All Forum Posts by: Logan Allec

@Eddie Cottingham I bought a duplex and two single families (4 units across 3 structures) on one lot with FHA financing. In the area where I purchased, there were hardly any 2-4-units much less something as unique as my property.

Here is an excerpt from the appraisal.  The uniqueness did not appear to present any problem.

@Chris L. I would point your accountant to Section 469(g).  The gist of it is that when you dispose of your entire interest in a passive activity in a fully taxable (as opposed to a tax-deferred) transaction to a non-related party, i.e., selling a non-grouped rental property in a taxable sale to a non-related party, both current and suspended passive activity losses generated by that activity can be deducted.  The activity is essentially no longer subject to the passive activity rules, so even if your modified AGI exceeds $150,000, you can take the suspended losses in year of sale.

@Steve Podwojski "so now my LLC partnership will show up on my personal tax return on schedule C or E which I do not want."

Why not?  Is it because statistically Schedule C and E are audited more frequently than 1065 and 1120S?

"I would like the S-Corp to own the LLC so that that income will show up as W-2 and K-1 income"

W-2?  Paying payroll taxes on rental income should generally be avoided.

"without having to make that LLC into an S-Corp and have to deal with more paperwork and monthly tax payments."

It will be another tax filing, but from a tax perspective, it would seem to make more sense to just keep your LLC as a husband-wife partnership for federal income tax purposes between you and your wife. Although you can certainly elect to treat a husband-wife partnership as a disregarded entity, you also have the option to file a partnership return in non-community property states like Maryland so that way the income is reported on your K-1 on Schedule E, Part II rather than Schedule E, Part I if this is important to you.

@Steve Podwojski Going from a multi-member LLC to a single-member LLC does not spark an audit in and of itself as long as you treat it for tax purposes within the framework of Revenue Ruling 99-6, which is the IRS' guidance for this very situation.

Are you buying out the other members for cash? If so, then from your perspective the transaction is treated as though the LLC distributed all of its assets to the members (including you) in liquidation according to the distribution provisions of the operating agreement, and then you purchased from the other members the assets that would have deemed to have been liquidated to them in this hypothetical liquidation scenario.

Of course there are some complexities here (are there any built-in gains? what are you going to do with the assets?), but no, as long as you play by the rules, it will not "spark an audit."

As for your second question, can your LLC taxed as an S corporation own your other LLC? Sure. But I'm not sure what it would accomplish and this could in fact lead to a tax trap later on. Your "other LLC" would not have to file its own tax return either way (whether owned directly by you or through your S corp) because it's disregarded, assuming that this Maryland LLC only invests in Maryland real estate.

@Isaiah Klavitter Which state is your home of record?

@Federico Morales "my parents' tax guy has listed one of their properties as a loss, but without reporting the income for that property"

So you are saying that he has only reported the expenses for this property and not the gross rents?

@Jacqua Le Fleur Interesting observation.  Yes for the older multis in LA rent control can make or break the deal for a cash flow-seeking investor.  This is why when I was looking for a multi I eventually purchased in a non-rent controlled area.

@Andrew Faukner New or used, as long as it's new to you.  Also for it to be a 100% deduction you need to use it for 100% business.

Welcome, @Jin Tan.  Good to see other Los Angeles-area investors making it happen!