All Forum Posts by: Marc Howard

Hey Corey,

Great question! So basically, it's essential to have a clear and organized accounting system to make your life easier, especially when it comes to tax season. Having custom accounts or subcategories can definitely help you out in this regard.

In a nutshell, here are a few custom categories I'd recommend:

1. Repairs & Maintenance: Break this down into subcategories like Plumbing, Electrical, HVAC, Appliances, and so on. This helps you track how much you're spending on specific repair items.
2. Capital Expenditures (CapEx): Separate this from regular maintenance for significant improvements or replacements like Roofing, Flooring, Windows, etc. This will allow you to track your property's long-term investments better.
3. Advertising & Marketing: Subcategorize this into Online Listings, Print Ads, Signage, etc., so you know where your marketing dollars are going.
4. Utilities: If you pay for some utilities, break them down into subcategories like Water, Electricity, Gas, etc.
5. Professional Services: Divide this into Legal, Accounting, Property Management, and so on.
6. Travel & Vehicle Expenses: If you travel to your properties or use your vehicle for business purposes, create a category for these expenses.

I found this article on BiggerPockets that has some more detailed suggestions on organizing your real estate accounting: https://www.biggerpockets.com/blog/rental-property-accounting-101

Remember, it's essential to consult with your accountant or tax professional to ensure you're setting up your accounts correctly for your specific situation.

Do you have any specific areas of your business you'd like to track more closely, or are you looking for more general suggestions? Let me know if you need any more help, happy to chat!

Hey Chris!

Great question! In a nutshell, when your parents transfer their townhome into a multi-member LLC, it's generally not considered a taxable event. So basically, your parents shouldn't face any tax consequences as long as they're just contributing the property to the LLC and not selling it.

However, it's important to be aware of the potential for reassessment of the property's value, which might impact property taxes. Each state has its own rules, so you'll want to look into how Colorado handles these situations. You can find more info on property tax reassessment in Colorado here: [https://www.colorado.gov/pacific/propertytaxdivision]

Additionally, as you mentioned, the IRS does treat single-member LLCs differently than multi-member LLCs. A single-member LLC is considered a disregarded entity, while a multi-member LLC is usually treated as a partnership for tax purposes. You can find more info on how the IRS treats LLCs here: [https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc]

One thing I'm curious about, though: Are your parents planning to remain equal members of the LLC, or will one have a larger ownership interest than the other? This could potentially impact the tax situation, so it's good to clarify!

In any case, it's always a smart move to consult with a tax professional or attorney to make sure you're covering all the bases when setting up an LLC. They'll be able to give you tailored advice based on your specific situation.

I hope this helps! Let me know if you have any more questions or need any further clarification. Good luck with the townhome and the LLC!

Hey Dan-

Sorry to hear about the situation you're going through. Divorce can be tough, and dealing with the financial aspects of it, especially when it comes to real estate, can be quite a challenge. So let's try to break this down for you.

In a nutshell, depreciation recapture happens when you sell an investment property for more than its adjusted basis (the original cost minus accumulated depreciation). The IRS wants you to pay taxes on the depreciation you previously claimed as deductions since it reduced your taxable income. The rate at which you'll be taxed on this recaptured depreciation depends on your income tax bracket, but it can be up to 25%.

Now, if you have to sell the STR due to divorce, you'll likely have to deal with depreciation recapture. However, you may be able to avoid it if you're able to do a like-kind exchange (aka 1031 exchange) and reinvest the proceeds in a similar investment property. You can find more info on 1031 exchanges at this link: https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-under-irc-code-section-1031

Regarding the change of ownership from joint to individual, there might be a couple of ways to handle that depending on your state laws and the terms of your divorce agreement. One option could be to buy out your spouse's share or vice versa. Another possibility is to sell the property and divide the proceeds. Just keep in mind that you'll want to consult with a real estate attorney or a tax professional to ensure you're making the right move for your situation.

To better understand your specific case, can you tell me which state you're in? That way, I can try to give you more tailored advice based on your local laws.

Hang in there and best of luck with everything buddy!

Hey Ramel! So basically, the Low-Income Housing Tax Credit (LIHTC) is a government program designed to encourage developers and investors to create affordable housing for low-income families. In a nutshell, it offers tax incentives to those who invest in affordable housing projects.

To get into it in New York State, you'd typically partner with a developer who's working on an affordable housing project. Once the project is approved, you'd invest in it and, in return, receive tax credits that can be used to offset your income tax liability.

Now, it's important to note that these tax credits are allocated to each state based on their population, and then distributed by state agencies through a competitive application process. In New York, the agency responsible for this is the New York State Homes and Community Renewal (HCR). You can find more information on their website here: https://hcr.ny.gov/low-income-housing-tax-credits

Before you jump into LIHTC investments, it's a good idea to familiarize yourself with the program requirements and restrictions, as well as the potential risks and rewards. You might also want to consult with a tax advisor or real estate professional who specializes in LIHTC investments to help guide you through the process.

So, are you looking to invest in a specific project, or are you just exploring the idea of getting involved in affordable housing? Let me know if you have any more questions or need more clarification on anything. Good luck buddy!

Hey Gloria! It's great to see newbies getting into real estate investing. So, in a nutshell, your arrangement with your relative and how the profits are split when properties are sold depends on the terms you agreed upon when setting up the partnership. Did you guys have a specific agreement on how the profits would be divided when you sell a property, or is it just based on your initial investment percentage?

