All Forum Posts by: Bruce D. Kowal

 When you purchase any building with cash + loan, you are taking advantage of the most basic tax shelter feature of real estate.  Say that you put 20% cash and borrow 80%.  You then write-off the cost of 100% or the building.  That is Depreciation. 

You are taking expenses [the 80%] for something for which you did not shell out any cash. Now, that is the tax savings.  In addition, the cost of that borrowing, the interest expense, is allowed as a reduction in your income.  

But it's that leverage from borrowing, the ability to generate "phantom" expenses that is the heart of the real estate tax advantage. Why "phantom"?  Did you actually shell out cash for that extra 80% of depreciation?  

And this is something that is granted by Congress.  It's not a Natural Right bestowed by the Creator . . .

Now, if you simply pay all cash for land, and develop the land with a building with zero financial leverage as described above, there is no benefit. 

When and if you rent that new building, well, that is another discussion.  

April 18 is Election Day!  It's the day you must make your election to be  Qualified Real Estate Professional.  This is IRC §469(c)7)(A).

You really need to see a CPA to think this through.

What you doing is combining real estate interests in one Activity.  

So what?  You may ask . . .Here's the deal:

Being an REP under the Tax Code means that rental activities are no longer considered to be passive income generators, and therefore they produce non-passive income and losses [a good thing].

Further, unlike passive losses, non-passive losses can be used to offset other types of income [a good thing].

But that activity must be a "rental activity".

The "Election" itself is simply a statement attached to you timely-filed tax return.  That mean you filed by April 18, 2022, or by the extended due date of October 15, 2022.

Here's a possible wording of the election.  There is no authoritative wording for this:

I hereby make an election pursuant to Section 469(c)(7)(A) of the Internal Revenue Code. I am a qualified taxpayer and elect, pursuant to IRC Section 469(c)(7)(A) to treat all of my interests in rental real estate as a single activity starting with my 2021 tax return.

Now, because this is so significant, you may want to chew over this.  That's fine.  File your extension.  Pay what taxes are due by April 18.  

And over the Spring and Summer you can model this with your CPA.

It's Election Day!!!

(Has anyone made a lapel pin that says "I am a Qualified Real Estate Professional"?  Or a bumper-sticker?)

 Make a complaint with the Office of Disciplinary Counsel.  Why?  Because the lawyers will have to respond. Which is a PITA.  Also file complaint with AG Consumer Protection for the State.  And even the City of Columbus. Responding to complaints takes time and is no fun for professionals.

Zhang 小姐

You get the permits, for a host of reasons.  Join a Meetup group for Westchester.  The Members will be able to give you good local advice.

Good luck!

Bruce

Hi, Massiel.

The best place to start is by joining a Meetup group which focuses upon NYC.  There are several.  They meet virtually or in person.  For that kind of local color, you need Meetup.

Best

Bruce Kowal

 Shrey, you should definitely check out various Meetup groups which focus on NYC.  BP is wonderful for quick answers to thorny questions, but for local color, you need to be with Meetup

Best,

Bruce

 Vladislava

There is a Meetup Group called Real Estate Investors of New Jersey, as well as several other similar groups.  That's where you get to speak with people directly.

Good luck!

Bruce

People commingle all the time. It's the way things are starting out. It becomes a problem if your business account is separate entity, such as an LLC or a corporation. Otherwise, keep receipts, go through your bank statements with a highlighter, and log the expenses on a spreadsheet. Now you're "Good to go".

 Glad to help out.  How about a Vote?

Twelve months would be in the ballpark.  A PLR is not a casual matter.   It better be factual.  There is a procedure to expedite the PLR:   Expedited Handling of Letter Ruling Requests .  I did one of these some time ago.  Figure on a minimum of 30 to 40 hours of time charged by your CPA.  It will cost you not less than $15,000.