All Forum Posts by: Account Closed

Maybe I'm missing this somewhere but doesn't seem like anyone has addressed the biggest issue i've seen which is the difficulty of getting an LLC set up legally when doing REI.

If you're planning to carry a mortgage the bank absolutely won't loan to an unproven LLC, since you have no skin in the game. On the other hand if you already have a mortgage and try to switch to an LLC, they can demand full payment as soon as they find out. If you're buying all cash then none of this is a problem i guess.

Anyone know a way around this conundrum?  

I'm reading a few things that say 1031 exchange may be on the chopping block as part of Repubs attempt at tax overhaul. Wondering if anyone knows more? Is this really true it could go away if their reform passes?

@Linda Weygant thanks so much, that's what i was after!  now i just need to figure out how to qualify as an RE pro so i can apply the loss to my overall income.....

You qualify as a real estate professional for the tax year if you meet both of the following requirements.

• More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate.
• You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate.

@Brandon Hall @Linda Weygant @Paul Allen 

Brandon, just to confirm then....you think that even though my 9 to 5 job puts me over 150K AGI (and i'm not going to try and claim myself a RE pro with over 750 hrs etc...) I could still use the standard RE deductions on my annual tax filing so that i'm paying taxes on "taxable income" rather than cash flow?

Seeking some clarity....  If I have an AGI over $150K (lets say 39.6% tax bracket) and I own a rental property with figures as follows:

- Annual Rental Income: $40K

- Annual Operating Expenses/Mortgage Interest/Depreciation: $35K

- Annual Cash Flow: $7K

What do I owe taxes on?  Do I have to pay IRS 39.6% of my $7K cash flow, OR the $5K difference between my total income & operating expenses?

Or something entirely different I've missed?

Thanks Steven....I am in fact over that limit but my understanding is that i would be able then to "carry forward" the to take advantage when i sell.  

In that case would you add up all the "paper losses" over the years held in order to arrive at your tax deductible amount, or would you be able to add all your operating expenses and ignore the revenue in order to arrive at tax deductible amount?    

Can anyone help explain how this works for an investment property?  

In order to arrive at an estimated value of tax deductions for a rental property would you:

A) Add up your annual depreciation, operating expenses and mortgage interest and then multiply that amount by your current tax bracket for actual cash value. (so for example you had $20K total expenses multiplied by lets say a 20% tax bracket = $4,000 back in your taxes)

OR

B) Calculate your total "paper loss" by subtracting the depreciation, mortgage interest & operating expenses by  your total rent revenue, and that is the amount that is "tax deductible"?  (so for example you had total rent revenue of 18K but total paper loss of 20K = $2,000 tax deductible) ? 

Noob question I know.... 

@Josh Mitchell thanks so much for the answer.  just to play devil's advocate here and play this out.  when you do  pay off the mortgage on property #1 in say 10 years instead of 30 though you likely have just tripled the cash flow you can produce from that property.  so, still worth it to go after next property, with another mortgage?

I'm curious to hear from seasoned "buy and hold" investors....when thinking about growing your portfolio how do you best re-invest your cash flow proceeds from a property?  Do you think it's a better idea to pay it toward paying off current mortgage principal OR put that money toward a down payment on your next rental property?