All Forum Posts by: Charles Press

On the issue of passive losses, I'd find a good tax advisor.They can help you optimize your tax situation.

Activities that are count towards the 750 hour mark are going to involving the property.Acquisition, development, building, management, leasing, etc. Education and talking about real estate theory around the campfire isn't going to cut it.

What the IRS is looking for is, is real estate a full time occupation?Or are you an investor who happens have some real estate?Even that question can be tilted.You may start out as investor in a property or two but as your holdings grow, your time requirements overseeing it will as well.Thus making by default a "real estate professional".

Unless of course you become an oil tycoon but that's whole another problem.Again, find a good tax advisor but everybody's situation is different.

A "paper loss" is unrealized loss.  Example, You purchase shares in a company for $1,000.00.  Several weeks later, your shares have a market value of just $850.00  You now have an "unrealized or paper loss" of $150.00  It's call a paper loss because you have lost it on paper but not "realized" it.  Because you still holding the shares.

From reading your question, I think what your saying is you have a passive losses.  Quite common in real estate investing.  You may even have positive cash flow and net income BEFORE depreciation of the property.  But depreciation will show you having a passive loss for tax purposes.

Passive losses can only be deducted from other passive income sources.  (Capital gains and dividends from stocks are not passive).  If you don't have other passive income to off set, you may carry over your loss to next year.  

If you are a "real estate professional" you may be able to deduct passive losses.  To be a real estate professional, you must A) spend over half your working hours in a year working on real estate.  So if your employee full time elsewhere, you're likely out.  B) You must have spent at least 750 hours a year on real estate activity.  So you can't just the 100 hours you spent in a year managing your properties makes you a real estate professional. 

Disclaimer: As with all tax questions, everybody situation is different and you should ask your own tax adviser.      

A school district in Allegheny County PA requested an appeal on my property assessment with the county.  Due in fact the much higher price I paid last year vs. the assessed value by the county.     

The current assessed value is $181k.  That was it's sale price in 2011.

In 2014 I purchased the property for $287k.  Hence, why the school district is appealing the  current assessment.  The county has granted a hearing to take place this month.

Obliviously, the price I paid is a major factor.  Is there any strategy to try and take to keep the new assessed value down?  Is there any professional services or legal advisers that are worth paying?    Thanks.

@Brandon Hall 

Brandon, thanks for brining up the IRS regs.  I didn't know that what common sense would deem a repair expense, the IRS would classify as a building improvement.

Doing some research into that topic, lead me to the Small Taxpayer Safe Harbor for Repairs.  Which is another interesting topic.  And may enable smaller land lords and investors some relief. 

http://www.nolo.com/legal-encyclopedia/small-taxpa...

Usual disclaimer: of course, everybody's situation is different.  Always consult your tax advisor.

Bryan, good point.  I was started out keeping them separate.  For my internal tracking.  After awhile, it started to seem like splitting hairs.  Again, the whole, small amount of data, can be more easily organized and arranged.  The bigger it gets the more it seems like busy work.  Thanks for the opinion.   

Mitch, good idea on the record keeping.  I'm surprised at how many sellers don't keep a simple records of repairs and maintenance work for at least 3 or 5 years.  (Or don't want to provide it).  It comes off to me as you're hiding something or you're unorganized and unprofessional. 

Thanks for the link.  Looks like good program for a PM or a self manager. 

Was thinking the same thing.  When your operation is small, you can really organize the heck of your data.  The larger you get though, the more cumbersome and time consuming keeping such fine details becomes.

Flip side: If you have a very large business, you can always pay somebody else to break down the expenses.

Here's a question that likely only the people that keep their own books or the accountant minded will appreciate.

Do you lump together your repairs and maintenance  costs on your income statement or do you keep them separate line items? 

Repairs : Something breaks, costs of fixing it.  I.e. Something is leaking, plumper fixes it.

Maintenance: Keeping something in working order.  I.e. HAVC pro checks your furnace, replaces filters, etc.

This does NOT include costs that would be capitalized and depreciated.  Replacing a heating system, flooring, building improvements etc.  I'm only asking about costs you will expense during the tax year.

Thanks!  

@Leigh Ann Smith 

 The 50% rule is a good rule of thumb for keeping you out of trouble.  It wasn't so much designed for the expected expenses, property taxes, insurance, etc but for the bigger unexpected ones. Those are the ones that are going to ding you when you least want it.  

Hold the property long enough and you're going to face capital projects.  Roof needs replaced, furnace dies, repave cracked parking lot, your mother in law moves in with you.  Well, you get the idea.  

You can always consider reducing your debt service side by A) putting more cash down on the purchase or B) getting an equity partner(s) and splitting the pie.

I Have a mentor that liked to partner on investments.  They said if turned out bad, at least you had somebody's shoulder to cry on.  If it turns out good, you may accomplish more then you could have down on your own in the long run.

In closing though, the 50% rule is just a rule of thumb.  And rules like thumbs, can be broken. 

The ultimate test to me is, how well are you sleeping?  Like Rip Van Wrinkle?  A bear that gets up here and there during winter? Or, I can't sleep at all, I'm too worried!  I prefer to sleep well at night.  But you have to decide how much risk you're willing to assume.