All Forum Posts by: Brian Poppleton

As a house flipper your income is considered Earned income.  this income is taxed the highest because you pay income tax and social security tax.  

There are some strategies to convert your income to a different type of income that is taxed less.  For example

You can run your business through an S corp and convert part of your earned income to ordinary income.  On the ordinary income you only pay income tax. No social security tax.

You could convert ordinary income to capital gain income (lower tax rate) by renovating a house, then renting for a year, then sell.  

A good book that explains this is called "Tax Free Wealth"  by Tom Wheelright.  He is Robert Kyosaki's CPA.  

i would find a CPA who does more than just tax prep.  You may not need a sophisticated tax plan, but find a CPA that thinks about the future and helps you save money.   

You would write off the total 12k purchase price disregarding the loan.  

The new tax code increased what is called the "diminimus safe harbor" to $2,500. This means any improvement you do that is less than $2,500 can be classified as repair and expensed in first year. Possibly the 12k total cost can be broken into chunks less than $2,500. Depends how it was invoiced. Then you can get the full write off the first year. Otherwise you would get about $400 deduction a year (vs $12,000 upfront).    Run this by a good CPA and they can save you some money.

If you or your spouse can't qualify as real estate pro, then the next option is to create passive income somewhere else that the Real estate loss can offset.  

The cabinets, countertops, and flooring (if removable) would qualify for 100% bonus depreciation.  You may even want to do what is called a  "cost segregation."  

There is something in the new law about using section 179 on roofs, HVAC, and i think security systems, if the property is commercial.  Anybody know anything about this?  Maybe if you are doing vacation rental it could classify as commercial.  

Also you want to look at repairs vs capital improvements. Repair you can deduct in first year. Any line item on an invoice under $2500 can be classified as repair.  If it is over $2,500  it could still be a repair but would actually have to be a repair and not improvement.    It could be worth paying CPA to go through all the invoices and pick everything apart.

i would highly recommend looking into a cost segregation study.  This basically front loads your depreciation into year one.  With the tax savings you can buy another property.    Check with CPA to make sure things are set up right to use the big deprecation deduction.  There are companies that offer the studies much more affordable for small properties than there used to be.  

Originally i did not.  But now i did.  Some great stuff. 

Anyone have a thought on this idea?  If the state prevents the agent as operating as a corporation, the agent would then report all income on the Sch c. What if the agent set up a management corporation and paid a management fee to the corp.  

High income owners of S Corps will often times have a C Corp management company.   This saves tax if the C corp tax rate of 21% is less than their personal tax rate.  Among other things there needs to be reasonable basis for why the C corp gets a management fee (not just tax savings).  

What kind of reasonable basis could be given to the little guy who wants to have a S or C corp provide management services to there sole prop?   Might be more hassle than it is worth unless agent is making a killing.  

The great tax magic of real estate is depreciation.  

If you paid all cash for a $100,000 property, you may see a $3,000 depreciation tax deduction each year. Good, but not super magical.  

Lets say you take $100,000 cash as down payment and buy $500,000 property.  You could then possibly see depreciation deduction each year of $14,000.  A little more magical.  

Do a cost segregation on your $500,000 property and apply "bonus depreciation"  you could see a tax deduction of $100,000 to $150,000 in the first year.  Then invest the tax savings into another property.  Super magic.  

If you combine real estate, leverage and taxes  you will find yourself wealthy.   

The main benefit to running your realtor business as an S Corp is to pay lower Social Security tax.  If the tax savings is larger than the additional s corp expenses (payroll prep, tax prep, other fees) then it is probably a good idea.  Also there is way less audit risk with an s corp vs a sch C.  

I would ask the question, "how much is my CPA costing me" rather than how much does my CPA cost.  If your CPA is only preparing taxes and there is no tax planning, i wouldn't be willing to pay very much.  If the CPA taught me how to save thousands i would be willing to pay a high price to the CPA.  Also i wouldn't have my CPA do bookeeping unless they have bookkeepers worker for them at reasonable rates.