All Forum Posts by: Johan Garcia

Hello,

I'd like for someone who can assist me regarding the cancellation of my active membership that I paid for 2 weeks ago. I've been in contact with your support@bp and also the featured@bp team they canceled my existing membership that had two weeks remaining. 

I emailed them initially to stop the auto-renewal from occurring. Instead, they canceled (it has been two days already!) my existing subscription that I paid for one month. 

Can someone assist me? The two email addresses from your team have stopped responding to me. 

This question has come up a few times with prospective clients recently, so I thought I'd shed some light on it.

Generally, being an employee in a real estate business does not automatically qualify you for REPS unless you own at least 5% of the employer. If you're a 5% owner for only part of the tax year, then only the services performed during that period count toward qualifying.

Also, it's important to note that the Tax Court has held that merely being on calls doesn't meet the 750-hour requirement. The IRS and underlying regulations require that you actually perform services to count toward these hours.

Have a great Sunday! 

Quote from @Krishnarine Hardyal:

Not new to BP....however its been a while since I've been on here...im currently looking for hard money and private lenders for refi and or cash out refi on my primary or investment properties. Please feel free to reach out to me asap thank you.

CPA here, not a lender, just wanted to mention that one of the benefits of using a hard-money loan is that the high-interest payments are typically tax-deductible as business expenses or could reduce your taxable gain when you sell the property. Great way to use debt :)

Quote from @Marc Lock:

How is material participation defined?

Once a taxpayer meets the REP status, do they need to materially participate in each property?

The IRS uses material participation tests to determine if you are actively involved in an activity. There are 7 material participation tests and you only need to meet one. I'm not going to list them all but let me know and I can provide them. 

You can make an election under IRC Section 469(c)(7)(A) to treat all your rental real estate interests as a single activity -- an election to aggregate them all. So your material participation is assessed across all your rental properties collectively not one-by-one.

Quote from @Gavin Wynn:

Hey, This is a unique situation, I purchased my second property in June 2024, a single-family home that used to be a duplex, and is still zoned as a duplex ( remains 2 addresses). I am converting this back to a duplex, going to live in one half and rent out the other. Do I have to complete the separation of units by January 1st to write off half of my closing costs/other expenses? Or can I still write off the closing cost in 2026 if I am not done with the separation by January 1st, 2025? This might be a stupid question but thanks in advance!

Just wanted to add that more information might be helpful. You mentioned this is your second home—are you treating your first home as an investment property now that you're moving into this one?

In general, for tax purposes, you can begin to deduct expenses such as depreciation once the rental portion of your property is placed in service, meaning it's ready and available for rent. The placed-in-service date can be any date during the year; it doesn't have to be January 1st.

Regarding closing costs and other expenses, many of these costs are added to your property's basis and recovered through amortization over time once the property is placed in service. However, some expenses, carrying costs may be deductible in the year they are incurred, even if the property isn't yet rented out. So, you don't necessarily have to complete the separation of units by January 1st to start deducting expenses.

Facts are important but overall, think of the place in date as the date you can start to deduct some of these expenses.

You might want to hold-off from electronically filing your 2023 tax returns until January 29th. By this date congress is aiming to pass the Tax Relief for American Families and Workers Act. This tax legislation extends or reverts to pre-2023 tax treatments of very favorable tax legislation that apply to real estate investors. These are two important legislations are 100% bonus depreciation (section 168(k)) and EBITDA interest expense limitation computation (section 163(j)). As of now this legislation is proposed but the passing of these legislation would be retrospective to tax year 2023.

- 100% bonus depreciation allows you to fully expense purchased assets (think of equipment or any that has a depreciable life under 15 years) in the year acquired. 

- The EBITDA add-back computation for the interest expense limitation allows you to be fully able to expense your interest expense. 

Here's some additional commentary on proposed tax legislations:

100% Bonus Depreciation:

The provision extends 100-percent bonus depreciation for qualified property placed in service after December 31, 2022, and before January 1, 2026 (January 1, 2027, for longer production period property and certain aircraft) and for specified plants planted or grafted after December 31, 2022, and before January 1, 2026. The provision retains 20-percent bonus depreciation for property placed in service after December 31, 2025, and before January 1, 2027 (after December 31, 2026, and before January 1, 2028, for longer production period property and certain aircraft), as well as for specified plants planted or grafted after December 31, 2025, and before January 1, 2027.

EBITDA add-back computation for interest expense: 

The provision extends the application of EBITDA to taxable years beginning after December 31, 2023 (and, if elected, for taxable years beginning after December 31, 2021), and before January 1, 2026. Therefore, for taxable years beginning after December 31, 2021, and before January 1, 2024, ATI is computed with regard to deductions allowable for depreciation, amortization, or depletion (i.e., earnings before interest and taxes (EBIT)). However, ATI may be computed as EBITDA, if elected, for such taxable years. For taxable years beginning after December 31, 2023, and before January 1, 2026, ATI is computed as EBITDA. For taxable years beginning after December 31, 2025, ATI is computed as EBIT.

Reach out if you have any questions. 

- Johan Garcia, CPA, MST.