All Forum Posts by: Michael Lynch

Originally posted by @Eric Doe:

@Basit Siddiqi it was my primary residence for over 2 years. Would this mean I could possibly be expept?

No one can really give a good answer until they know everything you did with this property. You have mentioned that it was a house hack, you also called it a flip, and you have also indicated it was your primary residence. 

More details are needed. Is the property a single family home or multi-unit? Was the property a rental and then your home? Part rental, part home? When did you last avail yourself of the primary residence gain exclusion? This all matters.

Originally posted by @Joe Villeneuve:

Originally posted by @Michael Lynch:

@Joe Villeneuve A Google search of 1073751824 yields only a few Bigger Pockets postings by you.

OK. Then if you read them, can you tell me what that sequence means and why it's important enough for me to say that every decision the REI makes should be based on that number sequence?

My response was poorly written. My point was that a Google search for 1073751824 did not find results other than your postings. I hope it did not read as if I was saying you have few posts.

I will go back to read some of your postings. Another responder gave away that this is the amount that results, starting with one dollar, by doubling your money each year for thirty years. Do you both leave all your money working and double it each year? Do you not participate in deals that will not double your money annually at a minimum? Regardless, compounding is very powerful, and the more time you have the more powerful it is.

When I was a child I read somewhere that one should try this: ask your parents to lower your allowance to 1 cent with the agreement that they will double your allowance each week: 2 cents the second week, 4 cents the third, etc. The article showed how quickly the allowance amount will grow, and the article suggested that the parent will hear the one or two cents and agree to this proposition. I decided I would try this clever gambit on my father, although I would be magnanimous enough to not hold my father to it once the weekly amount became too large. So, I proposed this idea to my father. To my surprise, he said no within a split second of my finishing my question. An early lesson in my father's brilliance.

(This memory came to me while considering doubling money. Perhaps the real purpose of that article might have been to get a child to think about compounding rather than to actually get an allowance within weeks that is more than his parents make. I am not sure my story helps this conversation, but it was fun to share.)

@Joe Villeneuve A Google search of 1073751824 yields only a few Bigger Pockets postings by you.

@Travis M. If you are the ONLY owner of the LLC, it will be treated as a disregarded entity for federal income tax purposes, and you will continue to report your LLC's business income and expense on your personal income tax return. Your business activity will still be reported on Schedule C.

You will need separate accounts and books, and you will need to follow the legal requirements for an LLC, especially if you expect to maintain the benefits of being an LLC, but you will disregard the LLC for federal income tax purposes.

You will need to check what your state income tax laws are.

@Jon Fletcher Add an addendum that indicates you are an agent and reduces the $100K sales price to $97, indicates listing agent is entitled to $3K, and that there will be no sales agent commission. (Addendum more complex if you are not a broker and would owe broker.)

Or, identify as a buyer's agent, take the commission and, for taxes, reduce your basis by the commission amount. Include the commission in income on schedule C and include a schedule C expense entitled something like Commissions received as principal. Of course, you need to adjust down your basis in the property you acquired.

@Joel Trout Glad it worked out but it is strange that you had to tell him how to fill out the form. With the accountant, you might want to call the property a rental property (as you did in your first posting) rather than an investment property. They are treated differently for tax purposes.

I'm always a bit reluctant to wade into discussions about other CPAs because I do not know all the facts, but based solely on what you entered in your original post, your accountant is wrong. But, there could be other reasons you cannot take the rental loss (primarily passive activity or basis limitations), so you might want to question your CPA more. Perhaps the two of you are miscommunicating.

Expenses related directly to the rentals are deducted on schedule E--not as itemized deductions on schedule A. Usually, properties on schedule E that are rentals are passive income. With some exceptions (like publicly traded partnerships), all of your passive income is netted. If the net result is a loss, your net loss will have to be carried forward to next year. As mentioned by @Thomas DeVoe (Thomas, I went to Homewood a lot when I was a child into early 20's--loved that area), you may be able to deduct up to $25,000 of passive activity losses IF you actively participate in the rental properties and your Adjusted Gross Income is not too high.

I cannot think of a situation where you BOTH cannot deduct the losses this year AND you cannot carry them over either.

Another possibility: your CPA does not agree that you have rental properties but rather that the properties are personal (ie, second, third, etc. homes). If he is trying to deduct the property taxes on schedule A (which would be correct in this case), and the standard deduction is more than your itemized deductions (of which, in this case, the property taxes would be one), you would use the standard deduction instead of your actual deductions.

Sorry I got so long-winded here--I feel like this is basic knowledge for a CPA and there must be a miscommunication between the two of you.

Consider not only the costs for the year in which you will either sell or exchange, but also the costs in future years. What tax brackets will you be in in the various years?

This has become especially important as the likelihood of tax law changes has increased. Our new President has proposed that capital gains be taxed at ordinary income rates if your taxable income is over $400,000, so, in certain situations, it might be better to incur a capital gain now (before the law changes) than later (ie, when you eventually sell the replacement property).

Much further down in the likelihood of actually happening, President Biden also backs eliminating like-kind exchanges, lowering the estate tax exemption, and taxing untaxed appreciation upon death.

https://www.forbes.com/sites/r...

https://www.natlawreview.com/a...

All of this is part of your consideration.

The deductibility of your full trip to your rental is not automatic; it depends on how many days you were there and how many were business days.

@Sean Britt The responses you have received are excellent. One more point: not everything in the rental is 27.5 years. While additions and improvements to the property are 27.5 years, many items are 5 year, double-declining depreciation property, including appliances, furniture, floor coverings, drapes, etc.