All Forum Posts by: Brandon Hall

I touched on the new tax plan here: https://www.biggerpockets.com/forums/517/topics/50...

Will write a BP blog some time this weekend. 

I touched on it here: https://www.biggerpockets.com/forums/517/topics/505343-heres-how-the-new-tax-plan-impacts-real-estate-investors

Our firm has analyzed and condensed portions of the House Bill, H.R.1 released on 11/2/17. Specifically, we have compiled sections of H.R.1 relevant to real estate investors and business owners.

See our complete thoughts on the H.R.1 bill by clicking this link (and feel free to share it!).

Two big wins are:
1. Elimination of the Alternative Minimum Tax.
2. Reduction in in tax rates for C-Corps to a maximum 20% and most S-Corps and LLCs to a maximum 25% tax rate.

Two big losses are:
1. Loss of itemized deductions (state & local income taxes and a $10,000 limit on real property taxes).
2. The Section 121 Exclusion which allows you to exclude capital gains on the sale of your primary residence has been modified to make it harder to claim.

@Greg Martin if you report your expenses, you will also need to report your insurance reimbursement. Generally, if insurance has reimbursed you, you do not need to report the expenses nor the reimbursement. When there is a different between those two amounts is when we need to report.

@Evelyn Greenwood good question - in the vast majority of cases, refinances do not create taxable events and you have nothing to worry about. An example of when a refi would create a taxable event is when you a partnership LLC refinances a property and one partner withdraws monies in excess of his/her basis.

You can move money freely between LLCs, just make sure it's well documented. You need to accurately record the distributions and contributions.

The one tax issue you will likely need to tackle is the interest tracing rules. You need to reapply the capital you are pulling out via the refi to investment or business use, otherwise the interest on the cashed out funds is not deductible. 

@John Thedford I'm saying it should be scrutinized by you and your tax pro. Too many tax pros simply pass it off as capex when that may not be the case. So I'm not saying you can definitely deduct it, but I am saying you should take a closer look at it.

@John Thedford I did :) Just in "CPA mode" hah!

@John Thedford you can't write off land nor depreciate it. Building basis only!

Hi Daniel - glad you enjoyed!

For a duplex, the majority of the repairs you make will be capital expenditures (added to the basis of the property) and will be depreciated, liked over a 27.5 year period. This is true regardless of the date you advertise the property for rent. However, you should advertise the property for rent early on (or midway through) the rehab in order to provide your tax pro with the potential flexibility to deduct some of the costs incurred. 

As always, don't implement this without the support of a tax pro or you're asking for trouble. 

Your flips will be taxed first on Social Security and Medicare (15.3%) and then at your marginal tax rate. If you also include state taxes, you can easily get above an effective tax rate on your flipping profits of 50%.

Depending on how much profit you are showing, you could have an LLC that elects to be taxed as an S Corp to reduce the SS and Medicare liability.

@Max Aronov coming from a CPA who runs a firm with 300+ real estate clients, I'd stay away from "quizzing" the tax pro. Reason being that your questions will most likely touch on basic information only (you don't know the technical stuff) and you may not even understand the questions you are asking. Additionally, I can throw out all sorts of sexy acronyms that you won't understand but you'll think I look great because the other guy you interviewed didn't say anything I'm saying. But in reality, all of these sexy acronyms and citing code sections can just be smoke an mirrors if they're aren't relevant to your unique tax position.

So here's what I would ask:

1. How do you bill for your services? Hourly, value, fixed.

2. What does your client process look like - where do we start and what can I expect?

3. Can you provide an example of how you have helped grow a real estate client's business (the answer should not be related to tax and accounting)?

4. For someone in my position, where do we start in terms of tax strategies? I know there are really great tax strategies out there, I also know I may not be to that point yet. So where are we going to start?

5. Can you provide examples of how you proactively assisst your clients?

6. Can you provide an example of when you may have delivered bad service to someone and what you did to remedy it?

**

Answers to the questions will give you clues as to how the CPA works with his/her clients. That's ultimately what you are looking for - someone who will take care of you and deliver a great experience.

Don't ask technical questions - you won't fully understand the answers. Don't ask "do you own investment real estate" because they can easily lie - how would you ever know?

Focus on asking questions about the client experience. How proactive is the CPA going to be? Do they offer webinars, newsletters, or other outside services to deliver extra value?