Now, when it comes to reporting income for tax purposes, it's a bit more complicated. Since you're in an LLC, the income generated from your rental properties will typically flow through to your personal tax return, and you'll be taxed on your share of the profits. This is usually done using a Schedule K-1 form that the LLC will send to you at the end of the year. The form will show your share of the profits, losses, and deductions from the rental property business.

As for the sale of properties, you'll have to report your share of the capital gains or losses from the sale on your personal tax return as well. Keep in mind that the exact tax treatment and reporting requirements can vary depending on the specific details of your situation, so it's always a good idea to consult with a tax professional who can give you personalized advice.

I hope that helps clarify things a bit! If you have any more questions or need some more details on your specific situation, feel free to ask!

Hey Chris!

So basically, I totally get where you're coming from. Outgrowing QuickBooks is a sign that your business is scaling up, which is awesome. When it comes to enterprise-level software for accounting and asset management, especially in the private lending space, there are a few options you might want to consider.

In a nutshell, some popular alternatives to Yardi (which, as you mentioned, is more geared towards large-scale multifamily properties) are:

1. MRI Software: MRI is a pretty versatile and customizable software solution that caters to various real estate sectors, including private lending. It offers a solid accounting platform, along with asset management features that can really streamline your operations.
2. AppFolio: While AppFolio is well-known for property management, it also offers robust accounting and financial management tools that might be a good fit for your needs. They have a strong focus on automation and efficiency, which can be a huge plus for a growing business.
3. RealPage: RealPage is another software worth checking out. It's designed for a wide range of real estate sectors and offers comprehensive accounting and asset management features. With its scalable and flexible platform, it could be a great option for your private lending business.
4. Juniper Square: Juniper Square is specifically tailored to real estate investment management, so it might be a perfect fit for your private lending business. It offers an all-in-one platform with features like investor reporting, fundraising, and CRM, in addition to accounting and asset management.

Before you dive in and commit to a specific software, I'd recommend reaching out to each company and requesting a demo or trial. This way, you can get a feel for which platform works best for your needs and is the most user-friendly for your team.

I hope this helps you out, and good luck with your search! Let me know if you have any more questions or need any further guidance. Cheers!

Hey Clay! I can give you some general guidance based on my experience as a real estate investor. You should definitely consult with a tax expert to confirm the best approach for your specific situation.

So basically, you're right that the rules can be a bit confusing when it comes to allocating expenses for vacant land that's intended for investment purposes. In a nutshell, here's what you might consider doing:

1. Capitalize expenses related to the land: You can capitalize costs like land surveyor services, architect consulting fees, and security fencing, which directly contribute to the development of the land. This would increase your overall basis in the land, which will be useful when you eventually start depreciating the improvements you make to the property.
2. Mortgage interest: For the mortgage interest you're paying on the land, you might be able to deduct it as investment interest if you itemize your deductions. To do this, you would need to report the interest on Schedule A (Itemized Deductions) under the category of investment interest expense.
3. Property taxes: Unfortunately, as you mentioned, the $10,000 SALT cap could limit your ability to deduct property taxes. Given your situation, it might make sense to capitalize the property taxes as well, increasing your basis in the land. This approach isn't universally agreed upon, so it's best to consult with a tax expert on this one.

Keep in mind that when you start constructing the rental units, you'll need to shift from capitalizing costs to depreciating them. The capitalized expenses related to the land will become part of your depreciable basis for the improvements you make, and you'll start depreciating the improvements once they're placed in service.

Def consult with a tax professional to make sure you're following the right approach for your specific situation. Good luck with your investment, and I hope this helps!

Hey Quenton-

Hope all is well my man. It's great to see you're considering taking advantage of the Section 179 write-off for your vehicle purchase. I'd be happy to share some insight with you. 

So you probably already know that Section 179 is a tax deduction that allows business owners to deduct the cost of qualifying property, including vehicles, in the year the property is placed in service. This can be a great way to lower your tax burden if you're using a vehicle primarily for business purposes.

To qualify for the deduction, the vehicle must be used more than 50% for business purposes. Based on your estimate of 75% business use, you should be eligible. Just keep in mind that if the business use percentage drops below 50% in any year during the vehicle's recovery period (5 years for most vehicles), you may need to recapture some of the deduction.

Here are some general guidelines to consider when purchasing a larger vehicle for Section 179:

1. The vehicle must have a gross vehicle weight rating (GVWR) of more than 6,000 pounds to qualify for the full Section 179 deduction. Smaller vehicles may still be eligible, but the deduction limits may be lower.

2. You can deduct up to $1,050,000 (for tax year 2021, adjusted for inflation in future years) of the vehicle's cost in the first year, as long as the total cost of all eligible property doesn't exceed $2,620,000 (for tax year 2021, adjusted for inflation in future years). Any remaining cost can be depreciated using the regular MACRS method over the next few years.

3. Only the business-use percentage of the vehicle's cost is deductible. In your case, you mentioned a 75% business use, so you'd be able to deduct 75% of the vehicle's cost under Section 179.

4. If you're using the vehicle for both personal and business purposes, you'll need to keep detailed records of your business mileage and expenses to substantiate your deduction.

So in a nutshell purchasing a larger vehicle and using it primarily for business purposes can provide you with a significant tax write-off under Section 179. It's important to weigh the benefits of the tax deduction against the higher upfront cost and ongoing expenses (such as fuel and maintenance) associated with a larger vehicle. As always, consult with a tax professional to help you make the best decision for your situation.

Good luck with your vehicle purchase, and happy investing!