All Forum Posts by: Jason Malabute

Very good article. A CPA (Certified Public Accountant) can handle a wide range of accounting tasks, including audits, financial statements, and tax preparation, while an EA (Enrolled Agent) is a tax specialist authorized by the IRS to represent taxpayers in all tax matters—but CPAs have a broader focus beyond just taxes.

Ben forming a standard LLC with your current LLC as a managing member is possible, but the bigger question is whether you need a holding company. Consider if it will truly benefit your tax position, liability protection, or asset management, or if it will just add unnecessary paperwork.

If you’re in a state like California, keep in mind that you’ll have to pay $800 annually to the Franchise Tax Board, file a periodic Statement of Information (SOI), and submit a Beneficial Ownership Information (BOI) report.

It’s a good idea to consult a real estate attorney to ensure you’re making the best decision for your specific needs.

Heidi, if you do a 1031 exchange, both the capital gains and depreciation recapture can be deferred, but the recapture isn’t eliminated—it just gets pushed to when you sell the new property. If you receive any boot (like cash or non-like-kind property), then some of that recapture could be triggered and taxed. Now, when it comes to cost segregation, it accelerates depreciation, which means more of it is subject to recapture when you sell. However, in a 1031 exchange, you can still defer that, but it gets tricky—just like Michael mentioned, it’s a complex situation, especially with cost segregation in the mix. It’s definitely something to discuss with a tax advisor who knows these ins and outs. As for your scenario of exchanging two Airbnbs into an apartment complex, it could be a good move if the complex is a strong investment. Just remember that all the deferred gains and depreciation recapture will carry over.

If your adjusted gross income (AGI) exceeds $150K and you are not classified as a real estate professional, passive losses from rental properties cannot be used to offset your earned income. These passive losses are grouped together and carried forward. The passive losses from one rental can offset passive income from other rental properties. This aligns with the other responses in the thread, as passive activity losses (PAL) rules govern how these losses are applied across your rental portfolio.

Yes, since you’re a real estate investor and possibly a high earner, you will definitely benefit from working with a specialized tax professional who understands real estate tax strategies, rather than just relying on an H&R Block preparer.

Yes, since the deal has 70% leverage, you would be subject to UBIT if you're investing through a self-directed IRA.

There are indeed several tax advantages to starting your own property management company. First, it could help you qualify as a real estate professional, which allows for greater tax deductions on your real estate activities. Second, running a management company would enable you to deduct a wider range of business expenses, such as office supplies, travel, and marketing expenses related to managing your properties.

Another big advantage is that, as a property management company owner, you’ll have first contact with a lot of distressed owners who might be open to selling their properties. This could present great investment opportunities. And if you take them out for lunch or drinks to discuss their property, you can deduct those meals as business expenses too.

If you have children and currently give them allowances, you could also consider employing them through the property management company. This way, their allowance becomes wages, which can be deductible as business expenses.

However, keep in mind that many property management company owners report that margins are often tight, especially if you’re only managing your own properties. So while there are tax advantages, running the company itself might not be highly profitable on its own.

Unfortunately, not all CPAs are built the same, just like how not all doctors are built the same. Just because someone graduates from medical school doesn’t mean their skill level is equal. The same applies to CPAs. It’s really important to find a CPA who specializes in real estate. Ideally, you’d want to work with someone who invests in real estate themselves and has several years of experience in the tax field. I’d recommend going through referrals from other real estate investors and interviewing multiple CPAs. See which one aligns with your needs and demonstrates competence. If you feel a CPA isn’t a good fit, there’s nothing wrong with moving on to the next candidate. It’s your business, and you want the best person in your corner.

Hi Tyler,

Since you have rental properties, it’s crucial to get excellent advice from your CPA, who can help you minimize your tax liability and save more of your hard-earned money. This savings can then be reinvested into more properties, allowing your portfolio to grow faster. This becomes even more important if you’re a high earner because taxes can eat up a significant portion of your income. Did you know that for most Americans, taxes are their highest expense each year?

Trying to save money by not getting the right CPA can be penny-wise but dollar-foolish. Think of it like trying to save money on a doctor and potentially jeopardizing your health just to save a few bucks. The same applies to your financial health when it comes to taxes.

Remember, when you pay for quality CPA services, you’re not just paying for tax compliance; you’re also paying for advisory services that help you make the best financial moves and tax strategies. A good CPA will provide greater value in advisory and tax savings through proactive tax planning than the fees they charge. They help you make decisions that lead to significant long-term tax savings, which often outweigh the cost of their services.

It’s called a seasoning period, and the reason you’re required to wait is that lenders want to see that the property is stabilized and that you’re consistently making your mortgage payments every month. However, not all lenders require a seasoning period, so it’s always a good idea to ask the lender upfront if they have this requirement before choosing them for your financing needs.