All Forum Posts by: Account Closed

You're right, but in a mixed portfolio with a free and clear and several leveraged properties, it could happen.

Basically, passive activity losses are losses you experience from any income source that you do not materially participate (i.e. rental property usually qualifies).

You can deduct these losses against other passive income and sometimes against ordinary income if you meet certain requirements. Whatever losses you can not "use up" in one year are allowed to be "Carried forward" until you can use them or until you dispose of the asset.

Lets say Billy owns a rental property. This is his only source of passive income. However, after depreciation, mortgage interest, repairs, etc he shows a loss every year of $5,000. Since he has no other passive income, he can "carry forward" the $5,000 loss until he does have passive income to use it. When it comes time to sell the property, he can use all of the passive activity loss he's carried forward to net against the capital gain.

Hopefully you have been carrying forward all of the unused passive activity losses to use against the depreciation recapture when you sell the asset.

The tax rate is the easy part.

Determining taxable income is the hard part. Everyone focuses on RATE but by the time you get there, you've done the hard part, which is establishing your taxable income.

You have two options: 1. Take actual expenses (lease payments, fuel, etc). If you use this amount in year 1, you must continue throughout the remainder of the lease. or

2. Take the predetermined IRS mileage rate.

Both of these will be allocated depending on your personal/business usage percentages.

One thing no one has mentioned is something called the Lease Inclusion amount. There is a limit (I believe it's around $18,000) where if the vehicle is over this market value, then the lease expense starts getting prorated. This was designed to keep people from leasing luxury cars through their businesses to avoid the luxury vehicle tax limitations.

IMO, if you are driving a ton of miles a year, you are simply destroying the value of the vehicle. You might as well buy a vehicle 2-3 years old and let someone else take the first year depreciation hit. You could claim Section 179 expense on this purchase and take the purchase price as a deduction in year 1 (assuming you have a positive net income). A passenger vehicle like a camry will have a limit, I believe around $11k, and with a vehicle over 6000 lbs such as a heavy duty truck, you will be able to take the entire amount in year one. (up to your net income).

I've been looking at a few properties in my area, and it seems the deals that only need cosmetic work move quickly, however the full gut rehab deals tend to linger a lot longer and I'm sure are selling for much much less.

My question to the experienced rehabbers is this: Do you prefer what would be considered a full-gut rehab or a cosmetic rehab better?

To me the pros of the full gut would be less competition, DEEPLY discounted prices, and really being able to see everything (you know plumbing or electrical is done right when it's down to the studs, etc).

The cons obviously are rehab costs are much higher, but if the numbers workout, you could probably create more profit spread if you tailor this to your retail buyer demand in your market.

The cosmetic rehabs would obviously be faster to complete the rehab, cheaper, but I would think you'd likely pay more for the property. You also have the unknown element of what things really look like behind those walls.

So which do you prefer? Full Gut or light cosmetic? Maybe right in the middle?

That's what I was thinking. If I was selling, I'd be concerned that I kicked out a tennant and then the buyer i did this for can't close...

Everyone,

I've got my first deal on the radar. It's a duplex with both sides currently rented out. One side has a leased signed until 12/31/11. The other side has the tenant on a month-to-month lease.

This being my first deal, I really want to buy the property and occupy one side and rent the other. I would like to do this with the standard FHA financing. Is it ok to purchase the property under the terms that I close when the month-to-month tenant leaves? How hard do you think it would be to convince the seller to not renew the MTM lease so I can occupy one side and get FHA financing?

Is this ethical and legal?

What are your thoughts?

Just curios here, but are you going to come out ahead by doing this? Student loan interest rates are typically low, the interest paid is an "above the line" tax deduction (can take even without itemizing), after refi costs, appraisals, etc...

With the Passive Activity Loss limitations, you may not even reap any additional tax benefits for paying additional interest on the new, larger refi'd mortgages in your rental business.

Just a thought. I'd run the numbers before I cashed out most of my equity.

Everyone,

I'm seriously considering my first real estate deal in my journey. There is a duplex in town that is in a great area and needs a little bit of work. The numbers all work out.

My question is this, I am getting married in a year to a year and a half. I am planning on buying this property now, living in one side and renting the other until I get married. Then I will rent both sides out and my wife and I will purchase our own SFH.

I am currently employed as an accountant at a CPA firm and don't plan on that changing. I'm a little concerned that my DTI will be too high with the duplex to allow financing for our own SFH. Would I be better off starting off renting both sides (to let the rental income of both sides hit the tax return) and just rent something to live in myself until I'm married?

What do you all think?