All Forum Posts by: Katie L.

@Abel Fermin

There are certain tax considerations you may want to think about. If you’re looking at buying property in another state, you may create a tax filing obligation there. The county you buy in may have higher property taxes than another county. You also will likely want to understand the costs included in purchasing and renovating that either get capitalized or deducted or no treatment. You may want to consider liability concerns about forming an entity and the pros and cons to that. It may be prudent to have an estate plan in place If you don’t already. Additionally, you may want to see if you should be making additional estimated tax payments to avoid underpayment penalty. And if you’re anticipating any losses from your rental property you will probably want to ensure you meet the exceptions to be able to deduct them. These are just some considerations you will want to make sure your Cpa is familiar with. Good luck!

I have several suggestions you can use -- what kinds of questions do you have or services are you looking for?  You're looking for wills and/or trusts?  Entity formation?  Probate?  Trust administration?  Shoot me an email or private message.

@Anthony Hornerundefined

@Bruce Mac

Can't say I know of anyone in the Bay Area to refer you to, but you'll want to be sure to find someone familiar with things like the timing of your property tax payments, estimated payments, underpayment penalties, annualizing income, depreciation, capitalizing versus deducting, etc.  As @Basit Siddiqi said, you may have filing requirements in other states if you buy out-of-state real estate.  You may also want to keep an eye on whether the tax bill going through Congress right now passes as it may change your approach.

If you pay taxes in CA as a CA resident, I think you'll find a CA CPA would be helpful. You may have liabilities in other states to file returns as well but generally, unless it's a state like New York or similar, the other states have less confusing tax codes (and significantly lower tax rates) than California. For instance, I've seen several people post on these forums saying that holding property in an LLC doesn't have any tax consequences because of a flow-through treatment of taxes. While that may generally be true, LLCs in CA DO have a tax requirement and minimum filing fees just for existing. You can probably get by having an out of state accountant, but don't be surprised if they're not as familiar with CA rules where you're filing a more substantial resident return versus a nonresident return elsewhere. Out of state folks are also less likely to be familiar with things like property taxes that are county/state specific. CA also has different dates/percentages for estimated taxes due than federal (CA has a LARGER percentage due EARLIER so possible underpayment penalties there) that out of state people wouldn't be familiar with either. It's probably not going to make a huge difference that if you find an out of state accountant with significantly cheaper preparation rates maybe it's worthwhile, but if they're about the same cost, you may want to consider keeping an account of the state where you're a resident.

*Disclaimer: none of this message is intended to be legal or professional advice.

Hi Israel,

Some things you may want to look for when asking around for CPAs is whether they are familiar with depreciation, estimated taxes, treatment of closing costs, timing of property tax payments, etc.  Hopefully that helps some.

@Natalie Kolodij

@Kimberly Ballmann  Sorry to hear that.  You have rental real estate properties in California?  

Hi Grant, what kinds of questions does your friend have?  She holds the property individually then and not within an entity, correct?  The property that she's renting is her old home in Austin or her current home here in San Diego?

@Michael Ndjondo makadi

Congrats Michael on making the first jump into rental properties. You're doing the right thing to ask questions ahead of time. So your question about depreciation and capitalization is not a dumb one. Depreciation can be used as a noun and a verb whereas capitalizing is usually referred to more so as a verb. An asset that you capitalize can be depreciated. It sort of is the effect of saying it's an asset that can't be expensed for some reason or other. You can then depreciate (verb) or take a depreciation deduction (noun) on a capital asset. You do not take capitalization deductions as there's no such Thing. You capitalize an asset that then gets depreciated or has depreciation taken against it. Hope that helps.

Couple other things you'll want to think about too if you haven't already-- owning real property in another state will very likely subject you to income tax in that state such that you will also need to file a Kansas income tax return each year in addition to California. You'll also want to be sure you're making estimated payments then as well since your employer will likely only withhold taxes for federal and California. Depending on how much income you're making from your rental you might want to think about making estimated payments to the IRS too to avoid underpayment penalties.

You'll want to keep good records and find an accountant familiar with 179 expense, depreciation recapture, and timing of your property tax payments. Also, from one of your posts it seem a maybe you're not aware so if you're not -- your entire rental property is not depreciable only the building is. Land is not depreciable. So your whole purchase price in total will not be depreciated, just a portion of it that is attributable to the value of the building (straight line over 27.5 years). You'll want to keep your eyes peeled on the escrow statement (unlikely but one can dream) for a breakout of your purchase price between land and building, or the most common source is a property tax statement. If you somehow manage to buy before the end of 2017, your seller may have already paid the last property tax bill that if theyre nice enough to give to you, you might ask for a copy so your accountant no can start calculating depreciation right away.

Food for thought. Good luck.

@Bryan Pham hi, if you're investing in real estate, you'll want to make sure the accountant you work with is familiar with depreciation and 179 expense. Also familiar with the timing of property tax payments and deductions, and depending if you have a regular daytime job, calculating whether you need to make estimated payments to avoid underpayment penalties. Not sure of your situation but you'll also want to consider liability protection and an estate plan. Hope that helps some!