All Forum Posts by: Bonnie Griffin Kaake

@Matthew Drouin Are you aware of the tax benefits and cash flow opportunities with 179D and the use of Green Zip Tape as well as cost segregation on this build-out? This could save you as much or more than 10% to 17% of your (purchase price plus construction costs) up front. Let's talk if you want more information. You may not have to jump through the hoops you have been jumping through to get the results you want. 

Quote from @Marcus Auerbach:

Getting a FincenID makes it easy if you have more than one or expect future updates. 

I don't quite understand the pushback. 

It blows my mind that you can actually start and operate a legitimate business in the US without telling the government (not the public) the name and address of the owner. I mean, how shady is it to object to that? Do you object to giving them DMV your address Or your bank?

I understand some of the issues and I believe those can be adjusted to be sure we are not penalizing some of the small investors. On the other hand, if you ever had a spouse or ex-spouse who was hiding assets in LLCs you might understand the need for more transparency in these transactions. Then again, maybe that is why some investors don't want this level of transparency.

I am not sure what state @Camille T. lives in but I don't know of a state that currently has this level of transparency. Years ago as a commercial RE broker, I once had a client try to close on a commercial property using cash. He had to go to a bank and get a cashiers check. The title company would not accept cash. Money laundering is a big concern and needs to be addressed. 

Quote from @Todd Foust:

*Advice. 

Hey team,

I have a unique combination of tax situations, and I am trying to identify an appropriate CPA. Here is my issue: 

- I live in South Carolina

- My W2 and primary income is from company in North Carolina

- I'm starting a real estate rental business in Illinois

I started looking for CPAs to help and figured I'd start with accountants in South Carolina but so far everyone I contacted simply responded with "not taking new clients". I wonder if that is a graceful way of saying I cannot help you with your taxes in Illinois as I'm only license in South Carolina?

Questions

1. In order to get a CPA, would they need to be licensed in all three states in order to help me both with Personal and Business taxes/accounting needs? If this is a requirement, feels like odds would be low to find a match? 

2. Should I instead just try to land an accountant in Illinois and JUST ask them to do the accounting and taxes for the business only, then I'll just tackle the personal taxes like I have always done? 

3. Third idea was to see if TurboTax may still be able to tackle my scenario. Anyone use TurboTax to help manage the business taxes and returns, depreciations, tax benefits etc? 

Thanks for any advice or experience you can share. 

-Todd

 I would not recommend trying to use Turbo Tax for your situation. What is more important is that you find a CPA/EA/tax professional who is savvy about real estate investments. Then, work with a tax benefits and cash flow strategist to maximize your benefits for investment real estate. You don't need someone in your own state now-a-days. Tax professionals who are savvy about investments in RE are far and few between. There are simply not enough graduates choosing to be CPAs/EAs/tax professionals. There are some good ones on BP as well as those of us who are tax strategists who can maximize your tax benefits and increase your cash flow. We work with your tax professionals to your benefit. 

 @Eric Carlstrom

Regarding taxes, be sure you are not paying too much and that your CPA/tax professional is up-to-date on the regulations. I see too many depreciation schedules done on 27.5 day depreciation schedules for STRs. This is a red flag for the IRS. All short-term rentals of less than an average of 30 days per year belong on 39 year depreciation schedules.

You can only occupy your STR 14 days per year and not more than 10% of the actual rental days by tenants. You may be better off renting another property for your own vacation stay than staying in yours; why put up a red flag for the IRS?

There is another tax benefit you may not be leveraging. Get a no-cost estimate for an engineering-based cost segregation study on every investment property you own over $250K in purchase price. You are likely leaving thousands of dollars in tax benefits and cash flow on the table. I am available if you have questions or need a study. 

Quote from @Sean Nava:

I have a strong feeling that our market will replicate california soon. The rental increases and equity growth makes our  market very forgiving. Which is guiding my decisions. 

I looked into buying in the Midwest for cash flow but I couldn't help to notice that people are selling homes for $6,000 more than they bought the homes 8 years ago. So one major repair can wipe out a year's worth of profit. Especially with a newer investor such as myself.

This has steered me towards buying locally. I am more interested in the wealth growth from equity. 

