All Forum Posts by: Michael Plaks

@Gulliver R. - now, the state law prohibition pointed out by @Nghi Le is an entirely different conversation. I'm no expert in your state law, but obviously you can't pay something that the state is not allowed to accept.

@Gulliver R. I strongly disagree with @Victor N..

Yes, you can wait and deduct in 2018, too, but the reason to prepay is not because you won't be able to deduct it next year. It is to grab your tax deduction in the current year, one year sooner. 

Even more important this year, because the rates are going down, so you should generally get more mileage out of your deduction this year.

Of course notice my "generally" safety valve. There're plenty of possible scenarios where paying next year could be better, but it would require a case-by-case analysis.

@Nicholas Aiola

I have always been unsure about this. From the 1098 instructions:

"File this form if you are engaged in a trade or business and, in the course of such trade or business, you receive from an individual $600 or more of mortgage interest... You are not required to file this form if the interest is not received in the course of your trade or business..."

This appears to relieve @John Laney's dad from the 1098 reporting requirement.

Next, from the 1099-INT instructions:

"Interest excluded from reporting. You are not required to file Form 1099-INT for interest on an obligation issued by an individual..."

This appears to relieve John from the 1099-INT reporting requirement.

Disclaimer: I'm not sure that I'm correct. I invite my colleagues to chime in.

PS. But the interest IS deductible if the loan is secured by the property, even without the reporting forms.

@Alex M. - no, I do not think you need to beat the clock and create it this week. What I meant is that you do not have to wait until you decide on S-corp before creating the LLC(s). You can create your LLC(s) anytime, as soon as you figure out in which state. And state question is not my area, it should be an attorney's call.

The thing about attorneys (advance apology to you guys) is that they will never agree on asset protection. Ask 3 attorneys - and you get at least 3 different opinions, sometimes more. :)  I always tell my clients to find ONE attorney who appears competent, approachable and reasonable - and follow whichever asset protection religion he practices. Don't ask for a second opinion, as it's almost guaranteed to contradict the first opinion. And a 3rd opinion will contradict both 1st and 2nd, instead of siding with one of them. Some days I wish I were an attorney.

I completely agree, @Brandon Hall. If my client deducted a prepayment, and the IRS disallowed it, I would certainly take such case to argue.

@Marston Gould

The short answer is - yes, you can. The long answer would have to go thru a lot of details, which is best left for your CPA.

You will basically partition your property, including mortgage, taxes, and utilities, into two: personal residence and rental apartment. This blog post by @Brandon Hall gives an excellent introduction into the applicable rules.

@Anthony Conway

How can I stay in shape but not watch the calories, because I like pizza and ice cream? Answer this one for me, and I will answer yours. :)

You're right. Obviously, lenders want to see high income. Less expenses = higher income = better loans. However, not deducting expenses that you're eligible for is not only causing you to overpay taxes - it is actually against the IRS rules.

The loophole that you're talking about is to replace some of the deductions with depreciation. It is OK if done correctly, and it might help you, but it depends on the lender. Some of the lenders will add depreciation back when evaluating your income, and others won't. It also depends on what you are depreciating and what is your business model. 

I doubt you can find a good answer without having an accountant go thru your options and your numbers AND also verifying with your future lender that their underwriting will make the desired adjustment for depreciation.

 That is correct, which is why you choose a tax advisor/accountant on BP, not elsewhere  ;)

@Alex M.

1) Yes, separate. Not only for tax reasons - for basic money separation. You never want to mix money when you have partners in one of the businesses but not the other. 

2) You may or may not benefit from S-corp. Depends on numbers. I would not go the S-corp route without getting customized advice. Form LLC now, but you have until 3/15 to make the S-corp election.

3) This is an attorney's question, and I'm not one. Usually attorneys recommend to create holding LLCs in the same state where they will hold properties, regardless of your residency.

@Jeremy Janszen

These days, having a local accountant is no longer critical. Many of us here on BP work remotely, serving clients nationwide. Happy 2018!