All Forum Posts by: Drew Whitson

I hold various amounts of ownership in four LLC's each which hold multiple real estate assets. One is 100% ownership, then 50%, 1/3rd, and 1/8th - as each deal comes along it gets put into one of these LLCs depending on the investment group. My question is around what is the best way to allocate personal expenses which occur in the LLC's I do not own 100%.

For example, when I flew from MSP to SEA to look at several deals I closed on with my business partner in my 50% LLC, I incurred deductible airline expense. My business partner lives in SEA should not have to share this expense equally. Historically I have just pushed these types of expenses into my 100% LLC.

Is there a better/correct way to do this? I was considering the idea of keeping any expenses incurred (travel, miles driven, even a % of my home office deduction) out of all of the LLCs and reflecting these in my tax return under a real estate sole proprietorship business with no rent/income (the expenses for the 100% ownership LLC would of course still be reflected in that return).

Doing this would create a more profitable return for the 100% LLC which would provide a higher DSCR to comply with my lenders requirements; however, the net impact to the IRS would still be the same on the final 1040.

Thanks everyone, I was able to read the IRS Publication and get most of my questions answered. Since the vehicle I intended to purchase is not new, there are meaningful limitations on how much can be deducted.

Thanks Chris! I've been using the app called "EZ Tripper" which also allows for notes with each trip and can be exported to Excel.

Follow up question for you: when you have fully depreciated your vehicles, have you done a 1031 exchange into your next business vehicle to avoid the depreciation recapture on the sale?

Cost Segregation can also be referred to as a Cost Allocation. You can have a "Cost Allocation Study" done on a property your purchase - typically the cost may not be worth it on a condo or single family home, but a multi-unit property having the accelerated deprecation can have a lot of tax benefits.

Plus, a cost allocation study also limits your deprecation recapture liability when the property is sold.

My wife and I have an LLC which holds a small portfolio of single family homes. I am considering purchasing a vehicle to be titled in the LLC. My thinking is that the deprecation + gas + insurance + maintenance is, in total, much larger of a tax shield than simply taking the standard mileage deduction, at least for the number of miles I drive.

My questions are: How do I treat personal miles driven? Also, are there a minimum number of miles I must use the car? Could I use it for exclusive purpose of the business an only put on 1,000 miles? There are easy simple iPhone apps that can make business/personal miles easy to track. I would assume personal miles create a tax liability by mile driven based on the standard rate.

What is the standard deprecation schedule for a vehicle in an LLC? I believe it is 5 years but am not sure if it is treated as a straight line schedule, meaning 20% per year. Finally, do any vehicle maintenance costs need to be capitalized? Tires, for example, have a useful life more than one year; however, this may be over-thinking it.

Even after depreciation, my rental business is creating a lot of taxable gains so I'm trying find reasonable ways to lower my taxable income and owning a vehicle is one of those strategies.

Thanks for you help fellow BP-ers!!

If you are using secondary markets, you may not be able to get a motgage if the property is held in an LLC. I am currently refinancing two rental properties which are held in an LLC - in order to refinance, I must move them into my name and after the refiance, move them back into the LLC. Something to consider depending on how you finance.

I have a friend who makes good money who is in the process of purchasing a second home and turning his current house into a rental. He was told new rules went into place on Jan 1 of this year which would make it very difficult, if not impossible, for him to get a new loan. Has anyone heard of some recent changes with conventional lenders? Thanks

Thank you everyone for your responses!

I recently purchased a useful tool for use in the care of my five single family homes. Clearly the useful life of this tool requires me to expense the cost of the tool over several years. Do I just tack this to one of the houses and depreciate it over whatever years or should I split it into a $10 asset per property and then depreciate it?

It seems to me that anyone holding properties long-term would end up with dozens and dozens of depreciation schedules over the years for all sorts of things that would be considered "improvements". Thankfully I am savvy in Excel and it is all automated, but doing my taxes each year with so many different things to depreciate takes quite a lot of time.

Any advice? Thanks!

The only tax advantage I can think of would be if the LLC was taxed as an S-Corp and some of the income was distributed to me from the S-Corp as dividends which are taxed at a much lower rate than ordinary income.