All Forum Posts by: John Malone

@Michael Mackney agreed w Bonnie but 22 vs 23 depends. If you take it in 22, fact pattern likely shows a PAL carryover.

If you materially particpates in the STR properly in 23, then the results are likely greater than a large 22 PAL carryover since its possible for a nonpassive loss. We specialize in STRs and see this conundrum more and more, especially with 168k phasing down.

There are many factors here to consider though. Hope that is helpful!

Quote from @Account Closed:

Quote from @John Malone:

Quote from @Scott Mac:

Well it looks like non-profits are exempt....

So I suppose Dope Traffickers will just buy an ongoing concern non profit and operate that with ownership as an IBC (International Business Corporation) in some privacy haven, or Russia, or Yemin or somewhere (if those places have privacy laws???)

And I seriously doubt any non profits are money laundering, but then again neither is Joe the Barber LLC or Betty's Property Management LLC (which, especially if they are Single Member LLC's--which flow to the 1040 without any tax return for the entity--are already identified to the government computers at the IRS.

If you want to swim with the big fish you have to get wet.

Maybe the resident agents will offer to fill this out as a service for $50 to $100 (???) (and be able to buy themselves a new Porsche with the proceeds)

Just more Red Tape!

The difficult part could be for SOME partnerships.  For example - 4 partners.  Partner 3 moves from Texas to Florida.  That is a "reportable event" since the address changed.  You must report in 30 days. Now it appears they can set up a Fincen Identification record which puts the pressure on the partner vs the partnership but penalties could still accrue. 

 I'm a little confused. If the criteria is:

"20+ FULL TIME W2 US based employees; AND

U.S. Office; AND

$5M or more in revenue

SEC regulated investment companies + certain business already under strict regulations from the Federal Gov't"

How many investors on BIgger Pockets have 20 + full time employees that this will affect?

 Mike - the formatting made it look confusing.  That is the EXCLUDED GROUP.  So unless you have 20 FTE AND $5M in revenue you are INCLUDED:

Who is Excluded?

There are many excluded, niche groups (beyond the scope of this post), but here are the ones that you could fall under:

Large Businesses

20+ FULL TIME W2 US based employees; AND

U.S. Office; AND

$5M or more in revenue

SEC regulated investment companies + certain business already under strict regulations from the Federal Gov't

Quote from @Scott Mac:

Well it looks like non-profits are exempt....

So I suppose Dope Traffickers will just buy an ongoing concern non profit and operate that with ownership as an IBC (International Business Corporation) in some privacy haven, or Russia, or Yemin or somewhere (if those places have privacy laws???)

And I seriously doubt any non profits are money laundering, but then again neither is Joe the Barber LLC or Betty's Property Management LLC (which, especially if they are Single Member LLC's--which flow to the 1040 without any tax return for the entity--are already identified to the government computers at the IRS.

If you want to swim with the big fish you have to get wet.

Maybe the resident agents will offer to fill this out as a service for $50 to $100 (???) (and be able to buy themselves a new Porsche with the proceeds)

Just more Red Tape!

The difficult part could be for SOME partnerships.  For example - 4 partners.  Partner 3 moves from Texas to Florida.  That is a "reportable event" since the address changed.  You must report in 30 days. Now it appears they can set up a Fincen Identification record which puts the pressure on the partner vs the partnership but penalties could still accrue. 

What's all the Hype with the new law? Well this will apply to your RE LLCs…

A new law was passed back in 2020 which has not been on the radar for most business owners. Let's start with the fact that the U.S. Treasury predicts 32,000,000 businesses will now have to comply with these new laws starting in 2024!

What is the Corporate Transparency Act?

On a worldwide basis, the US is considered a business haven where many can hide their identities. For various reasons, the US government wants to understand the "beneficial ownership" of certain businesses. FINCEN will administer this.

Who is Included?

