All Forum Posts by: Eric Williams

You can but ask about series LLC availability.

So I always hear people talk about cost segs and bonus but no one mentions the ordinary recapture component.

The IRS doesn't like people taking ordinary deductions one year, then selling an item, and getting all capital gain later.

So they created recapture, to match up amounts. This overall function of recapture on 1245 is to ensure that any gain that receives capital gains rates is from APPRECIATION, not depreciation.

They do this by bifurcating the gain. Basically the gain minus previous depreciation, is the gain from appreciation.

The depreciation is given ordinary income treatment at the relevant marginal rate. 

You also have 1250 recapture as well for the 1250 property. Then you get capital gain.

So consider how long you are going to hold the property before cost segging, and consider that bonus is class by class. I don't have to bonus every class. It might be smart to mix some bonus with some straight line and DDB.

But know those ordinary deductions will later have ordinary income and potentially lead to a lower capital gain. And know they come all at once, so you might be in a higher bracket with more ordinary income.

Okay I'm going to say I've never heard that date at all.

Here's 168(k) says

(2)Qualified property For purposes of this subsection—(A)In general The term “qualified property” means property—(i)(I)to which this section applies which has a recovery period of 20 years or less,(II)which is computer software (as defined in section 167(f)(1)(B)) for which a deduction is allowable under section 167(a) 

(ii)the original use of which begins with the taxpayer or the acquisition of which by the taxpayer meets the requirements of clause (ii) of subparagraph (E), and(iii)which is placed in service by the taxpayer before January 1, 2027.

This is from the IRS website:

IRS finalizes regulations for 100 percent bonus depreciation | Internal Revenue Service


The deduction applies to qualifying property (including used property) acquired and placed in service after September 27, 2017.

So in summary if you only have a rental property at 27.5 on the PPE assets, no bonus. Cost seg, then maybe. Should you on a SFH? I dunno maybe but keep in mind bonus could get suspended. I mean you know when you bonus you have ordinary recapture and the potential for a lower basis quicker leading to bigger gains on disposal. Straight line is slower but it also doesn't reduce my basis as much if I plan on getting out within a certain time.

 No.

These are called investigative expenses, and are capitalized under 195. They are the amount incurred during the period you decide whether to enter a business, and which business to enter.

Once you decide on the property and move forward, then you generally capitalize the transaction costs and start up under 263 and 195 (possibly others depending on type of business).

Also it needs to be deductible if someone else was doing it. Meals and travel have special rules for deducting and especially for record keeping.

You cannot never deduct a trade or business items unless there is the carrying on of a trade or business.

If you capitalize and it falls through, you write off as a loss related to a transaction entered into profit for 165.

195

(1)Start-up expendituresThe term “start-up expenditure” means any amount—(A)paid or incurred in connection with—(i)investigating the creation or acquisition of an active trade or business, or

(B)which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred.

165

c)Limitation on losses of individualsIn the case of an individual, the deduction under subsection (a) shall be limited to—(1)losses incurred in a trade or business;(2)losses incurred in any transaction entered into for profit, though not connected with a trade or business; and

 Not sure about TPT but as for city and state you can google something like "AZ filing thresholds."

Nexus comes in many forms, including physical presence, attribution, amount of money made, etc.

Find out specifically what the filing threshold is for your type of operation, individual, business, corporation, etc. Depending on the size you may have estimated amounts or not. 

Bookkeeping is cheaper than a CPA, I've seen around 70 an hour. It's nice for the CPA when the bookkeeper is a good one and in house. They can work together much better. Get it right the first time or someone will charge you plenty to fix it. Try to find a firm with both in house.

As for the 1,000 that's cheap dude. Like real cheap. Like even as a senior I billed 285/hour. And the manager at 350 and the partner at 460 still had to bill.

Also consider there is a difference between sales/use and income, property, etc. I don't know what taxes you pay monthly for but get a good CPA because they may have missed some others like income at the state and city level.

Looks like rates vary by city.

Although commonly referred to as a sales tax, the Arizona transaction privilege tax (TPT) is actually a tax on a vendor for the privilege of doing business in the state. Various business activities are subject to transaction privilege tax and must be licensed.

If a business is selling a product or engaging in a service subject to TPT, a license from the Arizona Department of Revenue (ADOR) would likely be needed as well as a transaction privilege tax or business/occupational license from the city or cities in which the business is based and/or operates.

ADOR collects the tax for the counties and cities; however, tax rates vary depending on the type of business activity, the city and the county.

 Not necessarily.

Tax treatment will always depend on how the item is intended to be used in the hands of the taxpayer, specifically the intent at time of transfer. A dealer, investor, and broker are all treated differently even if acquiring the same item.

A dealer might capitalize a lot more amounts to the property, not depreciate, and only recover amounts upon disposal.

She can capitalize and deduct up to 5k (my response in thread) because of de minimis rules of debt acquisition an individual would not and capitalize to the property.

A loan for an S Corporation needs to be made directly to the S Corporation to receive basis. Guarantees will only add to shareholder basis AFTER payment if guaranteed. 

If it was not guaranteed the item would be nonrecourse debt with special allocation rules for partnerships under 752.

By guarantee it turns it from nonrecourse to recourse for at risk of 465 increasing chance of deduction (I rarely see tracked).

Definitely can be a difference of deductibility, especially in timing.

