All Forum Posts by: Daniel Foster

Thanks for the responses.  Maybe a little further clarification on my end will help.  We bought this property 4 years ago and it has been a rental since.  When the tenant moved out we decided that the appreciation that we had seen was too good to pass up.  The renovation expense I am referring to in my post is the post tenant move out retail renovation.  Therefore I am not worried about depreciating the renovation.  It would qualify for long term capital gains, I am just trying to figure out if there is a way to capture the  renovation expenses as a normal loss as opposed to a reduction in capital gains.  Clear as mud I'm sure . .. 

Below is a question I have asked my accountant, but haven't really been able to get an answer that I can comprehend. Generally I am trying to understand whether it makes sense to capture renovation costs at the sale of a property, to reduce long term capital gains taxes or if it makes sense to allow the expenses to fall to detriment of the bottom line of the profitability of the LLC I hold my properties in. In theory this should reduce my taxable income at my marginal tax rate, which is higher than my capital gains tax rate. Logically reducing my normal income seems to be the obvious choice, but it can't be that simple, can it?

I have some questions on how best to handle our renovation expenses as it relates to selling some houses that we have had in our portfolio for a few years. We have discussed with our 1031 guys and they explained that if we account for all of the renovation expenses for a rental house that we are renovating (specifically as improvements necessary) to sell retail, we can make them part of the 1031 exchange. The expenses would be accounted for at the sale closing. This would allow us to hold back part of the gain to pay off the reno debt and avoid paying Capital Gains Taxes by using the 1031 exchange with the remaining proceeds.

For Example.

Sales Price $200,000

Reno Cost $ 20,000

Cost Basis $100,000

Net Sale $ 80,000

We would then roll the $80,000 into the (1031) purchase of another building and keep the $20,000 to pay back a Line of Credit. This would avoid paying 15% capital gains on $100,000, but still allow us to retain some of the sales to pay off the renovation costs.

Another Example.

Sales Price $200,000

Reno Cost $ 20,000

Cost Basis $100,000

Net Sale $ 80,000

We would then roll the full $100,000 into the 1031 purchase of another building, but would have $20,000 in debt from the renovation. This would avoid paying 15% capital gains on $80,000, but if we then put the $20,000 towards general expense for the property for that year and in theory offsetting our personal income at our marginal tax rate of 30+%

I have negotiated an off market Mobile Home Park in Arkansas. I am looking for a commercial P&S agreement that I can use to get it under contract. Does anyone have one they can send along?

Thanks.

Myself and a partner invest in Memphis, TN and have for the last 5 years or so.  We use property management and have tracked our P&L separately with Excel spreadsheets through 2016.  We partnered up in 2017 and have struggled to maintain adequate accounting now that we have several properties.  Some are mine, some are his and some are combined assets . . . The work to keep all of the lines of credit, credit cards, checking accounts, as well as the income and expenses we receive from our property management, has proven to be a pain.  I am looking for recommendations for Mac compatible software that will help us with this.  We don't need software that will help us management properties, just manage our income and expenses.  Any recommendations are appreciated.

Thanks,

Dan Foster

thanks @Brian Eastman

Thanks for the reply @Brian Eastman, @Justin Windham, and @Carl Fischer. At the end of the day I want to have as much flexibility as prossible while investing my funds in real estate. I do have an LLC set up for my real estate investments currently. I am not necessarily focused on investing putting more in the 401K/IRA, but it would be good to have the option if I choose to down the road. Can I assume that I would have all of the tax advantages associated with real estate in both option?

I am looking for some advice and comparisons between a Self-Directed IRA vs a Solo 401K. I have scanned through the various threads and have a couple of books on order, but could use some advice. I will likely have the option to roll over a 401K in the near future and am considering my alternatives as to what to do with the money that I have saved up over the years. I like the idea of being able to use more of my funds to purchase additional real estate and am very interested in what option these tools would give me. If there is a website with a side by side comparison or pros and cons . . . . Any direction would certainly be appreciated.

Thanks.

I did end up getting a survey.  I have not had any issues with the questioning of property lines, so it really hasn't mattered either way thus far.  We have acquired several properties since and we get a survey each time.  Peace of mind I suppose.

I have been using Brandon Dyles from Picture Perfect home Inspections for the last couple of years.  He does a good job, is responsive and is reasonably priced.

Brandon Dyles

Home Inspector

Picture Perfect Home Inspections

Thanks for the feedback @Douglas Skipworth and @Mark Hart!