All Forum Posts by: Natalie Kolodij

Obtaining REP status does not release prior passive losses. 

It is now treated as a former passive activity and those prior losses can only offset income from that same activity going forward. 

If a grouping election is in place the lisses apply to the grouped activity as a whole.

FINCEN just sent out a new update about the Corporate Transparency Act / BOI Reporting. This is a free reporting that most entities will need to file but there has been a TON of back and forth of if it should be allowed. 

You can visit fincen.gov to subscribe to email updates as well. 

Below is today's update: 

"Corporate Transparency Act Reporting Requirements Back in Effect with Extended Reporting Deadline; FinCEN Announces Intention to Revise Reporting Rule

Following the February 18, 2025, decision by the U.S. District Court for the Eastern District of Texas in Smith, et al. v. U.S. Department of the Treasury, et al., 6:24-cv-00336, the Financial Crimes Enforcement Network (FinCEN) has announced that beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act are back in effect, with a new deadline of March 21, 2025 for most companies."

Inheriting it is the best option tax wise- because it gives you a step up in basis to the property's value on that date. 

If they gift it to you it's tax-free (as long as they're under the lifetime gift limit around 14 million) they may have to file a gift return though, but there won't be tax due. 

If they gift it to you- you get their basis. 

So if your parents paid $40,000 for the property and today it's worth $500,000....your basis "value" in the property will be their 40,000. 

Also if it was a rental and had been depreciated, that carries over too. 

There are multiple implications- so it's best to work with a qualified professional to figure out what best meets your specific situation without unexpected consequences. 

I was just making the note that broad stroke for everyone to add spouse, kid etc to create a partnership has other considerations people need to be mindful of as well. 

A partnership vs. disregarded LLC warrants consideration- you face different reporting requirements, limitations, etc. Subchapter K is an entire area of the tax code.

Outside of my decade doing tax returns I've been an educator for the last several years.  I teach CE/CPE for several tax organizations at conferences and online so I talk to A LOT of tax professionals. So my thoughts to what is or isn't a huge trigger for the IRS for audits is based on direct input from the industry. I have several close friends who specialize in audit representation so especially in the wheelhouse of real estate audits I get a good amount of feedback on trends. 

 Do you pay a good tax professional to give you an answer? That's the one I'd listen to. 

REPS = Your rentals are non-passive if you materially participate in them. (check page 7 of this IRS Pub)

Something that's non-passive and you materially participate means you can deduct those losses up to the excess business loss limit. 

So as a whole your rental losses can offset your agent income. 


Cost segregations, bonus depreciation, etc.....are just ways and methods of writing off more or less at certain times. Normally done to create more losses. So there's no connect on if you can "use" a cost segregation or "use" bonus depreciation. 

You get to use any methods legally allowed to create losses. 

Whether you can use those ending losses is what changes due to REPS. 

 Just a few counterpoints - 

The home office deduction being a red flag has not been true for over a decade. Was it questionable in 1992 when we had car phones and dial up internet? Possibly; but there's nothing out there from recent years associating it with any actual increased risk. 

Do personal returns have higher audit rates than entities overall? Yes. But the cost of maintaining and filing an entity correctly is much higher and also needs to be considered. 

Turbo Tax charges like $1,500 to file your own 1065 return. A tax firm will cost more than that. 

QBO with class tracking if someone has more than 1 rental is $50/month

Bookkeeping will be at a minimum $200-300 a month. 

So $4,500 of additional costs to have a partnership only to avoid hypothetical risks would exceed the profits from many SFH.

A few things to note-

Loan payoff isn't part of the calculation of what taxable gain will be. 

(Sale price - selling costs) -(purchase price+ purchase costs)- renovations = taxable gain. 

Your loan amount doesn't matter. 

And no; if you own 50% and your friend owns 50% he qualifies for exclusion on 50% of the sale. 

If you transferred your ownership share to his name now he wouldn't have owned it 100% for the prior two years. 

I also reference this a lot but there's a step doctrine- basically if you're putting a step in the middle only to avoid tax...it isn't valid. 

Last I checked Chat GTP was making up tax court cases. 

Like they weren't mixed up, or it referred to the wrong case....it literally made up names for court cases related to a specific topic. They didn't exist. 

So I would just use caution in that area.

If I give a client tax advice and they go to their real estate agent, who then goes to a forum to confirm what I said....I hope they get a cramp in their in their foot. 

As others have mentioned you can do a cost segregation on whatever you'd like. 

However; the STR loophole and REPS are completely different things.

Qualifying for a short-term rental to be non-passive doesn't give you REPS. It gives you a non-passive short-term rental. So losses from that specific rental may be utilized. 

REPS is for someone who meets specific requirements- at least 750 hours in real estate and more time on real estate than anything else; so having a fulltime job disqualifies someone. 

If someone has REPS then potentially they can use all of their rental losses, from all properties, (there is more nuance especially with both LTR/STR) if they are materially participating. 

Everything in tax depends on the personal situation. 

If the house hack is renting rooms within your house; tax wise likely worse because you can only depreciate the fully rental areas (bedrooms and maybe bathrooms). No shared space. 

vs. 

If you have a $400k duplex and you live in half and rent half

Or if you have a $200k rental property 

Your deductible rental expenses will be the same. 

Can you itemize on your taxes and use the interest from your 50% in some way or no? Is your Adjusted Gross Income over $150k where you can't reduce your income with rental losses? Are you a real estate professional? Do you own other rentals? 

But don't lead this with tax situation. You have to pay to live somewhere. House hacking can make that free/less. That is what should be the first consideration. Don't let the tax tail wag the profit dog.