All Forum Posts by: Michael Hardler

Quote from @Benjamin Weinhart:

Quote from @Michael Hardler:

Quote from @Benjamin Weinhart:

Hi Michael,

Great question, your tax advisor is correct with their final determination of reporting the activity on Schedule E. Since this is not an actively managed property, you're unable to take the deduction against your W2 (or other) income in the current year. Depending on your definition of house hack, these excess losses may be able to be carried forward as passive losses on form 8582 (not enough information to determine this part, would need additional info).

I will mention as well that if you choose to switch to another accountant who more specializes in real estate, being that it's April, any good CPA will automatically want you to file an extension. If you're ok with this, it sounds as if you may be starting to outgrow your current tax advisor so it may not be a bad idea to seek someone else out either this year or next year. You will likely still owe their fee for the amount of work they've already done if you choose this year however.

Thank you so much for your input!
Now, for my learning if you please, does it make a difference that i "materially participate" in the business? I clean all shared areas of the home, cook occasional meals for guests, lawncare, maintenance, and shop for them (consistently provide milk, bread, basics etc)? Is this the only qualifier that stands in the way between the two 1040 options? I hear that some STR businesses are able to classify as actively managed / active income given similar activities.

If i were to switch at this point, I would certainly go ahead and pay their fees gladly given that they have already completed the majority of it! Thank you for the note about likely extension application if i were to switch. 

At this point I am leaning towards just going with how they have been prepped (Sch E), although I don't want to set a precedent that excludes me from utilizing Sch C next year if it so happens that would be appropriate.

With the rental being part of your primary residence, a majority of those activities such as lawncare and maintenance would just count as personal activities anyway. There is certainly a case such as certain STR activities which may qualify for being able to be considered active income, but it's somewhat difficult to achieve this or material participation status where I think you're currently at. It's good to note as well that you're not "locked in" from using one or the other, just simply how the activity was during the year.

I will also state that you don't get a choice in the matter for how it's reported for 2023. Unless my assessment of your situation is wrong based on what you've provided, you will be required to utilize Schedule E, and cannot classify this under Schedule C. Tax compliance is rarely a "choose your own adventure" type of deal if the tax year has already closed. This is why tax planning is so important to help avoid some of these issues before they become issues.

 Thank you very much! Would love to connect to discuss further and learn more about you / your business scope if you are licensed as a CPA in MN / would be interested.

If not, thank you regardless!

Quote from @Account Closed:

Regarding your first question: the choice between Schedule E and Schedule C can significantly impact the taxation of your income, particularly in scenarios involving rental properties or self-employment. It's crucial to align this decision with the nature of your income sources and their respective tax treatments. Schedule E typically caters to rental income and certain types of passive income, while Schedule C is tailored for reporting profits and losses from a business or self-employment. Real estate-focused accountants can help you here especially if your current accountant is being wishy-washy. Best of luck on your journey! 

Thank you kindly for your input!!

Quote from @Benjamin Weinhart:

Hi Michael,

Great question, your tax advisor is correct with their final determination of reporting the activity on Schedule E. Since this is not an actively managed property, you're unable to take the deduction against your W2 (or other) income in the current year. Depending on your definition of house hack, these excess losses may be able to be carried forward as passive losses on form 8582 (not enough information to determine this part, would need additional info).

I will mention as well that if you choose to switch to another accountant who more specializes in real estate, being that it's April, any good CPA will automatically want you to file an extension. If you're ok with this, it sounds as if you may be starting to outgrow your current tax advisor so it may not be a bad idea to seek someone else out either this year or next year. You will likely still owe their fee for the amount of work they've already done if you choose this year however.

Thank you so much for your input!
Now, for my learning if you please, does it make a difference that i "materially participate" in the business? I clean all shared areas of the home, cook occasional meals for guests, lawncare, maintenance, and shop for them (consistently provide milk, bread, basics etc)? Is this the only qualifier that stands in the way between the two 1040 options? I hear that some STR businesses are able to classify as actively managed / active income given similar activities.

If i were to switch at this point, I would certainly go ahead and pay their fees gladly given that they have already completed the majority of it! Thank you for the note about likely extension application if i were to switch. 

At this point I am leaning towards just going with how they have been prepped (Sch E), although I don't want to set a precedent that excludes me from utilizing Sch C next year if it so happens that would be appropriate.

Hello fellow househackers!

Two questions for the group in celebration of tax holiday cheer.

1. Does your tax preparer have you use a 1040 schedule E or 1040 Schedule C?

2. Which portion of the tax code do they reference / how are they interpreting it?

I promise i'm not getting all my tax advice on social media... but my tax advisor hasn't helped prepare for a HH yet and he's flip-flopped between Sch E and Sch C enough to make me question it... His final determination (3rd choice) was Schedule E, although this is not what i expected and is not nearly as beneficial when it comes to writing off expenses towards my income / lowering AGI as schedule C. Just wondering if anyone out there is filing with someone who has more experience / precedent in this situation. This will help me decide if i need to find another accountant before tax day.

TYIA!!

Hello! Trying to apply some of the great concepts and equations from the REBTN book. I think i’m overthinking this problem, so would appreciate some outsider perspective!

TLDR: How to calculate estimates on benefit/loss of paying down higher interest mortgages vs reinvesting? Looking for some other excel + finance junkies out there to help a brotha out!

I'm a bit stuck on trying to decide how to move forward with this question that must be on everyone's mind… What's the estimated benefit/loss when deciding to pay down a mortgage on a property versus saving that extra money to reinvest in another property? I don't feel like this situation was well described throughout the book or maybe it was and I just haven't connected the dots yet. For example: I have a 5 year ARM at 5.5% interest on a 243k mortgage that can adjust after that period, but my plan is to hopefully transition to a 30 year fixed rate before the adjustment occurs - so we can avoid that complexity. Using round numbers, consider debt service min is 1700/mo. Estimating that in 5 years it'll probably cost about 4% of the balance at that time to refinance, where having a lower balance would reduce cost. The impetus for this question comes from seeing an amortization calculator show that if I pay 1667/mo for the life of the loan (real numbers), i'll have paid 242,755 over 30 years in interest on the (now) 243k property assuming I keep a 5.5% interest rate. Amortization calculator shows that, for interest, if I paid 2k/mo, would pay ~147k, 2500/mo would pay ~96k, if paying 3k/mo would only pay 72k in interest for life of the loan. So what is the most accurate way to compare these two "investments" when considering appropriately compounded interest from investments/future value/etc.? Let's just assume I keep the house for the loan period for ease of calculation. Should i use 243k (paying 1700/mo) minus 147k/96k/72k and then calculate the difference in those over 30 years? Say 243-147= 96k over 30 years is a 3.2k/year benefit, obviously more benefit with higher monthly payments. For the "investment" side, i would be investing in real estate, but we can assume a 10% return to keep it simple. Let me know what you all think / how you'd draw up an excel calculator to play around with numbers and decide. An example excel would be clutch - but I won't expect too much! Thanks!