All Forum Posts by: Kory Reynolds

 The laughs are because very few, if any, tax advisors would take on a new client right now to get the tax return filed in the next 13 days, and your pool is made even smaller when looking for those with a specific expertise.

At this point many of us are busy with our existing clients, and wouldn't want to do those clients or ourselves the disservice of trying to cram in onboarding and full preparation of a brand new client in that span of time. 

So I wish you best of luck finding your needle in the haystack! 

Not sure if you have a direct question, but reading the questions between the lines on when a property is actually considered to be in service.

Facts and circumstances.

Generally for a rental property it is "in service" when it is "ready and available for rent" - meaning you are marketing it for rent, and a tenant could utilize a property that day. When it is a new development, it isn't uncommon to see someone use the date the Certificate of Occupancy was issued - perhaps that marks the "ready", but it still might not be "available".

So you can certainly have a property in service in a given year, but not actually have any rental income - but certainly your facts and circumstances are much better if you can actually get a tenant in there, that (should) shore up your defense on that question ever coming up unless you are playing weird games just to get a given in service date for tax purposes.

You are mixing and matching a number of concepts incorrectly. Some cliff notes:

REP status requires 750 hours in real estate activities, and then after you hit that, the test is materially participating in your rental activities.

If it is a short term rental with less than a 7 day rental period, if you materially participate, which could include at least 100 hours and that is more than anyone else, then yes possibly can use the bonus depreciation against other sources of non-passive income.  This is not a "real estate rental income" activity as defined by the IRS, so whether you are a REP or not, you can take this benefit.

All of this is separate from a QOZ Investment, which would require you to first recognize a capital gain from another source (say a stock sale), invest that gain, hold it in a Corporate or Partnership structure (likely partnership), meeting the substantial improvement qualifications of being a QOZB, and then yes, you get to avoid the depreciation recapture at the end of the 10 year hold period, at least for the portion of your investment attributable to the original gain that you invested in the project.  All normal capital invested that was not generated from a gain that you deferred is still subject to tax.

Sure it can be a write off, but my question is if it is the highest and best use of your time (or the given employees time) to be running a skid steer - transporting it, storage, maintenance, cleaning, etc, and if it still makes sense if you need to hire someone to run it for you and take care of the other things.

Add up all those recurring costs - maintaining the machine, maintaining the trailer, having a large enough truck to tow it, insurance and registration for all of the above, your time or your employees time related to all of the above...even at $14k a year it might be attractive enough to keep paying that and having them drop it off at the job site for you.

A brand new machine could easily cost you over 6 figures - that's 7 years of rentals at $14k/year before including all the holding costs.  If it is going to open up other opportunities for you, all the better, perhaps it is worth it.

I recently had a client buy a septic pumping truck given they were spending a significant sum on the service for their RV parks - certainly are scenarios out there that it makes good business sense.

 Hi Alfredo - that is exactly what I'm saying.  That said.  That said, this actually works fairly nicely in some ways.  You have $220k of gain - just leave everything as not aggregated, it will be a passive gain, and you can fully utilize your $200k of passive activity loss carryforwards.  Then you have wiped the slate clean on the loss carryforwards, that $200k of released loss carryforwards offsets ordinary income first - so you will actually get a great result.

Then, in 2025, when you have no more pass loss carryforwards, consider making that real estate professional status aggregation election, and utilizing cost segregation on properties you acquired in a prior year.

Of course all of this - get some real tax help, I'm just another guy on the internet here, and there should be a deeper dive on the circumstances than what you can get through a forum posts to ensure this all actually works properly in your situation.

To break this down...

To get the benefit of REPS, it is a two part test.

1) more than 50% of hours AND over 750 hours in real property trades or businesses. spouses cannot combine time to meet these thresholds, one spouse must hit this on their own. If you meet this first test, you are a REP...now determine if you can use the benefits of it.

2) if you or your spouse meet test 1, THEN you can make an election to combine all your RENTAL activities together for purposes of determining if materially participate in your rental activities.  

