All Forum Posts by: Ashish Acharya

@Michael Dahl No, in a 1031 exchange, any cash you take out at closing (boot) is taxable. If you withdraw your original $50K down payment instead of rolling it into the exchange, the IRS treats it as a taxable gain, even though it’s your initial investment.

To access equity without triggering taxes, consider:

1. A cash-out refinance before selling—refinancing the duplex lets you pull cash out tax-free while still rolling all sale proceeds into the 1031 exchange.
2. Completing the 1031 exchange first, then doing a cash-out refinance on the replacement property to access funds later.

If you take the $50K at closing, expect to pay capital gains tax on that amount. A real estate CPA can help strategize the best way to access funds while staying tax-efficient.

@Greg Miller Since you did a cost segregation study, selling the condo will trigger depreciation recapture tax, which is taxed separately from capital gains. Whether you sell below or above your purchase price, you'll still owe recapture tax on all depreciation claimed (up to 25%).

The depreciation you've taken in prior years decreases your cost basis, which might make the sale a taxable gain even if the sales price is below your original purchase price. Example: If you originally purchased for $500,000 and took $100,000 in depreciation, your adjusted cost basis is $400,000 ($500,000 - $100,000). If you sell for $450,000, your taxable gain is $50,000 ($450,000 - $400,000).

Selling below your original purchase price could offset some capital gains tax, but it won’t eliminate depreciation recapture. If you’re at a loss, consider holding until the market recovers or using a 1031 exchange to defer both capital gains and recapture taxes.

If you’re expecting high income in the year of sale, timing it strategically to offset gains with capital losses may help. A real estate CPA can help you analyze the best approach based on 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.

@Joe S.Since the LLC hasn't conducted any business and no bank account has been opened, below are two options to consider:

1. One way to adjust ownership is to amend the Operating Agreement and, if required by your state, file an Amended Articles of Organization to reflect the new ownership percentage. If the LLC already has an EIN, you may also need to update the IRS and possibly file Form 8832 if changing the tax classification.
2. Another option is to dissolve the current LLC and start a new one with both of you as owners, which may be simpler if the existing LLC structure doesn't align with long-term goals.

One tax-related consequence to keep in mind is that a single-member LLC (SMLLC) is reported on the son’s personal tax return (1040), while a multi-member LLC requires filing a separate partnership tax return (Form 1065). Consulting an attorney would be best to determine the right legal structure and ensure 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.

@Heath D Wallace Since you own the Bristol, TN property free and clear, transferring it into your Texas LLC is fairly straightforward. Here’s how to do it:

1. Register Your Texas LLC as a Foreign LLC in Tennessee – Since the property is in Tennessee, your Texas LLC must be registered as a "foreign LLC" in TN to legally own property there. You can do this through the Tennessee Secretary of State website.
2. Prepare a New Deed – You’ll need to transfer ownership from your personal name to your LLC using a quitclaim deed or warranty deed. A real estate attorney or title company can prepare this.
3. File the Deed with the County Recorder – After signing the deed, file it with the county where the property is located (Sullivan County if in Bristol, TN).
4. Update Property Insurance & Notify Local Authorities – Ensure your insurance policy reflects the new ownership (LLCs may need a different type of policy).
5. Check for Transfer Taxes or Fees – Some states impose transfer taxes when transferring a property into an LLC.

Since this is a legal process, consult a real estate attorney to ensure you’re structuring everything correctly and accomplishing what you intend to do.

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.

Real estate investors can reduce taxes and maximize returns by leveraging these key deductions in 2025

1. Depreciation

• Residential (27.5 years) & Commercial (39 years) depreciation allows gradual tax savings.
• Bonus depreciation drops to 40% in 2025—a cost segregation study can help accelerate deductions.

Pro Tip: Faster depreciation means larger upfront tax savings and improved cash flow

2. Interest Deductions (Including Personal Loans!)

• Mortgage & business loan interest for rental properties is fully deductible.
• Under the interest tracing rule, even personal loan interest qualifies if used for real estate investments.

Pro Tip: Maintain clear documentation to support deductions

3. Repairs & Maintenance

• Routine repairs (painting, plumbing) are fully deductible.
• Major improvements (roofing, HVAC) must be depreciated over time.

Pro Tip: Use safe harbor elections to expense certain improvements upfront

4. Travel Expenses

• Mileage, airfare, lodging, & meals for property management are deductible.
• Keep a mileage log to track business-related travel.

