All Forum Posts by: William C.

Quote from @Austin Cheatham:

More than likely going to have to capitalize the bathroom renovation and depreciate it. Not sure that $11,000 would be enough to justify the cost of a cost seg. All of your tax savings may be eaten into via the cost seg price itself. You could try and itemize the invoice and DIY the cost seg for the bathroom reno. I would work with your real estate tax professional on that piece.

More than likely looking at capitalizing that 11k and depreciating it, unfortunately. 

Happy to take a look at what you have to see if there is anything that may help.

Thank you for the reply. My mistake in explaining. The repair happened in 2023. We ran the cost seg separate to take advantage of 80% bonus depreciation. So the two events were unrelated. This is a home with ~$500k value on the structure alone (land value backed out), so the study costs were worth it for us. As long as we hold long-term and have an exit strategy to mitigate recapture.

We own a SFH long-term rental property in Nevada that was placed into service in 2023. We have run a cost seg study on the property and qualify for 80% bonus depreciation. In 2023 we also had a major repair take place. There was a water leak in a bathroom which required a full renovation of that bathroom. Cost around $11,000 total. What would you recommend as the best strategy for accounting for this situation as we file taxes for the 2023 tax year. Thanks in advance. Can provide more info as needed.

Quote from @Mohammed Rahman:

Hey @William C. - I think the best suggestion to the owner would be a sale leaseback option as a way to incentivize them to think about pulling the trigger sooner. 

You could frame it as a way for them to get all the cash up front and not have to worry about maintenance or expenses on the property anymore. Of course your lease agreement and lease amount should reflect that in a way that it incentivizes them to take the deal... don't expect to get a good deal by charging them market/above-market rent if you *really* want the property. 

Alternatively, you could suggest an owner financing transaction where they become the bank on the property and this way they get to collect a monthly payment all while getting a chunk of cash up front (your down payment). 

 Thank you for the reply. I appreciate the ideas.

I really think creativity and flexibility may will allow us to win the day on this one. The odds are against us since the seller could easily list their property via traditional means in 2yrs when they retire. They of course lose us as a buyer now and subject themselves to what the market will be at that time, which we cannot predict.

I understand the rentback scenario. We purchase the home now. We own it. They get cash in hand. We have a lease agreement in place for a set amount of time for a set dollar amount. As you pointed out those terms would need to be favorable to them.

Could you please go into the owner financing approach? I do not understand that scenario. Thanks.

I have had success bringing complex situations to the creative folks of BP and letting you all do your thing... so going back to the well again.

There is an area of our town that we would like to purchase our forever home. We have made a few contacts there and have a few off-market leads. We have one in particular that we feel good about. We are requesting ideas from the BP community on how to take a creative approach to landing our forever home, while being financially responsible, and working within the limitations of the seller and ourselves. Details below:

-This would be our primary residence, not an investment property (but it does have optionality via an ADU setup)

-The seller is interested in selling and relocating out of state in 2 years when they retire

-We have a primary home (that has been a cashflowing rental) in the same town. They have not expressed interest in this home in a swap. Perhaps they would entertain it as part of the deal as a cashflowing rental for them?

-We have two rental properties total in other states. They have not expressed relocating to either of those cities/states. May not be out of the question. Or once again, more opps. to make one or both a part of the deal to give them rental income?

While we are OK waiting 2 years to move into the home, we are not OK with waiting 2 years to be at the whims of the seller and or the market changing. Our preference is to take ownership now, so that we have an element of control. Could this be a rentback situation?

Open to any and all ideas. I know this is an abstract topic, so ready to provide more context when prompted. Thanks for considering.

Quote from @Jacob Sherman:

Are you self employed ? 

Not self employed. Either is my spouse. Both are W-2 employees.

Quote from @Corby Goade:

Quote from @William C.:

Summary: We have a small portfolio of SFH rentals. We are looking into acquiring a new PRIMARY residence. We would then turn our current home into a rental (again). We have only approached 1 lender (large, online only lender), but had issues getting them to understand our total situation so the amount they would lend to us was insufficient. Because 1 of our rentals (the Nevada one) is newer and does not appear on our past Schedule C, they chose not to recognize any of the income from that property. Even though we have a history of rental income at that property and a 2yr lease in place. Details below on our properties and our financial situation. Any similar experiences out there and/or approaches we should consider to get a lender that can understand the full scope?

