All Forum Posts by: Brian Scott

Hello,

I have a rental property with slab foundation problems in the Fort Worth area. Does anyone have any referrals for structural engineers and/or foundation repair companies?

Hello (didn't know the best category to post this),

Does anyone have any recommendations for property tax protest companies in the DFW area, specifically Tarrant County? Proposed values just came out and some of my properties are significantly higher than 2021 as I'm sure most people's are. Wanted to start the protest process asap to limit the it. Thanks in advance!

The tax publications say when converting a personal home to a rental, the basis is the lesser of the FMV or adjusted basis.

1. Is there any rule saying one couldn't do a cost segregation when converting, to bonus depreciate the carpet and appliances as examples in a house? They are placed in service at the conversion just like when buying a rental, so it doesn't seem any different. A specific case would be putting in brand new carpet the week before listing for rent so the FMV and basis of the carpet are the same.

2. Also, similar to the above, if a rental property is bought, and a week before listing for the first time, brand new carpet is bought, can the carpet be bonus depreciated when placed in service? Improvements are added to the basis if done before in service, but since carpet is 5 year personal property and not an improvement to the 27.5 year property, it seems it can be segregated?

In my area income won't even be positive for about 7 years (with todays record low mortgage rates) for a door after acquiring it assuming 20% of rent for vacancy/repair/cap ex each year and 2% rent increases per year. With depreciation the tax income will always be negative. This is with property management and most of the work being diy. This includes flooring, painting, moderate repairs, all appliance replacements. Paying a contractor to do anything major would wipe any cashflow for the previous two years. So yes, only with 20 years will there be actual income from the rentals. The flip side is at the B class I buy the properties are each worth 1+ million each to reach meaningful cashflow. So it's a choice of high net worth with moderate cash flow or low net worth with higher cash flow. 

I can always sell a property and use the proceeds as down payments for several more or invest it in another asset class. Either way I still prefer real estate where I can make the decisions. If I wasn't young and healthy enough to do the manual labor work myself I might think differently.

It was a bit of a let down starting so late (2021) as most of the podcast advice was created at the bottom of the market and definitely not applicable now.

I did the same thing near Fort Worth on a July close. Not exactly north Dallas but rental demand is still high. It took 5 months just to find one qualified roommate using Facebook, CL, apartments.com, roomies.com and a few others. And this was advertised as a M2M room with utilities included and they'd have the whole house to themselves since I'd barely be there. I posted the same screening criteria as a normal apartment/house rental. Be prepared for responses to lead with "I need a place real quick!". My take away is the people looking for a room rental can't afford anything more or can't qualify. It's very rare for someone to look for a cheaper place with the sole purpose of saving money.

I considered short term renting the rooms out but did not want the headache of fully furnishing since I'll be renting the house out at the 1 yr mark.

My advice is if you can't make the payment on your own, do not count on it being covered by a roommate. Unless you really lower your screening criteria. Just my experience here, but I am definitely not counting on roommate income for any house hacks going forward and will just convert them to rentals as soon as I'm allowed to.

For every investor who takes on large risk of bankruptcy and financial ruin, sacrifices time from family and fun, works very hard to build a business, there are more attempting to or already defrauding the government welfare/disability/etc programs to not have to work a day in their life. The tax code "favors" the investor/business as incentive to provide housing and employment that runs the economy. I sleep like a baby paying less in taxes after a long hard day getting a house ready for rent but that's just me!

Agree with @Nick Brown. I moved from the midwest to DFW in Dec, 2020 with the same plan...to house hack. Unfortunately, nothing can cash flow with the rapid rise in prices. Rents lagged a bit and just barely starting to catch up from what I've seen starting around August, 2021, but no where near enough. Any B class duplex is maybe $450k+ so unless you are comfortable living in rougher areas it's not worth it. I changed strategies and started buying single families and they have similar returns (-$150 to $-300 per month when figuring PM, vacancy, repair, cap ex) but have the added benefit of being sellable to anyone, unlike a 2-4 unit. There is risk of course with negative average cash flow but appreciation in DFW has been consistent for years.

I bought a 4 bedroom single family and am renting the rooms out, it might be something to consider as it's house hacking while being more affordable up front. Just one room will go for $600-$900, maybe higher in Frisco, so not bad.

@Natalie Kolodij

Yes, that's a good point and I know what you are saying. I am working with my property manager to have it listed for rent asap after funding. It technically is ready for service as is, I just wanted to replace flooring with LVP and paint, room-by-room, while it's being shown so it'll be tenant resistant for a while. Since my labor is "free", the majority of costs could be bonus depreciated (LVP) separate from the building or small enough to be considered Repairs or Cleaning and Maintenance.

I'll probably run my reasoning and numbers by a local REI CPA to see if anything raises red flags though before filing. Definitely don't want an audit but still want to maximize benefits.

Thanks for the input.

Thank you for the replies!

I didn't consider how the lender would look at the tax return next year so need to verify with them my planning will work. I'll have many actual (non-depreciation) expenses over the next month for a make-ready on a new purchase tomorrow (fingers crossed). When added to a 1 month's rent placement fee from the property manager and just 2 months of rent income to offset for 2021, it will look very negative indeed!

2021 is my first year as a landlord and to save money I'm doing taxes myself for the first couple of years. To avoid doing anything wrong I wanted to double check a few things. Can any CPA's answer the below? I've scoured the forums for months as well as Google and the tax code, but still had some questions.

1. This first year I have a rental loss approaching the $25k passive activity limit for active participants. To report this, I fill out Schedule E which will show the total loss (negative value) which then transfers to 1040 Schedule 1, Part 1, Line 5 as negative. With nothing else this goes to Line 9 (as negative) and then transfers to Form 1040 Line 8 (other income) as a negative value. This negative value adds to the positive W-2 wages to reduce the total income? The instructions don't mention on how to handle negative values for Other Income, which is my confusion here.

2. For depreciation on one of the properties, I was planning on separating/segregating carpet, floating LVP flooring, cabinets, dishwasher, microwave, oven, and a shed as separate assets from the building and using 100% bonus depreciation to deduct fully this first year. From what I have found everything but the shed is 5 yr or 7 yr property; the shed is probably 15 yr property but I couldn't find concrete answer. 

Is there anything wrong with taking the 100% bonus depreciation on these (and subtracting their value from the total purchase price to calculate the building basis)? Would it increase risk of an audit?

3. Near the end of 2021, I'm planning on selling about $20k in ETF's which have about $10k in long term capital gains. With large 401k contributions and the ~$25k rental loss, my ordinary income will be about $21k and with the $10k in gains, total income should be $31k. I should be able to pay 0% on the capital gains, since none of the gains when added to ordinary income exceeded $40k?

Please let me know if I can't add the capital gains and W-2 wages, and subtract the $25k rental loss, to end up at MAGI! I want to harvest the gain (since I have the rental loss) and buy back to reset the basis.

Thank you in advance.