All Forum Posts by: Joshua Thompson

Hi Tiffani!

Great question! When we meet with potential clients I respect when they ask me 2 - 3 questions regarding LTR vs STR, real estate professional status, or house hacking. These are typically "easy" items to answer for a tax professional who understands real estate taxation.

Please don't treat the first call as a consultation or ask specific questions about your situation but general questions like the above that should take them 5 - 8 minutes to answer (30,000-foot view answer). After they answer, cross-check or fact-check it with MULTIPLE other sources. If what they say checks out and you enjoyed speaking with them or their team it might be a good fit.

Again please don't ask specific questions regarding your situation on the first call as most accountants will not appreciate that.

There can be a tax implication in one form or another. If your property is in an S Corporation the "distribute" or "sell" or "fixing cost" of the property might impact your tax situation. This all comes down to how you're structured, how the flip cost were accounted for, if there is a partner (you mentioned "we").

If it is an S Corporation and you "distribute" or "sell" the property to yourself, if there is any loss on value, which probably there isn't, know it most likely won't be deductible if it's a related party transaction.  

This should be a public service announcement for all taxpayers! I have had many similar experiences in my life to what you explained above and couldn't agree more. Great information for everyone out there looking for help!

Oh boy, I've seen, as I'm sure most other accountants here, some HORRIBLE mistakes made by unknowledgeable accountants being CPA's or EA's. The old adages rings true, you get what you paid for and if it's too good to be true it probably is.

Most times you're not just paying for a tax return to be completed but also the piece of mind that it is done correctly and the professional will stand behind their work.

 Of course! This is a great situation to have a sit down with your tax professional and financial advisor to discuss the best course of action to accomplish your goals and to learn about any tax/financial landmines while making these decisions. I know it may cost a few hundred dollars to do so but these decisions will make a large impact on your tax or financial picture.

Aloha Dominik! I was stationed out on Oahu a while back, good times and good people!

This, in my opinion, is more of a financial question rather a tax question.

I'm a big fan of diversification but a few things didn't make sense here. Why pay off 4 rental, that usually has increasing expenses and average 6% rent increase yr/yr (it's been a extremely high rent increase the past 6 years) by cashing out a 401k that averages 10% per year? Don't get me wrong I know the benefits of paying off a mortgage early but now you're putting more eggs in the HI basket considering you're nervous about hurricane exposure. I much rather see you adjust your insurance to match current market rates, let the tenants continue paying off your mortgage, and continue to invest in your 401k.

If you take funds from your 401k to do this you might get hit with the 10% early withdrawal penalty + the income tax if it's not a Roth account, and that is only at the federal level.

If cash is what you desire to pay off a few of the rentals, have you considered selling one of the rentals, pay off as many mortgages as you can with it, and save a few thousand to buy a different property somewhere safer from hurricanes? Yes, this will result in a tax hit but at least your 401k can continue making you 10% per year, you diversify more, and cash flow will increase from those properties.

The big thing comes down to your goals, what you want to accomplish and your full financial picture.

Good luck!

I agree with the above. Most people don't think about or sometimes care about their tax rate. I would say of all our clients, maybe 1% ask us per year what "tax bracket" they are in. We find they are more worried about the final balance due or refund. We do include their tax rate on their return with supplement information but it only becomes a true topic of discussion during our quarterly calls with certain clients.

MileIQ! Most of our clients love it and last time I checked it's free. I believe QB Online does this too but most clients still use MileIQ.

If you're looking for a tax attorney because you have an issue with the IRS let me know as I have two great referrals. If you're looking mainly for tax strategy like you mentioned I would reach out to a few active accountants here in the forums or use BP free tool "Build Your Investing Team" to match with an accountant that might fit you best.

Dennis,

I like where your head is at trying to find tax strategies! Unfortunately, here you have quite a lot going on and maybe misinformed on a few areas. You'll also want to look into the opportunity zone, as of now they expire December 31st 2026 meaning any deferral of tax comes due at that time unless Congress extends it. I have not heard of an extension as of yet.

Your 100 hours is related to material participation for STR not the real estate professional status, they are two separate items but in a way can be connected (kinda).

I'm not sure what you mean by "sell it for no bonus depreciation recapture" because you are required to take depreciation, if you don't the IRS should calculate your tax as if you did.

Your head is in the right place and I wish you luck but would highly recommend consulting with a tax professional before proceeding if this is your plan.

Best of luck Dennis!