All Forum Posts by: Brian Schmelzlen

I don't see a reason why you cannot house hack now, as long as a lender will approve you.  However, I do agree with you that if you do not have a solid income vacancies and unexpected repairs can be a major issue.  I would make sure you have reserves (or a family member who is willing to act as an emergency lender) first.

I don't know any good CPAs in Washington, but I have at least one question you can use to screen out those who do not have a lot of experience working with people in the real estate field.

Tell them that you are a flipper and want to do 1031 exchanges.  If the CPA doesn't tell you right away that you are not allowed to (if you are flipping, the property is considered inventory and is ineligible for 1031 treatment), it is a good sign that they are not too familiar with the real estate field.

Be very careful when you are trying to structure things purely for tax avoidance.

If you add your son to the title, you made a taxable gift to him.  Mostly likely you will not have to pay any gift taxes, but you will have to file a gift tax return.

Also, your son would be legally entitled to his share of the proceeds.  That would obviously cost you a lot more than your tax savings, and you would have to trust your 19 year old to be responsible with a huge sum of money.

But to your actual question, your son would have to meet the 2 year ownership requirement in order to qualify for the capital gains exclusion on his portion of the house sale.  There are special rules for spouses, but not for children.

Never underestimate the value of Excel.  If you are just tracking rental income and expenses, it is capable of doing all of that, and still presenting the information clearly to your accountant for use in preparing your tax return (or a financial statement if you need one for a bank).

Once you have multiple rentals, I would recommend Quickbooks.  You already have it, so presumably you are pretty familiar with it.  It can be very helpful in tracking your income and expenses for all of your properties, as well as your individual transactions which would be helpful for your accountant.

You should talk to your attorney or CPA.  That person should be familiar with Georgia and Indiana rules as presumably that person has been working with you.

My understanding is that your LLC is located where the members (owners) are located, so I would say Georgia. However, I live in California which is notoriously aggressive on this point (making any LLC owned by a California resident pay at an $800 LLC tax for "doing business in California" just by merit of living here), so my viewpoint may be skewed by that experience.

$750 seems reasonable to me, depending upon the level of advice you are receiving.  Some DIY people will prepare their own tax returns because they want to save money, and end up costing themselves far more than any fees they saved.

Its possible that they are just saying that "the estate most likely wont accept this" because they want to leave themselves an opening to renegotiate or back out if they look at it closer and decide they don't like the deal.

Another possibility is that the executor of the estate might not like it because the executor is trying to distribute all of the assets out of the estate, and a note might be difficult to get out of the estate depending on the number of beneficiaries (someone will have to send the beneficiaries their share of the note payments every month, unless it is staying in the estate which means that the estate would stay open for 30 years- if they cannot move it over to a trust).

I also don't know why the estate would like a deal in which there is no interest being paid.  If they are willing to do that it is great for you, but I don't understand why they would.  I don't see the benefit to the estate, unless they know that they property is actually worth a lot less so they are viewing a portion of the purchase price as interest but structuring it to be taxed at capital gains rates over 30 years.

@Stephan Nemeth Whether it is a Schedule C business rather than a Schedule E rental depends on the average length of the rental as well as the services you would provide.

Hi Jordan,

You are correct.  Both the House and Senate tax reform proposals would change the holding period requirement for the Section 121 capital gain exclusion on the sale  of a primary residence from 2 out of the past 5 years to 5 out of the past 8 years.  It also limits how often you can claim this exclusion to once every 5 years (instead of 2).

However, it is politics so who knows if the tax reform bill will become law.