All Forum Posts by: Bruce D. Kowal

There is a special rule that allows up to $25,000 in losses from real estate, as long as your Adjusted Gross Income is $100,000 or less. You must actively participate.  However, as the IRS says in Pub 925:  "Active participation. Active participation isn’t the same as material participation . . .Active participation is a less stringent standard than material participation. For example, you may be treated as actively participating if you make management decisions in a significant and bona fide sense. Management decisions that count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions."

If you really want to get into this, here is an excellent article: Maximizing the Use of the Special $25,000 Rental Real Estate Loss Allowance

The Rules for Real Estate Professionals do exist, but I am assuming that you qualify for the $25,000 exemption.  However, those REPS rules, should you rise to that level, are discussed here: Real Estate Professionals: Avoiding the Passive Activity Loss Rules.

Which brings me back to my original assessment to keep it simple.  Unless your AGI is > $100k.

In any event, you now have some fun reading this weekend.

There are always a lot of unspoken facts and assumptions in this forum.

I was referring to the issue of tenancy in common and the continuity of title rules of §1031. There was apparently enough interest in TIC ownership NOT being classified as a Partnership, because it might run afoul of §1031 exchange rules, such that it prompted IRS to issue Rev Proc 2022-22 https://www.irs.gov/pub/irs-dr...

And an article on this in an authoritative publication.  Fractional Interests in Property

I don't see many TIC / fractional interests seeking §1031 exchanges. If someone could explain how this operates in the real world, and why it merited its own Rev Proc, that would clear this up.

And in particular, how would this affect the example given by Mr. Schwaegerle?

That sounds about right.  As long as you are making a good faith attempt at a fair allocation, and not shortchanging IRS, what you propose is sound.  That's what I would do.  In essence you have a partnership, and you can allocate P&L however you want, regardless of how much capital you put in.  

Perhaps other commentators here would disagree with me, but what you are proposing would withstand an IRS exam.

Be aware that if you should file a Partnership tax return,  a Form 1065, you will lose the ability to ever do a §1031 exchange.

Good grief!  I used to live in Rowlett in the early 1980's. In those Fox & Jacobs homes east of Dalrock Road.  Those homes are likely good candidates for what you plan to do.  My kids went to Rockwall Schools.  How's the water level on Lake Ray Hubbard?

That sounds about right.  As long as you are making a good faith attempt at a fair allocation, and not shortchanging IRS, what you propose is sound.  That's what I would do.  In essence you have a partnership, and you can allocate P&L however you want, regardless of how much capital you put in.  

Perhaps other commentators here would disagree with me, but what you are proposing would withstand an IRS exam.

Be aware that if you should file a Partnership tax return,  a Form 1065, you will lose the ability to ever do a §1031 exchange.

Keep things simple. Your Consulting work, if you are a Sole Proprietor [or Single Member LLC] will be combined with the rental income/(loss) on your tax return. You are already "enjoying" the benefits. Don't screw it up and make it more complex!

You gotta keep track.  

Sorry.  Get a log book.  

And while you are at it, keep track EVERY FRIGGING DAY of your mileage.  Note the mileage for your business of real estate.  

At year end, it will be worth it.  DO IT NOW, while the year is still young, and you can fill in from Jan 1 to today.  

NOW!

You are on the right track in terms of information you are getting.  You are referring to the Hobby Loss rules, and the 3 out of 5 years.

What a mess!  The overall rule is not to cheat IRS, don't understate income. or overstate deductions.  As long as, on the whole, you are reporting correctly, you are doing the best your can.  Mr Dietz's suggestion solves a lot of the apparent problems, but is more expensive.  Don't lose sleep over it.