All Forum Posts by: Margaret Feit

@Dave Foster I don't actually own the property yet. My plan if I buy it would be to use the 1031 exchange funds to purchase the property as is. That would pretty much use up the 1031 funds, so no need to do a reverse exchange or include any improvements in the exchange. But then I would use additional outside funds to rehab the property to get it ready to rent, which would be added to the basis of the property on top of the exchanged basis. That would definitely take some time and may very well be next calendar year before I actually list it for rent. 

In this case, my understanding is that I would then have two different depreciation schedules moving forward. One for the exchanged basis that would be a continuation of my previous depreciation, and a separate depreciation schedule for the new basis, which I assume would not start until the rehab is complete and the property is listed for rent. During the in-between time, would I continue the depreciation of the exchanged basis starting on the date of acquisition of the replacement property, even though the new property would not be placed in service yet? And likewise, if I have no income/expenses for the new property in 2025, do I still include it on schedule E? Or if I have to wait until it is actually placed in service to count it as a property, then would I just complete the form 8824 for 2025 without actually putting the new property on my schedule E at all until 2026? 

It seems like it would be weird either way and potentially raise red flags on my return - whether I list the new property on the form 8824 but not on schedule E, or if I put it on schedule E when it doesn't have any activity yet. Just trying to figure out which is correct.

I am currently in my initial 45-day identification period for a 1031 exchange. I'm looking at a property that needs a total rehab and considering using my 1031 funds to purchase the property and then adding outside funds to complete the rehab. I would plan to take title within 180 days, but I'm not sure I could have the rehab all the way finished and the property placed in service within 180 days, possibly not even within this calendar/tax year. I understand that any purchase involving the 1031 funds needs to be identified within the 45 days and completed within 180 days, but if I am also using outside funds for additional work, does that all need to be completed within 180 days as well? Does the property need to be placed in service by that time? 

If I wasn't using 1031 exchange funds for a project like this, I would just keep track of my expenses and let them build up as basis until the property is placed in service, at which point I would start depreciation based on the basis at the time it's placed in service. I wouldn't report anything about the property on my tax returns until that time. In this case, if I complete a 1031 in 2025 (with the 180 days being completed in 2025 as well), but I don't actually put the replacement property in service until 2026, how does that work with the tax return and depreciation schedule? How would I account on the 2025 tax return for a property that exists in the exchange but hasn't been placed in service?

I have a Partnership that is primarily in the business of buy and hold rentals and also has some funds invested in multifamily syndications. Last year I sold a property and used the funds to purchase a set of 3 land loans in the name of the partnership, which have been paying mostly interest and a little principal on a monthly basis. The income from these loans makes up about 10% of the partnership's gross income for 2023 (but will likely be a larger percentage in future years). My loan processor sent 1098s to the landowners on my behalf, but I did not receive any tax forms. 

I know this interest income is taxable, but my question is whether it is also subject to self-employment tax. My understanding is that interest income derived "in the ordinary course of a trade or business" is considered business income and is subject to SE tax. But does the fact that the income comes to a partnership, which is a trade/business for other purposes, necessarily mean that this interest income is trade/business income? Or since it is a long-term investment and not the primary source of partnership income, could it be considered interest income that would not be subject to SE Tax (as if I had received a 1099-INT)? If the latter, and if I continued to purchase mortgage loans or otherwise lend money, is there a definitive point at which I can no longer reasonably argue that I am not in the business of lending money?

Thanks. I don't mind adjusting future tax returns or holding off on additional depreciation until what I actually took "catches up" to what I would have taken if I had started off with the longer depreciation period. I guess that's part of my question - is there a way to make this correction moving forward, without having to go back and amend prior years' returns? I'm guessing that's not how it works, but considering how often I imagine this sort of thing comes up, seems like it would be helpful if there is a way to make an adjustment moving forward.

I have a couple of short term rentals, definitely under 7 days average rental period. When I bought them several years ago, I started off depreciating them over 27.5 years, but after reading much conflicting information online, I have come to the conclusion that they should really be depreciating over 39 years due to the transient occupancy rules.

So now that I am 5 years in, can/should I change the depreciation period? Is there a straightforward way to do that without having to go back and amend multiple years or file a 3115? Or now that I'm this far into it, is it better to just continue with them as they are? (Not that any CPA would give me official advice to continue filing incorrectly... but realistically, what is the best course of action at this point?)

If I don't go back and change the earlier properties, but I add a new STR to my portfolio, should I start the new one at 39 years even though it is inconsistent with the existing properties? Or does that inconsistency raise red flags on my return?