I am currently closing on a duplex that will be cash flowing only $150/mo to start but will build rapid equity. Which can be used to later to buy more properties. Or refinance for spending cash when it come time to retire.

The advantage you have living locally is that you can buy a new primary residence every few years and keep the prior home for a rental.

Good luck. Either choice you make will be a good one. Just make sure you take action.

 @Sean Nava  If you haven't considered a cost segregation study yet on any of your investment properties, you are leaving a lot of money on the table. You will usually have about 6-8% of what you purchased the property for in taxes you won't have to pay in the first year or few years. This could give you the extra cash flow you need to make repairs or upgrades to the properties you purchase or enough to buy another property. Stop paying more in taxes than you need to pay! If you have questions, I am here to help. 

 @Thomas A. Rufo Also consider the fact that when you switch from STR to LTR or the other way around, you will need your CPA/tax professional to do the IRS' 3115 change of accounting form to go from 39-year depreciation for STR to 27.5-year depreciation for a LTR. They do not like doing these complex forms and charge quite a bit for them. If you haven't done so, you may want to get an estimate for a cost segregation study on these units. This will give you extra cash flow in the first year and/or the early years to maximize your tax benefits and make your dream come true. I provide the 3115 and 481a adjustments for my clients and their tax professionals with the cost seg studies.

@Jeremy Hartwig  As part of your due diligence, you may want to consider doing a no-cost estimate/pre-analysis of the potential tax benefits available. Sometimes it can make or break a deal. Expediting the depreciation with a cost segregation study can add a healthy amount of cash flow in the first year to 5 years when you need it most. 

Quote from @Jon Fletcher:

Now that 100% bonus depreciation is over and tax returns have been filed, the next question on a lot of people's minds is: Can I switch my STR property to a long-term rental? The tax benefits are gone, but the management of an AirBnB is still there. Is there a minimum amount of time that the property should remain a STR before switching to a long-term rental?

Jon, You will also need to file a 3115 Change of Accounting form if you change from a STR to a LTR. This is because STRs (less than 30 days on average) are depreciated over 39 years. LTRs (30 days or more on average) are depreciated over 27.5 years.

Quote from @John Carbone:

Quote from @Bonnie Griffin Kaake:

 @Pretty Khare

As others have mentioned, you do need a savvy CPA to help you with this so you are on the right side of the IRS. One thing that is not clearly mentioned above is that if you are materially participating in the short-term (Airbnb or VBRO type property), it is a business, like a hotel and qualifies as an active investment, not passive. And, you don't have to be a real estate professional to take advantage of this benefit. Just be sure you are not staying in the property for personal use for more than 14 days or more than 10% of the time it is rented to others. For accelerated depreciation purposes, a short-term rental is less than 30 days and the property must be depreciated over 39 years, not 27.5. Cost segregation is excellent for STRs because you can take it to offset the terrific gains on this type of property as well as off-setting it against W2 income if you are materially participating in its management. 

My understanding is that to be classified as a hotel and active you need to be providing substantial services. 

1. You may be confusing the use of Schedule E versus Schedule C for tax filing. STRs rented and NOT providing substantial services (regular cleaning, meal prep, trips/excursions, etc) goes on schedule E, not schedule C. 
2. On the other hand, if you are renting the property for less than 30-days on average, it is a STR depreciated over 39 years.
3. If you are renting it for 30 days or more, it is a long-term rental and must be depreciated over 27.5 years like any other long-term rental property.
4. If you are a RE Professional, you can claim STRs and LTRs as an active investment.
5. If you have a W2 and materially participate in a short-term rental for at lease 100 hours and more than anyone else, it is also an active investment and can be used against your W2 income. Accurate and meticulous record keeping will keep you safe from IRS audits.
6. Be sure to get an engineering-based cost segregation study done by a reputable company if you paid at least $250K for the property including land. CSSI provides audit defense at no cost to you for as long as you own the property plus 3 years...that is how long the IRS can audit your depreciation schedule.

@Greg O'Brien Your #2 above is needing a correction. If the average number of days per year for a rental is less than 30 days it is a short-term transient rental (39 years depreciation = commercial property). If it is 30 days or more it is a long-term rental (27.5 year depreciation = residential rental).