All Forum Posts by: Michael Plaks

@Ed Shin

Your understanding is incorrect. The 15-day rule applies to temporarily renting your home that remains your residence. You situation is different: permanent conversion into a rental property. 

It has to be reported on your 2017 tax return and include rent you received in 2017, as well as deductible expenses you incurred in 2017. Should also start depreciation in 2017.

@Jack B., you only read part of the tax law. :)

You are correct about the 2 of 5 rule, but there is another one: non-qualified use. This is how it works. Renting for 4 years. Owning a total of 8 years. This is 4 of 8 = 50%.

So you will qualify for the exclusion under 2/5 rule, no problem here. However, you can only use 50% of it under the non-qualified use rule.

@Lance Lvovsky @Brandon Hall

Are you guys suggesting that there're investors on BP who make less than $250k? C'mon now!  :)

Yes, you're correct, thanks for bringing it up. Still, a significant number of my clients would be affected.

I wonder about the mechanism to enforce such rule. Revised K-1s will have to show the total amount of salaries paid by the business, apparently? 

My favorite tax analyst, Toni Nitti of Forbes, posted this troubling article. Here is the short version:

The Senate version limits the 23% deduction afforded to pass-through entities to the 50% of the wages paid by the business. For passive investors with high cash flow, this means NO deduction in most cases. 

Basically, if the Senate version passes, landlords with positive net income will not have any break - in contrast to the tax rate reduction offered in the House version.

@Jennifer A.

If we're talking about purchasing a flip property, and you're already in the flipping business - then yes. If we're talking about purchasing a rental property in the area where you already have another one - the answer is also yes.

But I suspect you're talking about a new rental property in a new area, or maybe even your very first investment property. Then the answer is no. It will have to be added to the purchase cost in 2018 and depreciated.

There was a discussion about this issue here on BP, and my colleague @Brandon Hall explained it very well back then.

Exactly, @Nick B.

@Daniel Klucas

Two thoughts. The first one does not help, but still... After(if) the reform becomes the law, there will be Regulations clarifying it. It's entirely possible to have some kind of phase-in and/or limited exclusion provisions later on. Of course, nobody can predict what the Treasury will do.

Second thought is - see if you can sell the house in December and lease it back from the buyer until your new house is ready. Maybe you can even sell it to a friendly party short-term, but you have to be careful structuring this. I know, very little time left, but it would protect you if you can pull it off.

You do not need to formally partner with him. In fact, I would recommend that you do not make him (or anyone else) an equity partner unless you must. Too many reasons, and his IRS problems just add another reason to avoid it.

Instead, just have an agreement on his compensation once the deal is sold. Assuming he will not demand an equity stake.

Clarification: being audited is not a problem on its own - for you or for the lenders. However, if he loses the audit and is unable (or unwilling) to pay the IRS - then it can become a problem.

@Linda Weygant

I'm sorry if my posts appeared aggressive to you. I see nothing aggressive or disrespectful in a simple statement that you were mistaken. Unlike you, I did not get personal, until now. My goal is to ensure that people get correct answers. Isn't yours the same?

@Linda Hastings  @John Newsom

My colleague is incorrect. I responded to her in the other thread.