 401(k)s allow tax-deferred or tax-free real estate investing, though they come with IRS restrictions. High earners should also consider estate planning tools like trusts or Family Limited Partnerships (FLPs) to minimize future tax burdens.

Given his income level and tax complexity, consulting a real estate-focused CPA is essential to maximizing deductions and optimizing tax efficiency.

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.

@Juan Perez Turning your primary residence into a rental is a great way to build your investment portfolio. Start by formalizing the transition—create a lease agreement and maintain detailed records of rental income and expenses. Remodel while the property is still in your name to increase its basis, which can reduce future capital gains taxes, and take advantage of the capital gains tax exclusion if you sell within three years (up to $250K for single filers or $500K for married couples). Remodeling costs increase the property’s basis, while post-rental repairs are deductible expenses in the year incurred.

An LLC isn’t necessary for a single rental but can provide liability protection as your portfolio grows. Instead, an umbrella insurance policy may be a more cost-effective alternative for now. Once the home is a rental, you can deduct operating expenses like property taxes, mortgage interest, insurance, and depreciation (over 27.5 years for long-term rentals). However, the tax treatment differs between short-term and long-term rentals:

• Short-Term Rentals (STRs): If you materially participate (work 100+ hours and more than anyone else on the property), you may be able to offset rental deductions against W-2 or other active income, offering greater tax benefits.
• Long-Term Rentals (LTRs): If your AGI exceeds $100K, your rental losses may be limited, unless you qualify as a Real Estate Professional (REPS).

If you plan to expand your rental portfolio, consider an LLC later for liability protection and easier management. For now, consult a CPA to determine the best structure based on your income and 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.

Relocating to a new state is exciting—whether it's for a new job, the freedom of remote work, or a fresh start in a warmer climate or near family. Plus, some states offer tax benefits that make moving even more appealing.

But here’s the catch: If you don’t take the right steps to establish your new state as your official domicile, you could end up dealing with taxes in BOTH your new and old states—or even face disputes over your estate.

To make your transition smoother and avoid unnecessary tax headaches, here are a few key steps to consider:

✅ Settle into your new state

• Buy or lease a home there and, if possible, sell or rent out your old residence.
• Move your belongings and start living in your new home full-time.

✅ Update your records

• Change your address with the post office and on official documents like tax returns, insurance, and passports.
• Register to vote, get a driver’s license, and register your vehicles in your new state.

✅ Focus on your new life

• Spend most of your time in your new state, especially during family events and holidays.
• Switch to local banks and transfer items from your old state’s safe deposit boxes.
• Find local doctors, dentists, and other service providers to truly integrate into your new community.

✅ Handle your taxes the right way

• File a resident tax return in your new state and a nonresident return in your old state if required. For the year you move, you may need to file part-year returns in both states.

Relocating can be a game changer, but the details matter—especially when it comes to taxes. Take these steps to ensure your move is seamless and worry-free!

Have questions about state residency or taxes? Let’s connect!

@Ajay Bodas Transferring a 1031 exchange property from a revocable trust to an LLC can be done, but timing is crucial to avoid IRS scrutiny. While there is no official holding period, tax advisors recommend keeping the property under the trust for at least 12 months to meet the "held for investment" requirement. If your new LLC is a disregarded entity (single-member or owned solely by you and your spouse in a community property state), it won’t trigger a taxable event, and you’ll continue reporting income on your personal return.

However, electing partnership or corporate taxation could be seen as a sale, causing unintended tax consequences. Be aware of state transfer taxes and property tax reassessments, as some states (like California) may impose higher taxes upon transfer. Depreciation schedules remain unchanged unless the LLC is taxed as a partnership or corporation. To avoid issues, hold the property in the trust for a year, ensure the LLC is properly structured, and consult a CPA or 1031 exchange expert to confirm compliance with state and federal tax laws.

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.

@Christian Solis For a fix-and-flip business, structuring your venture as an LLC taxed as an S-Corp is a smart choice, providing both liability protection and tax efficiency. An LLC shields personal assets from business liabilities, while S-Corp taxation allows you to reduce self-employment taxes by taking a reasonable salary and distributing remaining profits as distributions, which aren’t subject to payroll taxes. Since fix-and-flip income is classified as active income, taxed at ordinary rates, this setup helps minimize overall tax liability.

To protect both members, draft a detailed operating agreement outlining roles, ownership percentages, profit-sharing, and an exit strategy in case the business dissolves. Open a dedicated business bank account to separate personal and business finances, ensuring compliance and transparency. Secure liability insurance to protect against lawsuits or property-related claims. Maintain detailed records to substantiate deductions for materials, labor, and expenses, which can significantly reduce taxable income.

While an S-Corp provides tax savings, it also requires payroll management and compliance with formalities, making it essential to stay organized or consult a tax professional for ongoing compliance.

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.

@Luisa Morejon Since you've lived in your home for 15 years, you qualify for a capital gains tax exclusion of up to $500K (married), allowing you to keep the proceeds tax-free. With retirement in five years, your focus should be on balancing cash flow, risk, and tax efficiency. Paying off rental mortgages increases monthly cash flow but reduces liquidity, while investing in hard money lending offers high returns but is taxed as ordinary income.

Buying a multi-unit rental provides tax benefits like depreciation, while purchasing a business can yield strong profits but requires active management. The stock market offers liquidity and potential appreciation but comes with volatility. Diversifying between real estate, liquid investments, and passive income strategies will help maximize returns while preserving flexibility. Working with a CPA or financial planner can help optimize tax strategies and ensure the best approach for your 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.

@Cathy Ries Yes, tax planning before acquiring rental properties is highly beneficial, especially given your situation. Since you and your partner are unmarried and own a primary residence together, tax treatment of deductions (e.g., mortgage interest and property taxes) requires careful allocation. When purchasing a rental in 2025, deciding on ownership structure (e.g., joint ownership vs. LLC) will impact liability, tax deductions, and reporting requirements.

Rental income is taxed as passive income, and losses—such as depreciation and property expenses—can offset rental income but may be limited if your income exceeds certain thresholds. If one of you actively manages the property, pursuing Real Estate Professional Status (REPS) could unlock full deductions against W-2 income. Additionally, cost segregation and bonus depreciation can accelerate tax benefits.

Because filing as single taxpayers limits certain deductions, planning in advance ensures you maximize benefits while avoiding complications. Consulting a tax professional now can help structure ownership and financing efficiently, ensuring you take full advantage of deductions, depreciation, and potential tax-saving strategies like 1031 exchanges in the future.

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.