Okay here is your answer:

So I think it should be capitalized on the basis of the source of the claim doctrine. Basically when you ask if you capitalize or deduct, you look to the source of origin.

This falls under 1.263-5 and 1.446-1

Basically you would capitalize the amounts, amortize over the life of the loan, then ask if you can deduct under de minimis, and if so, capitalize and write off.

You can do that for a lot of other amounts. Some people capitalize amounts to the property. I would capitalize to the loan and all facilitative amounts, and if under 5k, deduct immediately. I show the loan on the depreciation landscape (capitalize) as evidence for my doing so.

Basis:

§ 1.446-5 Debt issuance costs.

(a) In general. This section provides rules for allocating debt issuance costs over the term of the debt. For purposes of this section, the term debt issuance costs means those transaction costs incurred by an issuer of debt (that is, a borrower) that are required to be capitalized under § 1.263(a)–5. If these costs are otherwise deductible, they are deductible by the issuer over the term of the debt as determined under paragraph (b) of this section.

§ 1.263(a)-5 Amounts paid or incurred to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions.

(9) A borrowing. For purposes of this section, a borrowing means any issuance of debt, including an issuance of debt in an acquisition of capital or in a recapitalization. A borrowing also includes debt issued in a debt for debt exchange under § 1.1001–3.

(3) De minimis costs—(i) In general. The term de minimis costs means amounts (other than employee compensation and overhead) paid in the process of investigating or otherwise pursuing a transaction described in paragraph (a) of this section if, in the aggregate, the amounts do not exceed $5,000 (or such greater amount as may be set forth in published guidance). If the amounts exceed $5,000 (or such greater amount as may be set forth in published guidance), none of the amounts are de minimis costs within the meaning of this paragraph (d)(3). For purposes of this paragraph (d)(3), an amount paid in the form of property is valued at its fair market value at the time of the payment.

(ii) A debt instrument, deposit, stripped bond, stripped coupon (including a servicing right treated for federal income tax purposes as a stripped coupon), regular interest in a REMIC or FASIT, or any other intangible treated as debt for federal income tax purposes.

It's better instead to realize there are two tax systems in the United States.

One for the educated.

And one for everyone else.

There are very few actual tax loopholes, which are often remedied with technical corrections and temporary regulations.

There are creative people, but if you know about it trust me it's not a loophole. 

Don't get caught up in gimmicks. 

Understand taxes are a part of every transaction and create friction by introducing additional concerns.

Tax planning stems from there being a lack of neutrality in the tax system.

Anytime there is an alternative treatment of a transaction across taxpayers, tax rates, tax character, timing, jurisdiction, etc., you have a planning opportunity.

Practice manipulating key variables to create alternatives - generally in one of three ways, shifting across periods, shifting across taxpayers, or converting the character.

No one actually uses the word loophole in accounting.

For example, what the hell is a STR loophole?

It doesn't sound clever.

It's a carveout, or an exception to a general rule, of which there are 5 more to the per se passive rules.

That's how to Code is structured. A general rule, followed by exceptions and carveouts.

The idea is that if I rent things out for under on average 7 days, there's likely significant personal services involved to prepare the property for the next guest, repeatedly. We're getting away from passive participation as is with residential rental, where the tenant is the one cleaning the home every day because they live there all year.

That's not a loophole that's just consistent with the intent of the law.

 You will have recapture if you take depreciation.

From Sec 121

(6)Recognition of gain attributable to depreciation

Subsection (a) shall not apply to so much of the gain from the sale of any property as does not exceed the portion of the depreciation adjustments (as defined in section 1250(b)(3)) attributable to periods after May 6, 1997, in respect of such property.

Also you will further have to allocate some of gain for periods of nonqualified use which also reduces the exclusion amount.

Also from 121.

(B)Gain allocated to periods of nonqualified use For purposes of subparagraph (A), gain shall be allocated to periods of nonqualified use based on the ratio which—(i)the aggregate periods of nonqualified use during the period such property was owned by the taxpayer, bears to(ii)the period such property was owned by the taxpayer.(C)Period of nonqualified useFor purposes of this paragraph—(i)In general

The term “period of nonqualified use” means any period (other than the portion of any period preceding January 1, 2009) during which the property is not used as the principal residence of the taxpayer or the taxpayer’s spouse or former spouse.

 I disagree. The issue isn't whatever forever business property even means.

The issue is was it your primary residence during that time?

From 121 and the regs thereunder:

(5)Exclusion of gain allocated to nonqualified use(A)In general

Subsection (a) shall not apply to so much of the gain from the sale or exchange of property as is allocated to periods of nonqualified use.

(i)In general

The term “period of nonqualified use” means any period (other than the portion of any period preceding January 1, 2009) during which the property is not used as the principal residence of the taxpayer or the taxpayer’s spouse or former spouse.

se of the property, relevant factors in determining a taxpayer's principal residence, include, but are not limited to—

(i) The taxpayer's place of employment;

(ii) The principal place of abode of the taxpayer's family members;

(iii) The address listed on the taxpayer's federal and state tax returns, driver's license, automobile registration, and voter registration card;

(iv) The taxpayer's mailing address for bills and correspondence;

(v) The location of the taxpayer's banks; and

(vi) The location of religious organizations and recreational clubs with which the taxpayer is affiliated.

https://www.law.cornell.edu/cfr/text/26/1.121-1

https://www.law.cornell.edu/uscode/text/26/121