Pro Tip: Mixed-use trips? Only business portions qualify for deductions

5. Professional Services & Tax Structuring

• Fees for CPAs, tax advisors, attorneys, and property managers are deductible.
• LLCs & S-corps can help reduce taxes and offer asset protection.

Pro Tip: Consult a real estate tax strategist to structure your investments efficiently

Don’t Overpay on Taxes!
Are you maximizing your deductions? Let’s discuss how to reduce your taxable income and optimize your real estate tax strategy in 2025.

@Samantha Bartlett Yes, you can get a second FHA loan if you buy a home for your child as a non-occupying co-borrower, but your child must live there as their primary residence, and you must meet FHA guidelines for a second loan.

An FHA 203(k) loan combines purchase and renovation costs into one mortgage, making it ideal for fixer-uppers.

• Pros: Low 3.5% down, renovation funds upfront, and lower rates than personal loans.
• Cons: Strict FHA renovation rules, longer approval process, and mandatory mortgage insurance.

It's great for homes needing major repairs, but if updates are minor, a traditional FHA or conventional loan may be simpler.

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 Karowski Your approach of using Protected Series 1 within your Texas Series LLC for management while keeping properties in separate series (Series 2, 3, etc.) is a solid strategy for asset protection and liability separation. This setup mirrors the two-company structure many investors use—a management entity handling tenant/vendor interactions while individual series own separate properties to shield them from each other's liabilities.

From a tax perspective, the IRS does not currently recognize Series LLCs as separate entities by default, so each series is generally taxed the same as the parent LLC (unless structured differently). However, if your management series generates income (e.g., collecting management fees from other series), you'll need to properly report that income and expenses, which could affect overall tax efficiency.

While this structure enhances legal separation, its effectiveness depends on how well records, bank accounts, and contracts remain separate. Also, not all states recognize Series LLCs, so be cautious if investing across state lines. A real estate CPA and attorney can help fine-tune the setup for compliance and tax optimization.

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.

@Jeffrey Gant Your cash-on-cash return (CoC) is a key metric for evaluating this deal. Since you're buying all cash, CoC is simply NOI ÷ Total Investment. Based on your numbers:

• Total Investment = $272K
• Annual NOI = $10,600
• Cash-on-Cash Return = $10,600 ÷ $272,000 = 3.9%

A 3.9% CoC return is on the lower end for a long-term rental, but if you factor in 3% appreciation, your total return improves. Over 5 years, the property could appreciate to ~$370K, adding around $100K in equity if market conditions hold.

From a tax standpoint, you can depreciate the property (excluding land value), which could shelter rental income from taxes. However, when you sell, depreciation recapture tax (up to 25%) and capital gains tax (0-20%) may apply unless you do a 1031 exchange to defer taxes.

For a solid long-term rental, investors typically aim for at least a 6-8% CoC return or higher. If appreciation and tax benefits align with your goals, it could still be a decent wealth-building play.

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.

@Roy Mitle Not quite—passive losses from your rental property cannot offset passive income from LP investments if the LP income is classified as portfolio income (e.g., interest or dividends from a fund). However, if the LP investment generates rental income, then passive losses from your rental can offset passive gains from the LP investment on Schedule E.

To find fully depreciated assets that generate passive income, look for stabilized real estate syndications or funds where depreciation has mostly phased out. Older properties with minimal depreciation deductions typically provide higher taxable passive income. However, most syndications structure deals to maximize tax benefits with cost segregation, meaning you’ll likely still see passive losses on K-1s.

If you’re looking to use passive losses efficiently, investing in an LP that distributes more cash flow than tax losses (like a mature rental fund) may be a good strategy. A real estate CPA can help structure your investments to ensure the best 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.

@Jimmy Rojas Yes, you can file your own 1099s using tax software or online services, but simply filing a 1099 doesn’t automatically prove income for a mortgage. Lenders typically look at your full tax return (Form 1040) with Schedule C (for self-employment income) or Schedule E (for rental income) to verify income.

To qualify for a home loan, banks generally require:

• At least two years of reported self-employment income.
• Tax returns, bank statements, and possibly profit & loss statements.
• A solid debt-to-income (DTI) ratio to ensure you can handle mortgage payments.

If you’re newly self-employed and don’t have two years of tax returns, you may need to look into bank statement loans, which some lenders offer based on income deposits instead of tax returns. Always check with a mortgage lender about their specific documentation requirements.

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.