All Forum Posts by: Austin Cheatham

Quote from @Kevin S.:

@Austin Cheatham

I get the 'step-up in basis' part.  Just want to clarify when Melanie wrote about selling at the date of death or within six months, that it appeared there will be tax implications after that time frame.  Thanks.  

There could be tax implications as appreciation then starts to affect you after that 6 month time frame. You can't continue to step up that basis after 6 months. You only get the step up once. In a time of rapid appreciation or a bull market this is where that 6 month piece can come in handy. Let say on month 6 the FMV is 500k and then month 7 the FMV is 600k. You now have 100k in taxable capital gains.

Quote from @Kevin S.:

@Melanie Baldridge

And what happens if not sold in six months?

You still get the step up in basis even if it is not sold. The FMV at date of death is your new basis. What Melanie is referring to here is stepped up basis rules that allow you to take the FMV at date of death or at 6 months after death. Whichever you select must apply to all assets in the estate.

But you still get the new basis at time of death, regardless if it is sold within 6 months. To illustrate:
You inherit a property today that your relative/friend bought 10 years ago for 100k. It has a fair market value of 500k when you inherit it. You then sell that property 2 years later for 600k. Instead of recognizing the gain of 600k - 100k, you get a stepped up basis at time of death. So your gain would be 600k - 500k. 

As other people have stated here, the answer is probably non-deductible to offset ordinary income. These all sound like passive income deals, which would be subject to passive loss limitations. 

Without being able to see your entire tax situation, it would be hard to tell. As others stated, we could look at being able to have real estate professional status, but with W2 income it would be hard to justify that for yourself. 

Happy to help run through any scenarios if you need!

Yes, totally possible. Although it is not as easy as it sounds. I'd recommend working with a tax professional to accomplish this. 

Likely when you setup your multi member LLC it would've been required to file a partnership tax return. You should be able to file that partnership tax return as final and pick up any of the income and expenses through the final date of that return. After that you will be able to report that LLC now as a SMLLC on your personal tax return and pick up any income and expenses after the final date of the partnership tax return. I would recommend obtaining a new EIN under the new single member LLC. Hopefully this makes sense.

I'd make sure to review your operating agreement to ensure compliance with the legal statutes of your specific LLC and partner buyouts.

Happy to help you work through any of these situations. Feel free to shoot me a message if I can help any. 

1. Yes, to an extent. You can deduct up to 25k in rental real estate losses against non passive income to the extent your income does not exceed 100k. At 100k the deduction starts to phase out and is fully phased out at 150k. So partial deduction allowed up to 150k

I would be careful giving him a deal on rents as the IRS could classify this as some sort of hobby or non investment property due to not being at or near market rates. Not saying you have to charge him market rate, just be careful what you're charging. 

2. Yes the passive losses will be "suspended" and carryover year to year to be deduct against passive income. So in theory you could build up 70k of passive loss carryforward (or less or more, no minimum or maximum just theoretically speaking).

3. in the year of sale, those losses will then be fully deductible against non passive income. It will not offset capital gains, rather offset the ordinary income. The only items affecting capital gains are basis and expenses of sale. 

Happy to help discuss more or run through some scenarios if you need any help with anything. Feel free to reach out!

The way a 1031 exchange works tax wise in the simplest fashion, is your initial basis in the original property you sell becomes your basis in the new property. Plus any additional capital you put in.

So if you bought a house for 100k, sold it for 200k, took that 200k and invested it into a new property with a 1031 exchange. Your basis in that new property would be the 100k initial basis. So if you went and sold that new 200k property for 150k, your gain would only be the 50k. The 150k sale price less then 100k basis.

Hopefully that makes sense, but send me a message if I can help in anyway or run some numbers on any scenarios. 

Hey Gary!

You came to the right place. While we are not able to directly promote ourselves here on the forums, there are several knowledgeable tax professionals in this community. I would recommend reaching out to some you see providing good information on the forums and see if they can help satisfy what you're looking for.

Absolutely! A cost seg can be a great way to maximize deductions here, especially since you had a huge IRA withdrawal creating likely a very large tax bill. There are things we can look at to help avoid that 10% penalty also. But you should consult with your tax advisor on that piece.

You do not need to be a realtor to qualify for real estate professional status (REPS). 

To qualify as a real estate professional, a taxpayer must meet both of the following criteria:
Taxpayers perform more than 50% of services in real property trades or businesses in which they materially participate.
Taxpayers perform more than 750 hours of service in real property trades or businesses in which they materially participate.

With you not working a W2 job and likely working on these properties full time, it sounds like you have a good chance to qualify. I can recommend some good cost seg guys to help you maximize those deductions.

Be sure to communicate this information to your accountant as well, so they can help you plan and be aware of the situation. Happy to help provide any advice. Feel free to send me a message if you want to connect!

Quote from @Fernando Guzman:

Quote from @Austin Cheatham:

Fernando,

It could be time to search for a new tax professional, but without knowing your full situation I can't say for sure. I would recommend having someone who not only provides tax advice but also acts as a strategic advisor. Someone who is helping plan your tax situation and your short and long term goals. There are several ways to offset income, even with positive cash flow. There are situations where we could have a paper loss but still be able to show some cash flow, which is ideal.

One of the downsides to selling property 1 is the potential for depreciation recapture and capital gains from any appreciation. However, we can negate some of that with a 1031 exchange which would allow you to take those gains and reinvest it into a better deal. When it comes to my clients, I like to run through different 1031 exchange scenarios to see what we can do to provide the maximum benefit of deferred tax and also be able to achieve what we want to do. Whether that be a partial exchange to pull some cash out or a full exchange to invest into a better deal. It will just be important to identify the new property and make sure you stay compliant with 1031 exchange guidelines.

If you have any questions on the tax piece or need any help analyzing the numbers, feel free to reach out. Happy to help if I can.

Thank you, Austin! I really value your input. A 1031 exchange is definitely in my plans as I look to scale and optimize my portfolio. My focus has always been on growth, and now that I'm in a position to make some moves, I want to ensure I’m making the right decisions without overlooking key factors.

By the way, are you multi-state licensed or able to help with properties in Utah, Nevada, and Guam? I'd love to discuss how a 1031 could work for these properties and ensure I’m staying compliant while maximizing the benefits. 

 Yes sir! Plenty of experience preparing multi state returns and handling things of that nature. Feel free to shoot me a message and we can discuss your situation and look at what may be the best option for you. 

I have worked with several clients in a tax capacity who are involved in informal partnerships. Typically each partner would just report their share of the income and expenses on schedule E. 

One way I have saw this happen that may help your situation is allowing them to send the 1099 to one individual. Have that individual report everything and then have an other deduction subtracting out the 50% to be reported on the other partners return. 

A partnership option with an EIN and K1 is not a bad plan either. 

I would consult with your tax advisor on this situation. Happy to help answer any questions as well!