All Forum Posts by: Eric Williams

 Make sure you establish rental rates consistent with comparable arms-length rates.

 This isn't true.

The first step is to segregate long-term and short-term capitals gains and losses in determining the final net position.

You could still qualify for exclusion but it will be reduced for nonqualified use (rental).

 You don't have NIIT on the sale of a personal residence under 121.

This isn't a disregarded entity as there is more than one member. Disregarded entities refer to single member LLC's.

You basically have a partnership filing requirement. 

Any 121 exclusion you are entitled to is reduced for nonqualified use during the 5 year period prior to transfer/exchange to the LLC.

You have a short term capital gain and possible recapture amounts.

Yeah this seems to have been botched.

 Construction accounting is definitely unique and more challenging that some others, namely with concepts such as capitalized interest for tax purposes in 263A, various accounting methods such as completed contract or percentage of completion as well as eligibility requirements.

Find someone who specializes in this area because it can definitely get complex quick. Not just any bookkeeper will do.

Asset partitioning may be thought of as two types - affirmative and defensive.

In defensive asset partitioning, the personal assets of the firm owners are shielded from the creditors of the firm.

This is generally the type sought in real estate.

Commingling of funds involves basically mixing funds belonging to one party with those belonging to another. This can prevent concerned parties from distinguishing where the entity ends and where the owners begin.

If this line is either nonexistent or blurred to a significant extent, creditors may seek to establish there is a single entity for liability purposes. In essence, this would allow creditors to "pierce the veil" and seek recourse beyond business assets to owners' personal assets.

The creditors may be able to establish that the organization is merely an alter ego of the owners.

This may be demonstrated by making personal purchases with business assets.

Making personal purchases from business accounts such as education expenses or daycare.

Receiving deposits to owners SSN instead of the business EIN.

Lack of documentation such as 1099-NEC's for amounts paid to contractors by entity.

Thinly capitalized organizations.

Lack of formal proceedings for some types, such as minutes from meetings or officer selection if a corporation.

Personally guaranteeing otherwise nonrecourse loans.

Paying personal and business expenses from one account.

State laws are generally the relevant guidance in establishing the condition that allow for a disregarding of the division between business and personal assets, much of which can be gleaned from case law.

In essence, avoid the commingling of funds. If there is a commingling, establish evidence there is consistent and reasonable correction made within a reasonable amount of time.

 Honestly a CPA may be completely worthless depending on their area of activity. For example a CPA may have zero tax background-someone who audits pension plans is pretty much useless to you despite having a CPA.

I wouldn't focus so much on the designation as much as the ability. Judge a tree by the fruit it bears.

Some of the best accountants I've ever worked with weren't CPA's or EA's. A designation's purpose really is to establish some base level of competency in the marketplace. But as for something as specialized as real estate, it really doesn't guarantee anything.

The LLC won't protect you if they make you the primary obligor personally.

There's nothing wrong with opening an LLC and practicing what needs to be done to maintain the liability shield.

At the individual tax level the LLC is disregarded.

As for liability protection, it's not a given. I suggest reading up on piercing the veil in your state and learn how other people have lost their liability protection.

Often times it's acting in a way that presents an alter ego, which means basically on paper you have two entities, but in dealings with others, there is only one.

In real estate there are plenty transfers with a promise to repay later.

However, to take an interest deduction under the IRC, it would be wise to remember that all deductions are created by the will of Congress. They expand and contract over time.

The key is that deductions are an allowance, meaning that we are allowed to deduct them only when we have met the conditions as provided in various authoritative sources.

163(a) provides our allowance for interest deduction for all amounts paid or accrued in the tax year on indebtedness.

The four basic requirements are:

1) It must constitute interest for tax purposes

2) The amount must be paid or accrued in the tax year

3) It must be paid on valid, existing indebtedness

4) The indebtedness must belong to the one seeking the deduction

Case law has defined interest as the amounts paid for the use, forbearance, or detention of money.

Paid or accrued refers to the method of accounting. Paid means there needs to be an actual cash outflow to claim a deduction, generally. Further, there are substantiation requirements that left undone have unraveled many debts and their benefits. Document!

A valid existing indebtedness is one that is an unconditional, existing, legally enforceable obligation to pay a fixed sum of principal. No valid indebtedness, no deduction.

The existence of a valid debt at the state level is generally respected at the Federal level per Bosch.

Following these won't guarantee anything but they increase the value of transactions simply by increasing the chance the benefits will be obtained.