All Forum Posts by: Michael Lynch

@Michael Plaks we need more regs and court cases. It hasn't been that long that 1245 property cannot be exchanged. You had a prior post that seemed reasonable.

To complicate matters, check your state. Some states still allow 1245 property exchanges.

@Tiffani Hollis You need the CPA to also be a trust expert as well as a real estate expert since you said the property is held in a family trust. Family Trust implies possibly multiple grantors and/or beneficiaries and is probably not a disregarded entity.

 Boot issues?

Are you talking about actually changing the legal structure from and LLC to a corporation (then making an S corp election), or are you talking about the LLC making the "check the box" election to be taxed as an S corporation?

 Your taxable income outside of this will be negative? Is that what you are saying in your posts?

It is possible a significant part of your capital gain might be taxable at a 0% tax rate for federal income tax, then the remainder at 15%. You might not want to avoid that. But don't forget state income taxes.

The car credit is not refundable. If you have no tax liability, it's not going to help.

You really need to run a projection.

Many financial planners do not get that involved with real estate planning. Account Closed would likely believe that this is because they cannot charge their 1.5% fee on real estate (although there are a few planners that charge based on ALL of your assets). For some, this might be true, but for many it is because real estate people tend to shun other investments and most planners advocate for diversification.

The idea of writing off passive losses against your salary income is very alluring. But, don't forget, a loss is a loss. Losses are bad. Passive losses (and for that matter, nonpassive losses as well) are only "good" if they are part of plan that will generate a profit over all, considering the entire life of the investment, after taxes. And, if they will not eat you up during the life of the "investment."

I suggest you and your husband consider either getting some good books on various types of investments or paying a financial planner an hourly fee to go over basic investments and how they work. Avoid moving too fast and immediately taking action or placing assets under someone's management unless and until you both understand the potential returns and risks of what you are doing.

And, right now, savings accounts are not all bad. Online banks have regular savings accounts yielding up to 5.25%. Much better than the 0.0025% people were accepting not too long ago.

Unfortunately, the terms of the will can impact the answer. Was the property specifically left to you, or was it was given to you as part of a general bequest? This may impact both your basis and whether or not the estate should have recognized a gain--which may be pushed out to you anyway if you received the condo in the same year the estate wound up.

Based on what you wrote, it seems most likely that your basis will be the value of the condo on the date your relative passed away. However, your gain should be long-term because it is inherited property.

As an aside, what basis did you use for depreciation? How was the condo used by your relative and by the estate? Is your step-mother the relative that passed away?

I do not think an answer with certainty can be provided to you without a review of the will and a discussion with you.

There are situations where state law effects federal income tax. State community property laws is one area that has several impacts. In community property states, spouses can be considered one owner for LLC purposes.

Georgia is not a community property state. I assume you live in Georgia and formed your LLC in Georgia.

You mentioned that you spouse and you are members. That is two members. So, in Georgia, the LLC needs to file its own tax return.

The default filing status is as a partnership. The LLC can elect to be taxed as a corporation. Late elections can be made.

https://www.irs.gov/businesses/small-businesses-self-employe... See particularly last paragraph.

I agree with @Michael Plaks: No.

Real estate rental activity is by definition a passive activity--unless you are a real estate professional. The rules to be a real estate professional are more involved than you would think. A taxpayer must provide more than one-half of his or her total personal services in real property trades or businesses in which he or she materially participates AND perform more than 750 hours of services during the tax year in real property trades or businesses.

Real estate rental activity is not automatically a passive activity for a real estate professional. However, it can still be a passive activity if the real estate professional is not active within that real estate activity. There is an election available to group the real estate activities together for the purposes of this determination.

Depending on the income on your tax return, up to $25,000 of total rental real estate losses are deductible even if you are not a real estate professional as long as you are considered to be actively participating on the rental. The amount phases away as your income goes over $100,000 (MFJ).

Doublecheck the boxes in TurboTax. If there is a box to indicate the activity is rental real estate, make sure it is checked. If your wife qualified as a real estate professional, make sure that box is checked, too.

Check out the instructions for Form 8582, especially the section regarding Rental Activities.

https://www.irs.gov/instructions/i8582#en_US_2022_publink100...

As @Wayne Brooks mentioned, you calculate depreciation on your original cost of the property (assuming you purchased the property to be a rental and have not used it personally), not on its assessed value.