All Forum Posts by: Account Closed

Investors! I served with Deloitte for 14+ years and subsequently with large middle market accounting firms for 15+ years (RSM, Crowe, BKD). My experience and knowledge of real estate tax law is unmatched.

Take advantage of my experience. We are all trying to lift each other up here. That is the point of this platform!

Folks - I'm here. 

Who has any questions?

Investors and other Real Estate Professionals:

I served with Deloitte for 14+ years and subsequently with large middle market accounting firms for 15+ years (RSM, Crowe, BKD). My experience and knowledge of real estate tax law is unmatched.

Take advantage of my experience. We are all trying to lift each other up here. That is the point of this platform!

Mitch -

Apologies if there was any confusion in my earlier explanation. 

Let me clarify a bit by adding:

Rental property is indeed considered 1231 property. As per the IRS guidelines and as you've correctly noted from IRS Publication 544, sales or exchanges of real property used in a trade or business and held longer than one year fall under Section 1231 transactions. This includes property held for the production of rents or royalties.

So, to reiterate, rental property qualifies as 1231 property when it meets the criteria outlined in Section 1231 of the Internal Revenue Code. Gains from the sale of such property are generally treated as long-term capital gains, while losses are treated as either ordinary or 1231 losses depending on the holding period.

Thanks for the question. Hope this clarifies. 

Let me know if there are any other questions. Thanks.

John - 

It will depend. Let's connect. Thanks.

Investors! I served with Deloitte for 14+ years and subsequently with large middle market accounting firms for 15+ years (RSM, Crowe, BKD). My experience and knowledge of real estate tax law is unmatched. 

Take advantage of my experience. We are all trying to lift each other up here. That is the point of this platform!

Jaclynn -

Thanks for the detailed question and happy to help.

Here's some information which I hope will be of assistance:

1. To qualify as a "Real Estate Professional" (REP) for tax purposes, you generally need to meet two main criteria:

   a. You must spend more than 750 hours during the tax year in real property trades or businesses in which you materially participate.

   b. More than 50% of your personal services in all businesses during the tax year must be performed in real property trades or businesses in which you materially participate.

If you meet these criteria, you can be considered a Real Estate Professional. There isn't a specific professional title associated with being a REP; it's more of a tax classification.

1. If you qualify as a Real Estate Professional and you materially participate in your rental activities, the income and losses from your rental properties can be treated as non-passive. This means you can use the losses to offset other income, such as wages or other business income. However, the IRS has strict rules about material participation.

Regarding the LLC, forming a single-member LLC for your rental activities can provide liability protection, but for tax purposes, the income is generally still reported on Schedule E of your personal tax return. If you are the sole owner of the LLC, the IRS treats it as a "disregarded entity," and the income flows through to your personal return.

Lastly, it will make sense to speak to a tax accountant or tax professional that can tailor advice specific to your situation and laws applicable in your area.

Thanks for writing and feel free to reach out with any further questions/concerns.

Regards.

Mitch - Thanks very much for participating in the discussion. Here's some information I've compiled which I'm hoping will be helpful:

Section 1231 of the Internal Revenue Code addresses the treatment of gains and losses from the sale or exchange of property used in a trade or business. Typically, gains from the sale of such property are treated as long-term capital gains, while losses are treated as ordinary losses.

If a rental property is held for more than one year, any resulting loss would generally be treated as a long-term capital loss. If the property is held for one year or less, the loss would typically be considered a short-term capital loss.

Regarding inherited property, the holding period is generally determined by how long the property was held by the decedent (the person from whom you inherited the property). If the decedent held the property for more than one year, and you sell it within one year of inheriting it, the gain or loss would typically be treated as long-term.

Lastly, it's imperative to consult with a tax expert that can tailor advice unique to your circumstances and tax laws applicable to your jurisdiction.

Feel free to reach out with any further questions/concerns.

Sincerely.

Mark -

Yes, you can generally carry forward a net operating loss (NOL) from one tax year to offset income in future years. In the context of rental properties, if you incur a net loss in a tax year, you can use that loss to offset other income you may have in that year, and if the loss exceeds your total income, you can carry the remaining loss forward to offset income in future years.

The Tax Cuts and Jobs Act (TCJA) limits the deduction of net business losses for individuals, estates, and trusts to $250,000 ($500,000 for married filing jointly) for tax years 2018 through 2025. However, for rental real estate activities, there are specific rules that may allow you to deduct losses in excess of this limit.

The losses from rental real estate are generally considered passive activity losses. If you actively participate in the rental real estate and meet certain criteria, you may be able to deduct up to $25,000 of passive losses against non-passive income, subject to income limitations. If your income exceeds the threshold, the $25,000 deduction is phased out.

Unused losses can be carried forward to future years and used to offset passive income or gain. There is no limit on how many years you can carry forward these losses, but it's important to note that tax laws can change, and it's advisable to consult with a tax professional or accountant for the most current information and advice tailored to your specific situation.

Please be aware that tax laws are subject to change, and it's essential to stay updated on any legislative developments that may affect your tax situation.

Keep the questions coming people.