All Forum Posts by: Brandon Hall

@Marty Joyner I'm not a fan of turnkey unless you have the capital to build out a portfolio quickly, as in adding 3-5 properties per year. The main reason for this is that CAPEX is rarely ever considered yet is a huge drag on turnkey cash flow. A big component breaks on your turnkey property in 3-5 years and you've wiped out several years of cash flow. If you have multiple turnkey properties, this becomes less of a problem as the other properties' cash flow can be applied.

They just don't offer a great return. Especially at current valuations. You're better off investing in a syndication.

You also need to consider the fact that turnkey companies clearly think that selling the property and receiving upfront cash is better than owning the property for themselves long term. Turnkey companies are in the business to sell you on real estate investing. Too often, people get sucked in and totally forget how to perform due diligence.

Now for the high income earner - you can always deduct every single expense, including depreciation, relates to your rental. The limit is placed on applying your passive losses to your ordinary income. 

There are numerous strategies to utilize your passive losses, several of which I covered in that podcast. But the key is to link up with a CPA who knows real estate inside and out. I can't tell you how many times I've heard "my CPA said there's nothing I can do about passive losses" which is complete hogwash and something I'd expect from a non-re CPA.

@Brent Langlois at this point, for 2016 taxes, the value of hiring a CPA is demonstrated with accurate tax returns that are compliant with federal, state, and local governments. It's too late to implement 2016 tax strategies because your 2016 facts are already written in stone.

When you hire a CPA, the true value they bring to the table is the ongoing advice. That's not something TurboTax or HR Block does. But I'd start your hiring process for 2017 taxes now because you truly need an ongoing advisor.

@Joe Kim I'm with you on the seemingly high fees. However, I'm not keen on the hourly rate.

Hourly rates are not value add focused. They don't encourage efficiency or effectiveness. They are cost focused (what's my cost per hour and what do I want my profit to be) and as a result they don't help the consumer at all.

Maybe fixed pricing is the answer. A firm that builds in tech efficiencies and can easily and quickly get it done. So they charge you half the price a normal firm would charge, but they are really making $1,000 per hour due to how efficient they are.

@Account Closed there isn't a maximum amount. The expense needs to be ordinary and necessary to be deductible.

A $500 training may be necessary and ordinary. A $40,000 training may be necessary, but not ordinary. 

Ordinary means "what are others in your field spending their money on, and is it of relatively similar amounts?"

Necessary means convenient, useful, or essential. 

The interpretation will be up to your CPA.

@Blake C. yes, however it's pairing multiple code sections and tax court cases together to form a basis for substantiation. It takes a creative CPA - and that's what people pay me to do :)

@Blake C. yes, however the LLC must be taxed as an S or C corp.

@Chris K. debt tracing rules come into play. Interest is deductible where funds are utilized.

If you take a HELOC and buy investment property, funds are deducted on Schedule E. If you take a HELOC and start a business, funds are deducted on Schedule C.

https://www.biggerpockets.com/renewsblog/2016/01/25/deducting-interest-home-equity-line-credit/

@Chris Lauer I have a great Baltimore based RE attorney. Send me a PM.

@William Jenkins this doesn't apply at the entity level:

"Unless you are a full time RE professional it is likely a passive activity for you. Passive losses are capped to $3K as an offset against your ordinary income."

A rental property is always going to generate passive income even if you are full time managing your portfolio. Passive losses are not capped at $3k.

There are three types of income: ordinary, portfolio, and passive. Passive losses are capped at $25k. Portfolio losses can be subject to the $3k limitation you referenced. 

@William Jenkins just wanted to correct a few things here.

First off, rental property is passive and generates passive income as long as the rental period is greater than 30 days on average. Even if qualifying as an RE pro, it's still passive income and thus not subject to SE taxes.

You actively participate in a rental activity if you make management decisions. This does not make the income "ordinary income" it just means you actively participated.

The only time you are literally a passive investor is when you invest in a syndication or some group investment where you have little-to-no say and you don't make management decisions.

If you manage your own rentals, or manage the property manage who manages your rentals, you are deemed to be actively participating in your rental activity. Your rental activity will generate passive income or losses but you are still actively participating.

If a passive loss is generated, you have a $25k cap on the passive losses that can be applied against your ordinary income. There is no $3k loss limitation - this limit is on capital losses generated by portfolio (not passive) holdings.

Hope this helps clear things up.