All Forum Posts by: Brenton Way

@Sean Williams You definitely qualify as a real estate professional but based on the information you provided you should still be able to do a 1031 exchange. 

I am not very familiar with 1031 exchanges so you would be better off reaching out to someone that has experience. I have seen Dave Foster comment a lot of threads relating to 1031 exchanges so he might be able to answer you questions either in this thread or via private message. 

Originally posted by @Sean Williams:

@Ashish Acharya and @Brenton Way Really appreciate your alls input on this, this is something I was not aware of that I could potentially utilize. When I mentioned it to my CPA he went more of the route of capitalizing/depreciation so I'll explore both options with him.

I am considering selling the property once this rehab is complete, so depreciating may be useless if a portion of it is going to be recaptured immediately anyways. Would there be a scenario where one strategy makes more sense than the other if selling immediately vs. renting?

First off let me start this by saying I am not a tax expert and you should consult with your CPA. That being said, the intent to sell the property could change the circumstances substantially. How long have you owned the property? Are you a real estate professional? What was your intent when you purchased the property (note: you can change your mind from intent to buy and hold to flip)?

If you are a real estate professional and more specifically, if the income generated from selling this property would be classified as ordinary income you would have a completely different treatment. At that point if you purchased the property to flip it the cost of renovations, repairs, apoliances, etc... would be capitalized as WIP inventory and then recognized as cost of sales once the property is sold.

If you are not a real estate professional and you aren't actively flipping multiple properties per year (specific number is a gray area) then you would still have long term or short term capital gains.

I am going to stop short of actually giving you a suggestion because I am not well versed enough to know what to do in certain circumstances. Are you just planning to sell and get out of real estate? Are you looking to do a 1031 exchange? I made some assumptions above but without all of the information I would be speculating as to what makes the most sense for your circumstances.

Note: mentioning another user on my phone doesn't seem to work so this post was removed and I quoted the original poster.

@Sean Williams How you treat the purchase of appliances can vary based on what will work for you and your business. Individually the appliances will likely fall under $2,500 which is the IRS de minimis threshold which would allow you to expense the entire amount. That being said if you are not a real estate professional and if expensing all of the appliances causes your company to lose money this year you could have passive losses which after a phase out can not be used to reduce income from say a w-2 job if you have one. You could have passive loss carryover's which would have to be carried forward to a year when you have passive income. The alternative argument is that if you capitalize and depreciate you would be subject to depreciation recapture when you sell the property.

It would probably be a good idea to talk to a local real estate attorney to draft an operating agreement that fits the business that you and your partner are trying to build. The operating agreement really comes in to play if something happens and you are trying to dissolve the partnership. Some generic operating agreement or an agreement that was written by my attorney for my business might not work for you. The money you spend consulting an attorney now will be well worth it if you ever need the operating agreement.

@Cory iannacone are you self managing the property in Harrisburg or are you using a PM?

I wish that kitchen was in my house.

I just looked on Zillow and your place is close in price to some of the other 3 bed 2 bath places  but honestly I didn't compare where each was located. 

Where is your first property? I have two SFH but neither are right downtown.

One thing to consider is if your up by the fair grpubs it is a pain to fund parking during the fair so you will want to make sure the place has off street parking. The are some part of princess st. That are a little skethcy. Do you have a lead on any properties or are you just trying to determine what areas to avoid?

Whereally exactly is your property in Harrisburg? That rent sounds a bit high for downtown apartment but the rehab loons great. Good luck and hopefully you can get it rent out quickly.