Our current portfolio:

-Florida SFH: Mortgage (includes HOA and PM company) = $2100. Long-term tenant with signed lease. Rent = $2800.

-Nevada SFH: Mortgage (no HOA or PM company) = $3300. Long-term tenant with signed lease. Rent = $3300.

-Oregon SFH: Current primary residence. Mortgage = $1700. Previous recent history as a long-term rental where rental income was $2700.

Financial Snapshot: Both adults have solid W-2 jobs. Long track record of employment. Gross yearly income combined of $210,000. Outside of the mortgages, we have zero debts.

Home Search: Price range of $900,000. Would be putting 20% down ($180,000). We have that cash on hand and a cushion. So loan size would be around $720,000. No purchase is imminent, so no time crunch. We just want to be ready if the right home becomes available to us.

 There's really not enough info here for a direct answer, BUT lenders counting income from rentals is an overlay, not a regulation. Lenders who don't or won't count your income will tell you that no one will, but that's not necessarily true. Just keep shopping around. 

For a direct answer, we need to know more about your income and liabilities- you'll still need to hit sub 45% DTI to get a conventional loan, regardless of your equity position or cash flow.

Let me know what info would be helpful. If it’s info that I can put on a public forum, I will give it a try. I tried my best to provide context, but I’m sure I missed some.

Quote from @Stephanie Medellin:

@William C.  

For rentals not yet showing on your tax returns (like your Nevada property), many lenders will use 75% of the monthly rent to offset your PITI. You may need to show receipt of a few months rent along with the lease. If it's a very new lease, you'd provide copies of the security deposit and first month's rent with proof of deposit.

For rental income reported on your schedule E, a different calculation will be used.

Your current primary residence can also be converted to a rental.  You will need a signed lease and first month's rent and security deposit, but you should be able to use 75% of the monthly rent.  

While some lenders could have stricter guidelines when it comes to length of rental income history, these are the standard conventional guidelines that most lenders follow.

I appreciate that reply. The 75% rule was what I was expecting as well. It is what lenders had traditionally done for us in similar situations. For some reason this go round was different. Possibly just one off with this specific lender and I need to try to go to someone else.

Summary: We have a small portfolio of SFH rentals. We are looking into acquiring a new PRIMARY residence. We would then turn our current home into a rental (again). We have only approached 1 lender (large, online only lender), but had issues getting them to understand our total situation so the amount they would lend to us was insufficient. Because 1 of our rentals (the Nevada one) is newer and does not appear on our past Schedule C, they chose not to recognize any of the income from that property. Even though we have a history of rental income at that property and a 2yr lease in place. Details below on our properties and our financial situation. Any similar experiences out there and/or approaches we should consider to get a lender that can understand the full scope?

Our current portfolio:

-Florida SFH: Mortgage (includes HOA and PM company) = $2100. Long-term tenant with signed lease. Rent = $2800.

-Nevada SFH: Mortgage (no HOA or PM company) = $3300. Long-term tenant with signed lease. Rent = $3300.

-Oregon SFH: Current primary residence. Mortgage = $1700. Previous recent history as a long-term rental where rental income was $2700.

Financial Snapshot: Both adults have solid W-2 jobs. Long track record of employment. Gross yearly income combined of $210,000. Outside of the mortgages, we have zero debts.

Home Search: Price range of $900,000. Would be putting 20% down ($180,000). We have that cash on hand and a cushion. So loan size would be around $720,000. No purchase is imminent, so no time crunch. We just want to be ready if the right home becomes available to us.

Quote from @John Norman:

481a to 3115 The IRS prefers studies are done by professionals.

 Thanks for this. The opinions we have gathered from pro's has varied greatly. Currently we are operating under the understanding that the home was purchased new in May 2017 (so missed the Sept. cutoff for 100% bonus) and then placed in service in 2018. Because we (the taxpayer) were the original user of the property, this qualifies it for 40% bonus depreciation. Had it been placed into service in 2017 (but still purchased before the Sept 2017 cutoff) then we would have qualified for 50% bonus. Hopefully this info and digging is helpful to someone else who stumble upon it. Still open for thoughts and opinions as always.

Quote from @John Norman:

You can get 100%!

 Thanks for the reply. Can you please provide the methodology for why you believe we can get 100% on that property? Thanks in advance.