All Forum Posts by: Jim S.

Great responses in this thread, thank you @Christopher Smith, @Basit Siddiqi, @Eamonn McElroy, and @Lane Kawaoka for the advice!

I'll stop adding to my REIT positions and will hold them for at least a year so I can sell for capital gains. Starting next year I'll likely hire a CPA but for now I've enjoyed being actively involved in filing my taxes so that I am forced to think of these tradeoffs as I get into new asset classes.

If you own rental properties that produce passive losses due to depreciation, can you apply this loss to the pass-through tax from REIT dividends?

I have a growing pile of passive losses that I can't do anything useful with and during COVID I've been having fun investing in a number of REITs on the side (SPG, MAC, STOR, PK, CIO) in addition to expanding my rental portfolio. I am hoping I can offset the high tax burden on the dividends using the passive losses my rentals kick off. If it's not possible, I would likely sell my REITs after I hit one year of ownership and book the gains as capital gains before the dividends start killing my taxes.

Great, thank you for the detailed answer Tom!!

I’m looking to self-close on some cheap $1k vacant desert properties (title companies would cost me as much as the land).

In one case I’m talking to the seller’s husband who has a durable power of attorney. The deed is in her maiden name. They are both elderly so I didn’t inquire why dpoa is setup but presumably for health reasons.

So how should I record the name on the deed & get it notarized? What documents should I record along with the deed?

My thought:

John Smith, DPOA for

Jane Smith aka Jane Doe

And have them sign a piece of paper listing all prior names, and record that along with the dpoa document. Thoughts?

@Ashish Acharya - thanks for the very detailed answer!

3. More Than 100 Hours Test. The taxpayer's participation is more than 100 hours during the year, and no other individual (including nonowners) participates more hours than the taxpayer.

It looks like this point would likely be my best bet for accomplishing what I'm looking for to reach "material participation" within my rental business. 500 hours is still 10 hours a week, given that I want my rentals to be truly passive 100 is much closer to what I expect my real time investment will be since research/acquisition activity appears to be excluded. My properties are spread across multiple property managers, which is due to geography but also works in this scenario to ensure that none of them are working >100 hours on my property.

I've been reading old posts about the "real estate professional" status (of which there are many) but it isn't clear to me if flippers can utilize losses from their rental properties if they don't self-manage their properties (which would help them accrue "material participation" in the rentals).

I currently work a W-2 job and have 17 rental units which generate a decent amount of paper losses each year via depreciation. I am considering moving into either home or land flipping full-time after I hit 40 units of rental property. I'd like to have my rentals help offset the huge tax liability that flipping generates.

The Scenario:

Let's say that I work 2,500 hours per year flipping land and therefore qualify as a RE Professional and make $150k/yr from flipping. I have 100 rental units which generate $100k/year in losses thanks to depreciation. All of the units are out of state and as a result are managed by third party managers, but I have >10% stake and any purchase decisions >$500 are run through me so I have met "active participation" but not "material participation" in the rental business as I spend less than 500 hours on the activity. 

Can I "group" my flipping & rental activities such that I have now "materially participated" in the combined activity, allowing me to utilize the $100k in losses to turn my $150k self-employment income into $50k?

For the record I will certainly hire a CPA when I get near this situation, but for now I'm just trying to wrap my head around my options 2-3 years out. If I can shield a large portion of my income then it would make help make the argument to quit my W-2 job sooner and move into full-time real estate work. Thanks in advance for any replies!

Got it. Thank you guys!

@Ashish Acharya @Michael Plaks Thank you for the answers! Being in CA always makes it feel I work for the government regardless of what job I have/business I start :)

Would this change at all if it were done in a C-corp rather than having it flow into my personal taxes?

Hello tax experts! I'm a buy & hold investor that is looking to get into some small remote flips or wholesaling. Flips in general seem to come with a very high tax burden, especially if you live in HCOL area with a high W-2 income so I'm looking for ways to try to make it a little less painful.

Let's say that I had the capital to seller finance deals rather than selling for cash. This would convert the sale into an "installment sale" in the eyes of the IRS which would spread the gain over the period of the sale.

Theoretical example:

• Purchase price: $10k
• Renovations: $0 (to simplify)
• Sale price: $20k
• Note: 8% over 10 years with 10k down. $10k sale price, $121/mo for 120 months.
• Period between purchase/sale: 6 months

Since the note is over 10 years would the payments beyond year 1 be taxed at capital gains rates or my regular income if this were held in an LLC? If I wanted to do the seller financing route, would it be better to do so in an LLC or a C Corp (assuming high income living in a high income state)?

Overall I plan to hire a CPA/lawyer to help figure this all out before I make a move but before I spend the money on those services I'm just trying to figure out if I can avoid paying ~40-50% of profits in taxes, in which case I probably won't do this strategy at all.

Looking for this same service to hold some land investments.