Pretty much every small business other than some obscure ones that are excluded (see below)

If you have 12 Single Member LLCs that own your rental properties. Guess what?! You know have 12 FinCen reports to file.

Who is Excluded?

There are many excluded, niche groups (beyond the scope of this post), but here are the ones that you could fall under:

Large Businesses

20+ FULL TIME W2 US based employees; AND

U.S. Office; AND

$5M or more in revenue

SEC regulated investment companies + certain business already under strict regulations from the Federal Gov't

Who is a "beneficial owner"?

This is where it gets tricky and the real work will come in. The regulations provide both insight and ambiguity.

25% or more owner of the entity; OR

One who exhibits significant control over the entity. This could be a 0% owner by the letter of the law...

What are the Reporting Basics?

The Initial Filing:

Any existing business not excluded must begin to file in 2024 via the FinCen network filing process. The "Initial Filing" is extremely important to get this right the 1st time as there are limited safe harbors for mistakes to avoid the penalties.

For new entities formed after 1/1/2024, there are 30 days to report! Penalties begin on day 31 if you do not file.

Ongoing Annual Filing & Maintenance:

Changes to Beneficial Ownership = 30 days to report change to FinCen!

Address changes

Passport changes

Name changes via marriage

Other ownership changes

What's the big deal? What if we don't comply right away?

$500 per day penalty up to $10,000 and up to 2 years in prison for willful evasion per entity

No cap on the amount of entity penalties

Check with your CPA, Tax Advisor or attorney on this as it is a freight train of compliance coming! Some are helping, some are not. At our firm (tax advisory) we are offering a service to help clients with this and we expect many tax/cpa/law firms will as well.

Quote from @Evan DiLeonardi:

I'm looking at investing in a RE syndication project that is run through a funding LLC. What's been explained to me is that I am investing into the funding company LLC, who will then pay me out and issue me a K1 tax form.

The project runs 14 months in length, however, I would be coming in with only 11 months remaining on the project. My assumption was that I would pay short term capital gains taxes on this because my personal investment is under 1 year. The funding LLC lead who I spoke with told me that because the project as a whole doesn't require capital gains taxes (>12 months) then she thinks that is how it will be issued out to their investors. She also told me that the date my investment started personally shows up on the K1 form which made me feel like the opposite of what she thinks is true.

Overall, she told me to consult a CPA to be sure, which I do plan on doing, but I wanted to gauge the Bigger Pocket's community's opinion on it first to see if I'm missing anything obvious.

Thanks!

 This would be a short term capital gain.  Be careful the K1 is reported correctly (we have seen this type of thing screwed up in the past).  The gain is based on YOUR holding period. 

Quote from @Greg Parker:

@Monica London I agree, have it in Alabama. When you get a lot of them, then put all LLC's in an anonymous LLC or trust. ONly a few states allow that, Delaware, Wyoming, Nevada, New Mexico, Ohio. That way you can hide all of your assets from angry tenants and attorneys.

Disclaimer, this is not legal advice, just something a friend of mine does.

 In the end, no, you cannot hide assets.  Any court can quite simply access beneficial ownership (and soon the Fed will as well with the Corp Transparency Act).  You can make it more difficult to figure out ownership BUT most seasoned litigators can parse through this with the tools at their disposal.  There is nothing wrong with making it difficult though!

Quote from @Austin Bull:

Hi,

I need some recommendations for a book on tax strategies for real estate investors. Is there any that you all have read and learned from?

Thanks!

 There are also great resources on Youtube if you are more of a visual learner!  Same goes for Podcasts.

@Bobby Andrews think of passive losses as a “tax asset” that is in your pocket to strategically use later on!

@Tony Sorensen yes they are several groups. Check out the American Institute of Certified Tax Planners (non profit education group). Most members of this group tend to be forward thinking tax planners.

Look for groups that provide a year round advisory system if you are looking at proactive tax strategy vs compliance only.

@Diane Tycangco that is not necessarily true, no. Remember LLCs are a fuction of state law!