All Forum Posts by: Jane Z.

@Steve Vaughan Thank you so much for pointing out my $6300 figure is not correct.  I have learned so much on BiggerPockets because of people like you. 

@Karolis Matulis   Thank you so much for the confirmation. I believe the threshold for income tax in 2015 is $6300. Since my kids are still very young, I don't think I could pay them that much unless they are Bill Gates and really build me a fancy website. We are currently taxed at 25% income tax level, 14% sounds a much better choice. Suppose we pay them $399 each, do we need to report this amount anywhere? Or it is still a good idea to file their tax return separately so that I could clearly deduct these $798 as my rental expense? Will filing their tax return separately negatively affect our own income tax or it will have no effect? Sorry I have so many questions.

Thanks.

Jane

@Michael Totman The book was written for tax year 2014, which I used to prepare for my 2014 income tax. So at the time it was not a out-of-date version.

@Steve Vaughan I think the magic number for SE tax threshold is $400, not $600. $600 is the threshold for 1099-Misc. Based on my understanding now,  in theory, if you pay your kids $599,  you kids could still face SE tax obligation even if you don't give them 1099-Misc. @Karolis Matulis Could you please clarify this?

Thanks.

Thanks a lot. I really appreciate it. I feel much clear now.  Lately I have been trying to find a good CPA who maybe understand what the book said. I guess I will stick with my current one now. Thanks.

Hi Karolis,

Thank you so much for your detailed explanation. I think I will pay them no more than $5000 per tax year. Looks like you and my CPA are on the same page. Part of my confusion comes from a book called 'Every Landlord's Tax Deduction Guide'. I bought this book in early 2014. In this book, it said we could use Schedule E for both investment and business purpose. It also said we could hire kids as an employee to avoid self-employment tax. Then I found what the book said is different from what my CPA told me. The CPA actually does not do our income tax. I have been doing it myself. He only does tax for my husband's business and my income tax consultant occasionally. I have suggested him a couple of times that maybe it is better for him to do our income tax. But he told me that would be a waste of time and money because he is using the same software as I did. Other than depreciation and standard deduction, not much else he could do. But the book seems having a lot of tricks. The other thing the book mentioned, but I never follow, is the home office deduction. Somehow, when I added the home office deduction, my tax is even more, not less. Originally I trust all the information in the book. Right now I wonder whether this book is too aggressive on some deductions. 

Thanks.

Jane 

Hi,

I have several children related tax question. After consulting with my CPA, I am now confused. Here is my situation.

My husband and I set up a rental LLC several years ago. The same CPA told us since only my husband and I owned the LLC, we should file Schedule E on our tax return. So that is what we have been doing. Lately we are considering hiring my two kids, who are under 18 years old, for some office work, such as setting up a rental website, mowing lawn, bookkeeping, etc. The CPA told us since we file our rental income using Schedule E, our rental properties will be considered as an investment. Unless our rental LLC is considered as a business, my kid income will subject to social security tax and Medicare tax, although not income tax if it is under $6300. Since we manage our rental properties ourselves, I told him our rental LLC should be considered as a business. In that case, the CPA said, we should file Schedule C instead of Schedule E and pay self-employment tax. Then I ask the CPA could I pay my kids to set up a rental website just like we pay a plumber to fix a toilet? My CPA then said yes, in his words, ‘There is no difference on your side to pay them vs to pay a plumber. There is no difference on their side to earn from working for you vs working for others.' Here is my confusion. If we pay my kids to set up a website and deduct those expense as rental expense, what kind of tax my kids need to pay? Do they need to file a separate tax return? Or what is the best tax strategy in this scenario? I feel I have asked my CPA too many questions and want to see how other people handle this.

Thanks a lot for help.

Jane

Thanks for all your advice. I was not sure how bad the idea of selling the house with the tenant occupied is. Now I see it is definitely not very good.

Hi,

We live in Atlanta. But we have a SFR rental property in St. Petersburg, FL that we would like to sell. The property is currently occupied by a great tenant. We bought this property more than 10 years ago when my husband worked there. We fully own this property with no mortgage. The reason we want to sell is that we would like to use the money to pay off our home mortgage. We have more than 10 rental properties in Atlanta, so we are familiar with the buying and selling process. However, since we don't live in St. Petersburg, I don't know how investors usually handle this scenario.

The property is currently managed by a PM company locally. I am wondering whether I should sell the property with the tenant in place or only sell it after the lease ends and the tenant moves out. Since we don't live locally, it will be inconvenient for us to do any repair if the tenant moves out. 

Thanks.

Jane

Other than Allstate, the other insurance we used is American Family Insurance. Their price is much higher than Allstate, but better than some other companies' quotes. I think Allstate offered us a discount since it requested us to buy our own home and car insurance from them in order to get that price.

We had lease ended in Oct - Dec in the past. I would definitely try to avoid those months if possible. Even January is much better.  However, rental market here is very hot these days. So it may not be as difficult as in the past. I think it is very important to resist temptation to rent to someone below your acceptancy policy when the property has been on the market for a couple of weeks. I would rather lower my rent than lower my acceptancy standard. In the end, if you have a good clean house in a decent area with some pretty pictures online, quality tenants will find you.

It is always more difficult at the beginning.  Here are my answers to your questions.

1) Yes. You would want to deduct the mileage every time. I tried to make things a little easier. So I usually find the distance through Google map and just record the times visited the property. I am not an accountant, but I think as long as you have some documents to explain where your number comes from, it should be ok.

2) We set up LLC before close. It saves you some money for title transfers. No tax issue on transferring the property from your name to LLC. When we set up LLC initially, it was for legal protection based on other people's suggestions on the forum. However, when we start to advertise properties for rentals, I realize a LLC sounds much more professional than a person's name. Good quality tenants tend to prefer more professional sounding companies.

3. If you have not tried Postlets yet, you should try that first. That is usually my starting point when I need to create a new ad.

4. Allstate has the best prices I have seen. However, they could only sell you insurance for maximum 4 rental properties. More than that, you need to find a different one.

5. We use MrLandlord.com to do credit checking. They only charge $9.95 for the service, which is the lowest I could find online. We have been in rental business since 2011 with total 12 SFR rental properties. We have a very good track record of quality tenants. I must say MrLandlord.com's credit checking has made our decision process much more reliable and consistent. We also use eRentPayment for collecting the rent on almost all of our properties. They have excellent customer service with very reasonable price.

Wish you good luck on your first leg of journey!