All Forum Posts by: Brandon Hall

@Michael Glaser check out Section179(dot)Org

GRVW needs to be >6000 lbs. If a truck, you can write off entire cost (generally speaking). From a financial perspective, this is brilliant - you put $5k down on a $50k vehicle, write the entire $50k off, and receive $20-25k in tax savings. You're ROI on your $5k downpayment is 4-5x.

You don't have to buy a truck. You can also buy an SUX (luxury or not) and as long as you adhere to the 6000 lbs rule, you'll still be able to deduct the majority of the cost.

Ex. You buy a Tesla Model X for $120k. You write off $25k as Sect 179 leaving your basis at $95k. You then get a 50% bonus depreciation (only on new cars, not used) amounting to $47.5k. Our remaining basis is now $47.5k and our write-off thus far have been $72.5k. But then we also get the first year of double declining balance depreciation (straight line % multiplied by two) equal to $19k ($47.5k / 5 years x 2).

Total write off for buying a Tesla Model X = $91.5k. That doesn't include federal and state tax credit by the way.

Key is that your business needs the net income to support the write off. You cannot buy a vehicle and report a negative NOI as a result. It just stops when NOI hits $0.

Another key is that you must use the vehicle 100% for business use, otherwise you have to get involved with complicated formulas to book income in the years in which the vehicle was not used 100%.

Moral of the story - unless you are running a full scale enterprise and can afford two vehicles, one in which you use 100% for business, stick with leasing or mileage tracking.

1031s and seller notes are easy ways to go. You can look into Monetized Installment Sales. That could actually work really well for her in this case.

No way to avoid the dep recap unless you sell for an amount less than the basis, which would be the land value at this point.

@Chris Gilbert unfortunately it sounds like the cost to build the deck will need to be capitalized.

There is an "anti-abuse" clause to the De Minimis Safe Harbor. Essentially, we have to aggregate all costs related to the same unit of property. So if you spent $1,000 on materials, $1,000 on labor, and $1,000 on sanding and finishing, we'd aggregate all three of those costs and capitalize as the aggregate amount is above $2500.

I see you're from Greenville - I just moved to Raleigh and went to ECU. We should connect!

The number one question we never hear but always bring up is: how can I better utilize technology to efficiently maximize my tax position?

Too many people want these sexy tax strategies which can cost boat loads to implement. Instead, if you simply focus on what we call the "low hanging fruit" deductions first, you'll realize that if you implement technology (most of which is free) in the correct manner, you'll save thousands per year in taxes.

The sexy strategies are critical, but the one thing quite literally every single person can benefit from is better use of technology to maximize their tax position. 

@Nick Glatzer unfortunately that's not how it works. If the entity distributes the cash, the entity cannot deduct the interest on that cash. Instead, the entity would "inform" the member(s) (via a K-1 if a partnership) of the interest expense associated with the cash distributed to the member(s) and then the member(s) would need to trace the cash to determine if it's deductible.

@Jeff Dimock most likely it would be a non-taxable distribution from the LLC. Debts that the LLC take on will increase stakeholder basis. A stakeholder can distribute their entire basis to themselves without incurring a tax liability.

The question that wasn't asked is: can you write the interest off on the funds that you distribute from the LLC to yourself to live? The answer is no.

Let's assume you buy a $100k property with cash inside of an LLC. Your basis is $100k. You put an additional $50k into the property which brings the ARV to $200k. Your basis is still $150k (all the cash that you have put in).

You then take a loan equal to 80% of the $200k ARV meaning that you cash out $160k. The problem is that we now have to trace where those funds are applied. If you distribute that $160k to yourself, keep them in your personal checking account and live off of them, the interest on that $160k is non-deductible. This is a huge issue with the famed BRRRRR(RR?) method that no-one seems to address.

So you have to reapply that $160k for investment property or business use in order for it to be deductible. 

But the good news is that you can distribute that $160k without causing a tax event.

@Tricia O'Brien property managers are required by law to issue 1099s to their landlord clients. In order to issue a 1099, they must have a Form W9 on file.

1. Yes you will still be able to report on Sch E.

2. You should not give a copy of your SS card as that will not have the information needed to issue a 1099. You must provide a Form W9.

@Bobby Clifford and I just moved to Raleigh, so even closer!

@Christine Kankowski I believe he meant an RE pro for tax purposes.

@Bobby Clifford first off, the RE Pro status is only helpful if you have losses from rental activities that are becoming suspended due to one spouse earning significant income. 

Second, you do not need a license to be an RE Pro.

All you will need to do is to work 750 hours in real estate and greater than half your time needs to be in real estate. This qualifies you as a real estate professional. That's step one.

Step two is demonstrating that you materially participated in the rental activity. This is generally demonstrated by working 500 hours on your rentals.

Step one gives you the RE Pro designation. Step two unlocks your passive losses.

You don't need a license of any sort. This is not a LinkedIn qualification. It's just a tax election that is achieved by working a certain number of hours in real estate.