All Forum Posts by: Melody E Bergloff

@Sam Edgin

A common bookkeeping software for real estate as well as other industries is Quickbooks. Quickbooks is a great and sophisticated tool, but many people are unfamiliar on how to use it. Another common way a lot of people track their expenses is through the use of an Excel spreadsheet. 

I advise my clients to have a separate checking and credit card for all of their business and/or rental expenses. Hence, the bank statements for these accounts effectively tracks the rental income coming in and any rental expenses coming out. 

I would also strategize with a tax professional on how to maximize your deductions. There are a lot of things you can do here. 

@Andrew Froome @George W. @Taylor L.

I think Taylor and George pointed out some good business reasons why forming a partnership is beneficial. 

There are legal benefits like asset protection that you can also consider. However, for tax purposes, there are no significant benefits in forming a multi-member partnership. 

@Dave G. @Marie-therese Tai

I agree with Dave on the non tax considerations you should consider. 

For tax purposes, you can do a 1031 exchange to mitigate the tax bill on the $200K. Since there is a large built in gain, I am presuming you have held the property for longer then one year. If so and you sold the property without doing a 1031 exchange, then that gain would be taxed at the preferential long term capital gain rate. Then, if you decide to sell the property and lease elsewhere, you can deduct the rental payments. 

I would talk to a tax professional to help you model the tax aspect to help you your decision. There is a lot of strategizing that can be done here. 

@Richard Davis III @Mike S. @Greg Seldon

I think Richard and Mike are on point about the gift aspect of your post. I would not buy or have your parents gift you the property though. If your parents gift you the property, you generally will get a carryover tax basis (i.e. the basis that the parents have in the property). Hence, when the property is sold, there is still a lot of unrealized appreciation that is taxable. 

I would recommend your parents hold the property and bequest the property to you when they pass away. The property will get a step-up in basis (i.e. the basis = the FMV). In other words, all of that unrealized appreciation gets wiped out.

I would definitely talk to a tax professional and strategize further.  

@Ronnie Hawkins @Jaron Walling @Jim Pellerin

Both Jim and Jaron bring up really good points. From a tax perspective, there is no real benefit especially if you will be the sole owner of the LLC. The LLC can provide a good way to split income/expenses with a partner. However, I would consult with an attorney to see if it will make sense for you especially with protecting assets.

@Nathan Gesner @Jason Walker

I generally agree with Nathan. There are ways to pierce through the LLC protection, so you may want to talk to your attorney.

@Lee Ripma @Faith Kirk

I agree with Lee, you should definitely get a good tax professional. :)

Its difficult to give a concrete answer to your question with the details provided. First, is the LLC a disregarded entity for tax purposes (i.e. is there only one partner in the LLC or is there multiple partners?)? Some states like CA require a state filing regardless if it is a disregarded entity, while other states don't have such requirement. Second, you need to check if the state in question has a LLC state filing requirement.

Another concern that you may or may not have considered is that by operating in another state, you may have state sourced income (SSI) in the state in question. You may need to apportion/allocate the state sourced income so that the income is being taxed correctly by each jurisdiction. 

Again, work with a good tax professional that can help you navigate this for you.  

@Tierra Petersen

I would definitely consider in hiring a tax professional. A few common expenses/deductions that I see real estate professionals miss relate to the home-office deduction, office expenses, depreciation, supplies, etc. 

@Curt Davis @Jake Adams

I generally agree with Curt. In general, as far as pros, a LLC does offer asset protection if the LLC owns the properties. Also, a LLC helps provide a way to split the income and expenses between partners.

The cons would include the legal fees to setup the LLC and the tax filing fees for the LLC if the entity is not considered a disregarded entity.

@CK Fiore @Brian M Sweeney

I agree with Brian, I would not dump a ton of time in learning all the tax aspects of real estate investing. This does take time and using a tax professional could help you along. However, there are a ton of resources on BP that can help you familiarize yourself of some of the tax strategies employed by small and large RE investors.