All Forum Posts by: Jeff Nash

There’s technically no required holding period as intent is what matters, and you would be already demonstrating it is an investment by renting it out (presumably at fair market value to third parties or those unrelated to you).  Usually the holding period for an investment is assumed to be for a period of time, which generally is 1-2 years as that is by definition long—term.  In my opinion, it just looks better when the Form 8824 on the tax return is completed and it shows a longer term holding period, but that is not always necessary if you can support a shorter period.  

@Cory Carrigan there is nothing special that I am aware of relating to PA that causes you to automatically pay ordinary income tax rather than capital gains if you are real estate agents and have a property held for investment (longer term intentions with a long-term holding period, and not a dealer that rehabs where the holding period is short-term).  PA up until only very recently in mid-2022 passed favorable legislation so that a 1031 exchange could afford you tax deferral like in other states. I do not know what your holding period is or overall tax situation, but generally for federal purposes if it's one year or less it's a short-term capital gain which is still taxed at your ordinary tax rate, and more than one-year it's either 15%  or 20%.  Is your holding period less than a year or can you share more details?

@Marija Petrovic I suggest getting a new EIN.  @Henry Clark addressed some other key considerations too.  

@Denver McClure would be a good resource and someone to chat with as he has been house hacking here in Texas and involved in other types of investments. 

I don’t think you need to file for a new entity unless there is a some compelling reason like you are going in a completely different direction.  You just need to file a final Form 1065 tax return and make the administrative change with the state indicating you only have one member, and get a new EIN. You might need to make other changes such as with banks you use or W-9s that you have issued to others on behalf of the entity.  

You have a number of options and it’s probably best to discuss with an attorney and tax advisor.  

If you parents gifted the property you would get their carryover basis of $72,500 (is this their original purchase price only and are you factoring in improvements and other basis adjustments?).  You mentioned that the area is not a renters’ market but depending on how good or bad it is and how long it might take to get a tenant in there, you also have the option later to do a 1031 exchange.  

You just need to break down the numbers on the various options and draw a line in the middle of a page with pros and cons on each side.

I generally recommend having a different entity for different line of business or activities and you said something along the lines that your LLC has saved you money which leads me to believe your existing LLC is being taxed as an S-Corp so you would not want to have investment real estate held by it. I have a good referral law firm that can help you with entity set up as you have some issues to consider.

 I assume you probably have a due on sale clause if you have a mortgage which gives the lender the right to exercise but that does not necessarily mean they will.  I am not an attorney so don’t take this as legal advice as I’m just going off my general knowledge and understanding. I’d be more than happy to refer you to a law firm that I know can address this issue and work with you so you can decide what’s best for you.   

More information is needed, and I’m curious about the reason for your question and the objective. Do you live in a community property state? I assume the property is titled in you and your spouse’s name and not by any entity or trust?

@Kyle Crouch I’d be happy to discuss with you as there are a number of different funds and they are of different types and geographically dispersed.