All Forum Posts by: Bruce D. Kowal

Good points, Dan.  

Quote from @Jonathan Small:

I own 30-40 LTR. mostly SFH. My wife and I have a W2 job. rentals are split between 3 LLCs. We usually have 2-5 properties a year that we buy or sale. I pay one CPA about $5k yr. I pay an accountant about $2k yr. I also hire one of the big national 20 CPA firms to review returns every 2-3 years. That cost me about $1,000 each time. I do this for piece of mind and redundancy. Return is about 210 pages. Accountant is more for double checking return and having in depth conversations about taxes and business. I think my fees are high until I shop around and then I am thankful. Other CPAs and firms have quoted me 5k-10k+ but are no where near as responsive and personable as my current CPA and accountant.

You are going about this properly.  Having a review is a good idea.  Always keep in mind that you won't blink to pay $2,000 for a new tires on your SUV.  As with most things in life, you get what you pay for.

The best way to learn this is by reading a Tax Court case.  Try this one: Birdsong v. Commissioner

You really need to see how this operates in the real world, and with a Tax Court Judge looking at all the facts & circumstances.  There are a lot of such cases.  This one is very clear.  And, frankly, all these cases are kind of fun to read.

*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

Lots of question, all the time, about finding a QI for your §1031 exchange.  It  can't be stressed enough how crucial your Qualified Intermediary (QI) selection is in a §1031 exchange. Let's talk about protecting your hard-earned equity.

The most critical aspect of QI selection is SECURITY OF FUNDS 🔒

Here's why:

Your QI holds your exchange proceeds during the exchange period

These funds are NOT protected by FDIC insurance

QIs are largely unregulated in most states

If your QI goes bankrupt, you could lose everything

Key Protection Steps:

Verify FIDELITY BONDING 🏦

Ask for proof of current fidelity bond coverage

Confirm the coverage amount exceeds your exchange proceeds

Request verification directly from the bonding company

Check FINANCIAL CONTROLS ⚖️

Segregated accounts for each exchanger

Dual controls on fund movements

Written procedures for fund handling

Treasury Regulations §1.1031(k)-1(g)(4) outlines QI requirements but doesn't mandate specific security measures. This is why YOUR due diligence is essential.

RED FLAGS 🚩

QI offers to pay high interest rates on exchange funds

Pressure to sign documents without review

Reluctance to provide banking/security documentation

No physical office location

Limited staff availability

PRO TIP: The Federation of Exchange Accommodators (FEA) maintains membership requirements including bonding and insurance. While membership doesn't guarantee safety, it's a good starting point.

COST VS. SECURITY TRADE-OFF 💰

Don't choose a QI based solely on fees. Lower fees might mean:

Reduced security measures

Commingled accounts

Limited insurance coverage

Understaffed operations

Remember: Your entire gain deferral under §1031 depends on proper execution. A QI failure could trigger immediate recognition of all gain, plus potential penalties and interest.

#1031Exchange #RealEstateInvesting #TaxStrategy #WealthBuilding #InvestorEducation #DueDiligence #RealEstateSuccess #PassiveIncome #InvestorLife #CommercialRealEstate

Terrific article by WSJ writers about what retirement actually looks like if you are managing rental real estate.  There may be a paywall here, if so, contact me and I will send you a PDF copy of the article.

https://www.wsj.com/personal-finance/real-estate-landlord-in...

More on this:  How Delaware Statutory Trust Ownership Structure Work

Your CPA's took a "short cut"  They included the 2022 depreciation along with the 2023.  So you can't go back and take the 2022 depreciation again.  In other words, if the annual depreciation were $10,000, they amended the return by reporting $20,000 of depreciation for 2023.  You have your refund of $7k.  

As for the Cost Seg studies, did you really give those to your CPA's in advance of the 2022 tax returns?  Did you make them aware of the nature of those studies?

I don't know how anyone can prepare a real estate tax return without some consideration give to the actual cost of the structures themselves. What kind of dox did you give? A full rental P&L such as seen on Schedule E? DST's are complicated. What was reported to you? Are you one of several investors?

How to report Delaware Statutory Trust Income

You know what?  Leave it alone.  And next year, make sure you and CPA"s and the administrator of the Trust are all on the same page.

The IRS in its Passive Activity Loss Audit Technique Guide published a sample Activity Log.  Page 4-16.   [The copy/paste here is not the best.  But you get the idea, and, hey, it's the IRS own format!]

Date

Hours Spent

Description of Service Performed. Be as specific as possible. By each service, enter H or W for husband or wife.

If requested, how could activity be verified?

Exhibit 4.4: Activity Log Business/Property:__________________ Year:____________ Complete the following by day:

________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________

Under penalties of perjury, I declare that I have examined the information contained on this worksheet, including attached worksheets and statements, and to the best of my knowledge and belief, it is true, correct and complete.

__________________________________ ___________________ Signatures (both spouses, if married) Date

Reg. § 1.469-5T(f)(4) provides that reasonable means for proving hours may include a statement of services performed AND approximate hours based on appointment books, calendars, etc. To meet his burden of proof under IRC 7491, the taxpayer must comply with the recordkeeping requirements of the regulations.

Ahhh, I see.  You want free and accurate tax advice from complete stranger on the internet.  :)

Quote from @Michael Plaks:

Quote from @Laura Kreinbring:

What do you think about what the platform professionals told me:

So you use experts from one free forum to validate the expert from another free forum?
He is correct.

 Agree.  I can't imagine a divorce attorney, as an example, simply giving away free advice to complete strangers.  Especially based upon incomplete facts.  If you want professional, solid tax advice, you need to pay for it.  Otherwise, you know, you get what you paid for.  Which tempts me to tell everyone to put their real estate into S Corps, because you might save on the Health Insurance portion of SS taxes.  :)