All Forum Posts by: Eddie L.

How difficult are your taxes? Did your accountant help you with quarterly estimates? If so, maybe just take the Q3 workpapers and try to roll it over for now layering on just your Q4 income to be conservative. Calculate the amount of extension payment that needs to be made for federal and state purposes then pay that along with your extension. This is the lazy approach but buys you time to find your next trustworthy accountant. Just remember an extension to file the tax returns (federal and state) is not an extension to pay the respective taxes. If you're severely underpaid in taxes and you file for an extension you'll still be subject to penalties and interest.

*Disclosure: Not CPA*

You're probably referring to the passive activity loss limitation. The excess loss is deferred i.e. carried over indefinitely until you have passive income available to utilize it against or you just sell your entire interest in this rental property. Why do you have so much loss anyway? Accelerated depreciation? If you get a second rental and that's producing income you'll be able utilize the excess loss carried over from first rental against the second rental as well.

@Adriana Welborn

Maybe try searching the state website where the LLC was formed. For example https://ecorp.sos.ga.gov/Busin... Just to be sure there's no duplicate name.

@Ashish Acharya any chance you see what is trying to achieve here? I'm just really curious if this is trying to reap some sort of tax benefit. Like why subject yourself to two layers of taxation with the intent of distributing profits too here....

Just noticed there was already a Bigger Pockets article on this. See section "Cashing out of a large real estate gain with minimal taxes" in below linked article.

https://www.biggerpockets.com/...

*Not a CPA*

Sounds like you would be entitled up to $250k/$500k (depending on your status generally just Single Filer/Married Filing Jointly Filer) of the gain from the sale of this condo can be excluded from "income" for tax purposes, given that you've lived in as your primary residence for at least 2 out of 5 years before the date of sale. If your gain was in excess of this exclusion, then that excess would be subject to tax. More details in references below.

References

Internal Revenue Service Publication 523 (2021), Selling Your Home

https://www.irs.gov/publicatio...

Internal Revenue Code Section 121 - Exclusion of gain from sale of principal residence

https://www.law.cornell.edu/us...

@Nicholas Aiola Can you offset the capital gain from sale of Rental Property #1 with the current year passive losses from Rental Property #2? Would Rental Property #2 being purchased before or after the sale of Rental Property #1 still in the same year change the answer? Looking at the IRS Audit Guide the answer seems to be yes?.... maybe?...

Pg 79/154 from IRS Audit Guide:
"Passive losses are generally deductible only to the extent of passive income. However, current and suspended losses are fully deductible if there is a “qualifying disposition.” Under IRC § 469(g), a “qualifying disposition” requires three criteria:
1. Disposition of an entire interest (or substantially all[1])
2. In a fully taxable event (where all gain/loss is realized and recognized).
3. To an unrelated party.
If these three tests are met, losses are fully deductible against non-passive income (unless the taxpayer has basis limitations). Thus, in the year of disposition, losses allocable to the passive activity may offset portfolio and other investment income or may become part of a net operating loss. We have no regulations governing dispositions. Thus, we must look to IRC § 469(g) and legislative history[2] for guidance."

Pg 85/154 from IRS Audit Guide: "Reg. § 1.469-2T(c)(2)(i)(A)(2): Gain on disposition generally is passive income if the activity was a passive activity in the year of disposition"

Pg 84/154 from IRS Audit Guide: "Gain on Form 4797 and Schedule D should first offset losses from the same activity. If any gain remains, it offsets losses from other unrelated passive activities."

References

1. IRC 469(g) - Dispositions of entire interest in passive activity

https://www.law.cornell.edu/us...

2. Internal Revenue Service Passive Activity Loss Audit Technique Guide - Chapter 5 Dispositions - Page 79/154

https://www.irs.gov/pub/irs-ms...

*bump* Would like to know as well! Who's everyone's favourite asset protection firm?

 What was the ~$30k to builder to begin construction? Was it a specific builder? If this was the deposit for them to start building, wouldn't this come out from the loan i.e. lender or you were asked to pay out of pocket for this ~$30k?