All Forum Posts by: E.J. McCaffrey

No matter what kind of investing you choose, you should start with a strong asset protection plan. This will help shield you from legal issues related to your investments and protect your assets if you're ever sued personally. A solid plan can reduce the risk of lawsuits, increase the chances of settling disputes, and keep creditors from easily accessing your assets. In fact, a well-designed asset protection plan can make it extremely difficult for creditors to reach your assets by placing them out of their direct reach.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Congrats on starting your journey in real estate investing! Once you find your first property, it's important to have a solid asset protection plan. This will help protect you if any legal issues come up with the property and also safeguard your investment if you face a personal lawsuit. A good plan can lower the risk of lawsuits (especially frivilous ones) and improve the chances of reaching a settlement should one arise.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

I agree with the others that choosing the right business structure for you and your brother is very important. No matter what kind of investments you make, it's essential to keep your personal and business assets separate. This protects you in case of a lawsuit and keeps your finances safe.

If you plan to focus on flipping houses, be aware of the IRS "Dealer Status." This means the IRS sees your real estate as inventory rather than an investment.

Avoiding dealer status is important because it takes away key benefits like 1031 exchanges, installment sales, long-term capital gains tax rates, and depreciation deductions. Plus, real estate dealers must pay self-employment tax on rental income. 

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Congratulations on starting your real estate investment journey! 

No matter what type of investments you make, it’s important to keep your personal and business assets separate. This helps protect you if a lawsuit ever happens and keeps your finances secure.

Take the time to figure out the best setup for your situation. The right structure, whether it's an LLC, a trust, or something else, depends on your goals, risk level, and tax situation. Setting things up the right way from the start can save you trouble later and help you grow your investments safely.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Since the property was originally purchased through a 1031 exchange, to be eligible for the Section 121 exclusion,  you must have owned and lived in the property for at least two out of the last five years as your primary residence. Since you moved in around mid-2023, you will have met the two-year residency requirement by mid-2025.  Additionally, the IRS has a five-year ownership rule for properties acquired through a 1031 exchange, meaning you must own the property for at least five years before you can take advantage of the capital gains exclusion. Since you bought the property in 2020, you will meet this requirement sometime in 2025, depending on the exact purchase date. Therefore, if you wait until the five yearmark before selling, you should qualify for the Section 121 exclusion.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, or financial advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

A 1031 is potentially a good option, but you may want to compare that to some other options that allow you to access your equity, defer taxes, or reinvest in real estate. One option would be a cash-out refinance, whereby you refinance the property and take tax-free cash to reinvest. This allows you to keep the property, benefit from appreciation, and avoid the strict 1031 timelines. However, it does increase your mortgage payment, so it works best if rental income can cover it. Another option is a HELOC, which lets you borrow only what you need rather than taking a lump sum. This is a flexible way to fund another property purchase but may come with higher interest rates.

If you’re determined to sell, doing so via an installment sale (seller financing) allows the buyer to pay in installments, spreading out capital gains taxes over time while providing you with passive income through interest. This strategy works well if you’re selling to an investor who prefers owner financing. Finally, if the gain is relatively small, simply selling and paying the taxes may be a practical choice. While you won’t defer taxes, you’ll have cash available to reinvest in things other than real estate.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

I agree that investing with a QRP is a powerful wealth-building strategy. However, anyone considering it must understand the critical rules and restrictions, particularly those related to prohibited transactions and self-dealing. Unfortunately, I’ve seen many clients who failed to educate themselves properly, ultimately causing their QRP to be disqualified.

The information provided is for educational and informational purposes only and does not constitute legal, tax, or financial advice. No attorney-client, fiduciary, or professional relationship is established through this communication

Something to keep in mind: If you plan to do more house flips in the future, you should structure them carefully to avoid being labeled as a "dealer" by the IRS. A real estate dealer is someone whose flips are considered business inventory rather than investments. This classification can take away key benefits like 1031 exchanges, installment sales, lower long-term capital gains tax rates, and depreciation deductions. Plus, dealers must pay a 15.3% self-employment tax on rental income.

The information provided is for educational and informational purposes only and does not constitute legal, tax, or financial advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Hello, everyone! My name is E.J., and I’m a Senior Attorney at Anderson Business Advisors. Our team of legal and tax professionals specializes in helping clients structure their real estate and other investments to reduce liability and maximize tax benefits. Feel free to reach out with any questions - I’m happy to connect with you!

https://andersonadvisors.com