All Forum Posts by: Bob Norton

@Tara Brandner If you stocked your STR with frozen, prepared meals for your guests, then you will be providing substantial services and will pay SE taxes on the income, as if you are running a hotel. I think your Mother can sell home-cooked meals to your guests without a problem, as long as she's not working on the premises. The guests could pick up meals or have them delivered. That would be the same situation as the guests ordering take-out or Uber Eats. Of course, she would be running a restaurant/catering service and may have to pay SE taxes on her net food service income.

@Alex M. Your basis in the property did not change, so your depreciation will remain the same. In most tax programs, when you enter the property with the same dates, amounts and ending accumulated depreciation that you had in the prior year's tax program, it just picks up where you left off and continues the depreciation as if the LLC had always owned it. So, you continue to depreciate the property as before and, yes, you enter it on 8825 in the partnership return.

You should only have to add Form 4562 if you added to the property, or added any other assets.

@Alex M.@Sheen Jowl I handle the prior year's passive loss carryover by keeping the rental listed on Schedule E but showing zero rents and expenses, as my tax program associates the passive losses with each property. These losses will be matched with rental income from the LLC's that passthrough on your K-1. Once the loss carryover is absorbed, you can remove the rental listing from your Schedule E.

If your LLC is disregarded, then there is no change, since you report the rentals on your Schedule E anyway.

@Wensheng Chen You can exclude the gain on the sale if you lived in the property 2 out of the past 5 years. It sounds like you are on the edge of that time limit, so it will come down to actual days to consider.  You and your co-owner will split the gain, unless the co-owner has quit-claimed their interest to you.  Did you have an agreement that the mortgage payoff will be split between both of you?

Who is on the mortgage doesn't matter as much as who is on the title.  The mortgage company will not release the title until the mortgage is paid off anyway.

For the 1031 exchange, if you are both considered tenants-in-common, then you would be exchanging your 50%.  If you are considered partners and filed as a partnership for the rental, then you both may have to purchase the new property together.  You should speak with a 1031 exchange specialist like @Dave Foster to get the particulars on that situation.

@Jonathan Roldan You could contact the school board to see if there is a waiver you can get so that your daughter can continue attending the school.  We were able to do this with our daughters because we lived within a certain distance of the school we wanted them to attend.  I know others that received authorizations for their kids to attend certain schools because certain programs were offered at their preferred school while those same programs were not offered at the school in zoned where they lived.

@Manuel De La Cruz Are you using the C-Corp as your property management company, only, or did you also purchase or transfer the property into the C-Corp.  The problem with C-Corps are that they pay corporate income taxes and then when you pull money out of them, you have to pay taxes again.  Also, if the C-Corp generates losses, then those losses get hung up in the C-Corp to offset future income of the C-Corp and you cannot use them on your personal tax return.  So, I recommend that you manage it carefully to make sure that you run as close to breakeven as possible.

The second issue with any corporation (including LLCs filing as S-Corps) is having the corporation own rental real estate. There are two parts to this issue. The first part is that if you want to move the property out of the corporation, then you'll have to pay tax on that transfer. Meaning, that if you want to move your property into another LLC that you own, you will have to recognize a taxable gain on the difference between the fair market value of the property and your adjusted basis - even though you did not actually receive any cash for the sale. This event will also occur if you elect to revert your LLC/S-Corp back to just an LLC. The second part is that you do not get debt basis for corporate debt. So, if you have an S-Corp and have a mortgage on your property and the rental has a loss (or you do a cost segregation), then you will not be able to deduct this loss once your capital basis is depleted. For those of us buying with no money down, this is a serious problem. You are not "at-risk", so you have nothing to lose (according to the tax rules). These losses are suspended and you get to offset future rental income from the S-Corp in the future.

So, to your question about accounting tips for getting started, you don't have to spend a lot on software.  Setting up separate checking accounts for your business is the best way to keep your business expenses separate from your personal expenses.  You can use spreadsheets to manage your budget and books, initially.  However, as you grow these will get unwieldy and will cost you more time to maintain, probably to the point where you keep putting off the bookkeeping.  So, I recommend getting a low cost accounting software solution, so that you can learn how to categorize transactions while you have some time to learn that and, as you grow, you'll build data to help analyze your business.  For landlords, an good solution is Stessa and for any other business, a good solution is Xero.  Both of these are cloud-based software packages.  To make Stessa easy, you can setup a checking account for each rental property you own and link those transactions to the property in the software.  Xero allows downloads from your bank and credit cards to help with data entry.  A lot of my clients use these packages, and also QuickBooks (for general accounting) and Buildium (for rentals).  If you will be scaling quickly, then you may want to consider upgrading to these packages sooner.

@Aaron Vargas You could consider purchasing the property individually and then quit claiming the property into the LLC. If all of you will be on the mortgage, then you could treat the investment as tenants-in-common, which means that you each own a specific fraction of the property and you split the revenue and expenses proportionately. A partnership agreement is not generally required for taxes; however, it is very important to have before you get started so that you all agree on how you will run the partnership while everyone is optimistic about the investment and more likely to agree with each other. If you wait until there is a disagreement, then the venture will end up in a lawsuit and everyone will lose.

@Jacob Fussell If you get your real estate license in Louisiana, you will have to be sponsored by a broker and cannot be "independent" as you mentioned.  Some brokers, as we've seen above, don't understand wholesaling, so they will not allow their agents to wholesale properties.  You will want to find an investor friendly broker that understands the process.  Or, you can study wholesaling and do that without a license.  

@Aaron Vargas You simply setup a bank account for each property to track the rents and expenses for the property and distribute the excess when you want. Sounds like you are forming a partnership, which has tax implications that you need to check out. Make sure that you have a good partnership agreement before purchasing any properties, then run the partnership in accordance with the agreement. Most people setup an LLC for this for the added level of liability protection.

@Sheen Jowl When you move a property into an LLC, there is not tax effect. It retains the same cost and accumulated depreciation that you have now. Since you are in Texas (which is a community property state), you and your spouse can move the property into an LLC that is owned by both of you and treat is as a single-member LLC, which means you will continue to report it on your Schedule E. Alternatively, you and your wife can treat the LLC as a partnership, which requires a separate tax return. You may prefer to do this to help show legal separation from yourselves.