@James Parrish Thanks for your reply! I am seeing different claims in different places online for whether single STR houses should be 27.5 or 39 year depreciation. Is 39 the definitive answer? If so, thank you for the correction!

Thank you for the acknowledgement that I could potentially depreciate the personal property items separately from the main structure. At this price point I don't think a full cost segregation study is necessarily worth its cost and complication, but since I am actually physically buying a lot of personal property separately from the cost of the build (furnishing and decorating the property one piece at a time), I have a pretty good sense of what items are personal property and what their individual costs are. 

My unanswered question here pertains to whether any of the costs from the weeks before the property is placed in services can be expensed, as that is a bigger tax benefit that just pushing the tax into the future via depreciation. If I have a 5-year property item (a sofa, for example) that costs $1000 and is purchased a couple weeks before it is placed in service, can I expense it under the de minimus safe harbor? What if I have 5 different such items? Can I expense them each individually? Or does the safe harbor only apply to items that are purchased after the encompassing real property is placed in service?

I have a new construction STR that will be completed and placed in service this year. I understand that none of my expenses are deductible until the property is placed in service, and that all construction expenses and holding costs get added to my basis to begin depreciating over 27.5 years once the property is placed in service.

My question is about the personal property items that I purchase for the house in the month or so before placing it in service. Since this is an STR, there is a lot of personal property - appliances, furniture, decor, linens, etc. These would all normally be depreciated over 5 years (or just expensed, in the case of the smaller items like linens). If they are purchased before the property is placed in service (but in the same year), I understand their depreciation can't begin until the placed in service date. But beginning on that date, can I depreciate these items separately over 5 years, or do I have to wrap them into the property basis that depreciates over 27.5 years? For the personal property items that are under $2500 (which is most of them), can I expense them as de minimus expenses on the date they are placed in service, even if I actually bought them a few weeks prior?

We've bought and sold several properties in this sort of situation. Sometimes because there's a tenant involved, sometimes because we are buying something out of state and don't want to pay travel expenses to look at it when we don't even know if our offer will be accepted. It's actually in your advantage because if you can get it under contract with contingencies, then you can tie it up so that other investors can't outbid you, then you have a few days to visit, look around, think about it, adjust your offer if needed, or walk away. Just make sure you have that contingency period in the contract so that you have the option to walk away if you don't want it after you see it.

When we first started a few years ago, the platforms only collected state tax and not the county/city hospitality taxes. Individual owners were responsible for the lodging taxes for county and city. That changed as of 1/1/21, when both platforms began collecting and remitting the lodging taxes as well. If you're seeing posts that say owners have to handle lodging taxes in Sevier County, they might be older posts with outdated information. 

At this time, I believe that if all your bookings are coming through Airbnb or VRBO, then the only taxes you need to cover are the annual business tax and Franchise/Excise tax through TNTAP, and you don't even need to set up accounts for the other taxes. If you also do direct bookings, though, then you need to cover sales and lodging taxes for those bookings, which means you have to have the accounts open and file monthly reports for them even for months when you don't have any direct bookings.

In a non-community property state, can a husband/wife general partnership (not an LLC) own & insure rental properties in their own names but report them on a partnership tax return? I know if you set up an LLC you are supposed to have the properties actually owned by/titled to the LLC so that the individual members are not involved in ownership. But does the same apply to a general partnership? Or once you take out the liability question, can an individual spouse/partner own property on behalf of the partnership?

I am not looking to set up an LLC. I understand the liability issues, but my husband and I would like to keep our properties in our own names. It's easier to get financing, easier to move funds around between projects, easier to do 1031 exchanges, etc. Quit-claiming has caused us title insurance issues in the past, and since most of our financing is in our own names, we've got our LLC veil essentially pierced before we even begin anyway. We would rather keep everything in our names and have a good umbrella liability policy.

That said, I do like the structure of having a defined business with an EIN and a bank account that is really run like a business and files tax info for all the properties in one place consistently from year to year, and it seems like a general partnership might be the way to combine these options.

I don’t mind filing a 1065 and might even prefer it over putting all the details on our 1040, so I’m not trying to avoid that particular complication. I’m also not concerned about planning for divorce and its complications. But acknowledging the lack of liability protection, are there other tax/legal pitfalls I should be aware of with owning properties individually but running them and filing taxes as a partnership? Any potential issues with the IRS, or with umbrellas not covering “partnership property,” or complications with title if one of us dies suddenly, etc - any red flags I should be aware of up front with this sort of structure?