3) So you met test 1, made the election under #2 - now you see if you materially participate in your rental activities.  The hours for material participation can come from both husband and wife.  There are 7 material participation tests, the most common of which are at least 500 hours in the activity, or at least 100 which is more than anyone else.

You are correct that if one of you meets the REPS thresholds for 2024, and you make the said election, it does NOT free up any passive activity losses from prior years.  This is actually a problem - since now you are treating them as one activity, they will carry forward indefinitely.  If you dispose of one property, you haven't disposed of your whole rental activity, so that loss is not released.  You can end up in an odd spot where these previously disallowed losses are disallowed nearly permanently until either a) you are no longer a real estate professional and you un-aggregate your rentals or b) every single one of your rental activities is disposed of.

I have one client right now with some material passive activity loss carryforwards, that the decision was made to wait to make the REPS related election until they utilize these loss carryforwards, so they don't become trapped.  In our case they'll have it cleaned up within the next year or two, so the timing worked out well.

REPS status alone is not substantial a risk of being audited.  It is literally 90% of my clients and I see maybe 1 audit a year at most, and it isn't even on the REPS issue.  But ensure it is legit, if you are audited, and you didn't rightfully take the position, it's not just the tax - you'll be hit with late payment penalties, substantial underpayment penalties, interest, and potentially fraud related penalties if it can be determined that you knew you didn't meet the qualifications but claimed it anyways.  If you did rightfully claim the position, the audit is just an annoyance.

Interestingly, each of my clients who have been audited who have had REPS status in place, it was never questioned at all... I can only assume that it is because the situation was so clear cut that they were a REP (IE full time development), the audits were focused around other issues.

Another vote for all the same firm - I have never actually seen a client divide up work based on CPAs in different states for different projects.  Sounds like a great way to be very disjointed!

I do have a handful of clients that have ended up using multiple CPAs just due to who their partners were on different deals, and even in those cases they almost always end up consolidating to a single CPA - taxes are enough of a headache without dealing with 3 different professionals who each only have a slice of the whole picture.

If you are going to regularly be investing across the country, it doesn't hurt to work with a firm that has State and Local Tax (often referred to as "SALT") internal resources, though typically this does come from larger firms with larger fees.  In that scenario even though the given professional might have a heavy amount of experience in a handful of jurisdictions, they have someone on their team that they can pull in for areas they aren't familiar with. That is the situation I am in - while I work with investors nationwide, I am most heavily focused in New England, but our firm has a SALT team that I can pull in to help on the other states I don't regularly see.

Possibly.  Travel expenses can be very tricky - there are a bunch of bifurcations based on if the trip is primarily for personal, primarily for business, or somewhere in-between - including the allocation of airfare and other costs.  If the trip is mostly personal, then only the expenses directly related to looking at potential investment properties would actually be deductible, which is likely rather minimal - maybe some gas or Uber costs to get there?

That said, there would be arguably no business purpose to bringing your family along with you, so even if you are spending the entire time searching for real estate. If you brought your spouse and 2 kids with you, and you could argue all of your argue of your time on the trip was looking at real estate, and your personal business and activity circumstance defends being able to immediately deduct it and not treat it as a start up cost... likely 75% of much of the travel costs (airfare, food, etc) would be non-deductible.  Bringing your family along also puts a serious damper on that the primary purpose of the trip was actually for business - not impossible, but in my eyes it definitely taints it in a way that you really want to ensure everything is buttoned down on the business purpose and the actual business activity that occurred.

You could reach out to any number of accountants who post regularly on these forums, some are taking clients, some are not, some are only taking specific types of clients, but it can be worth the conversation.  Keep in mind it is not only a CPA firm that is a good fit for you, but also that you are a good fit for them.

It can greatly depend on your activity and where you plan on taking it - in example, in your direct situation with just a single short term rental in partnership, a firm like mine would destroy you with fees - too much firepower for a relatively small situation. 

 They beat me to it, they already have their own family compound on an island ;)