All Forum Posts by: Bruce D. Kowal

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.

One nice thing about New York.  There is no special rate for capital gains. [sarc] It's all ordinary income.  The taxable gain from the rented portion as follows:  one-half the original cost of whole house.  Add improvements made to the rental portion.  That is your tax "basis". The taxable gain is 1/2 the proceeds from sale, less 1/2 selling expenses, add depreciation recapture.  That's the ballpark taxable gain.  Apply federal cap gain rate AND the NYS ordinary income rate.  Your accountant can pro-forma this for 2022 easily using his tax software.  All tax programs have that ability.  Pay the tax with estimated tax payments on June 15, or Sept 15.  In this way there will be no surprises twelve months from now.  Very smart that you are thinking about this now, rather than panic next year.

The terms used should be clearer.  I assume the Poster is talking about a capital gain from a passive activity.  And the losses referred to are Ordinary Losses from a passive activity.  And there are two K-1's reporting on properties in the same State.  One Passive Activity K-1 reports a capital gain, and the other Passive Activity K-1 reports an Ordinary Loss.  Is that correct?  

In any event, the tax software should have allowed the loss.  It sounds as if it's a State taxation issue.  States can decouple as much as they want from IRS rules.  Ask the Tax Partner to explain.

For tax purposes, both material participation and use of your automobile for business purposes, you really should have a daily log.  Today marks tax filing day for 2021 tax returns. Buy a notebook and start keeping track of time and mileage.  DO IT NOW.

Nice article in today's WSJ about US Treasury I- bonds, soon to yield 9%.  Maximum is $10,000, but if bought with a tax refund can add another $15,000.  Not bad for a govt guaranteed interest payment.

Could be a paywall . . .

https://www.wsj.com/articles/h...

Your CPA's remarks are not entirely out of line. Yes, you can reduce your SE taxes by amounts contributed to your SEP IRA.

But, here's the thing: you are a young woman. You want to build wealth through the purchase of residential real estate. When you put money in an IRA, it is locked up until your are 59 1/2.

Now, that is a LONG WAY off!  

In the meantime, that money could have been used to fund down payments on new properties.  You are literally shooting yourself in the foot, hobbling your pursuit of real estate wealth.  If you were in any other profession, it would make sense.  

Is your goal to retire on the cash flow from rental properties, or from withdrawals out of your IRA at age 60+?

A possible alternative, if you love real estate, is to put the money in the SEP IRA, and buy REIT ETF's. They do very well with no management.

Best REIT ETF's for Q2 2022

Now, you know . . .