All Forum Posts by: Nathaniel Busch

LuAnn, 

Also be very careful to account for the closing costs and to amortize them as an intangible asset over the life of the loan. If/when you refinance in the future, you can then take a lump sum deduction for the closing costs not yet written off as of that date. 

Don't include escrow deposits in the amount of closing costs you are writing off (as those aren't costs, just deposits). 

This is an often missed deduction by real estate investors. 

Nathaniel Busch, CPA

Matthew,

That's correct. 

Nathaniel Busch, CPA 

Through attribution rules, you and your wife would be considered equals. As a result, you would not be permitted to deduct any of your costs you mention, outside of taking the normal property taxes and mortgage interest on Schedule A.

See Publication 527: 

Used as a home but rented less than 15 days. If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). You are not required to report the rental income and rental expenses from this activity. The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses.

Thus, structuring your primary home as a rental would not really change anything. The "rent" you would pay yourself would be non taxable. The rent paid would be non deductible, and the interest and taxes would still be reported on Schedule A. All other expenses would be considered non-deductible (as they already are). 

Nathaniel Busch, CPA 

Richelle,

The laws allow you to buy a home, rent it out, move into an apartment as a tenant for two years, then buy another primary residence and still be able to use $10,000 of your own IRA monies for the second acquisition.

Here's the link to Publication 590: 

First-time homebuyer. Generally, you are a first-time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild. If you are married, your spouse must also meet this no-ownership requirement.

Date of acquisition. The date of acquisition is the date that:

• You enter into a binding contract to buy the main home for which the distribution is being used, or
• The building or rebuilding of the main home for which the distribution is being used begins.

Nathaniel Busch, CPA 

Correct. The term "first time home" does not literally mean first and only time. Very confusing to say the least. 

Nathaniel Busch, CPA 

Matthew,

As a resident of California, you can still expect to pay the California income tax on the amount of income you receive as a resident.

What's being discussed above is a privilege tax. A tax assessed on the right to do business in California (versus an income tax as a resident). 

The opinions expressed above revolve around whether you are actually doing business in the state, and as such, are responsible for paying the privilege tax. 

Nathaniel Busch, CPA 

LLC is a Limited Liability Company. Attorneys will recommend them if they feel you should obtain them for asset protection reasons. I can't comment whether one would be necessary for you or not as I'm not an attorney. I can only comment that should you obtain one, your tax filing requirements would involve filing an annual report with the state.

Nathaniel Busch, CPA 

Perhaps we will need to agree to disagree. California's own nexus rules regarding physical presence could easily be used against them in this case. Of course, my example assumes there is a property management company in place that is handling all administrative and management duties of the business. 

I could not in good conscience expect a client to pay $800 for each LLC they are a member of in which they do not participate in the management of operations.

Nathaniel Busch, CPA 

Troy, 

I may disagree, especially if the client is enlisting a property management company to do the work for him. I feel that substance would prevail over form in an instance like this. 

While Matthew would be considered a general partner, he's not active. For the same reasons the losses would be passive at the federal level, he wouldn't be "doing business in California". His property managers are conducting the business for him in Ohio. 

Nathaniel Busch, CPA 

Vasily, 

Yes, I deal with several nonresident alien clients despite lack of physical presence on the end of the client. If you're interested in obtaining a quote for my fees, please feel free to email me - [email protected]. 

Texas does not have a state income tax, but they do have property taxes that you'd be liable for. 

If you establish an LLC in Texas, you'd have annual filing requirements to submit, although no tax would be due.

If you have any other questions, feel free to contact me directly.

Nathaniel Busch, CPA