All Forum Posts by: Nicholas Aiola

@Derrick E. No worries!

If you're the only member of the LLC, it's referred to as a single-member LLC, which the IRS treats as a disregarded entity. So yes, that means it would be reported directly on your personal tax return on Schedule E.

If you and your wife are both partners of the LLC, you will have to file a partnership return (Form 1065), which will generate a K-1 for each of you. The K-1 details the activity of the partnership (income/losses). Since LLCs are pass-through entities, the income/losses flow through to your personal return (also on Schedule E) via the K-1.

Does that make sense?

Thanks, @Yiftach Ilyov !

One thing to point out is that an expense could be BOTH an operating expense AND a payment to a contractor. They are not mutually exclusive, so there really is no difference.

As a flipper, you are required to issue a 1099-MISC for expenses paid to service providers (like a contractor) in excess of $600. 

With that said, since you are talking about a flip, the cost of a new roof would be added to the cost of the house as inventory, which will lower your taxable profit from the sale. 

Did I answer your question?

@Evelyn Randolph Excellent question. To my knowledge, the repeal under H.R. 4 (P.L. 112-9) seems to be the latest official mention of this topic.

With that said, I'll be honest with you - it's a gray area. There is no specific mention of requirements or exceptions related to landlords filing Form 1099-MISC in the Code. 

One could make the argument that since rental activity is passive, not active, there is no requirement to file Form 1099-MISC since it's not considered a "trade or business". This would not apply to "real estate professionals", however, since their activity is considered active and a "trade or business". 

On the flip side, you could argue that a landlord should file 1099-MISC forms to be safe. There's no harm in filing them. No one wants to be the IRS's guinea pig.

If it were my client asking this question, I'd present both options and ultimately leave it up to her/him. Everyone is different; some are conservative, others prefer to be more risky. 

@Jason Lavender Thanks!

I am not a lawyer, so I cannot speak to the legal aspect of entity structure, but for tax purposes, S Corps are the way to go for flippers. This is because flipping houses is considered an active, not a passive, activity and profits made from a flip are subject to self-employment (SE) tax. The house is treated as inventory and the activity is reported on Schedule C. 

Contrary to partnerships and LLCs, S Corps are required to pay wages to their shareholder(s). Any other income/distributions escapes SE tax. If you held a flip property in a partnership or LLC, the entire profit would be subject to SE tax.

With the S Corp structure (thhe S Corp certainly can own the property in its name, to answer your other question), you can pay yourself a "reasonable wage" and avoid SE tax on the remainder of the profit from the flip(s). 

Does this make sense?

@Keric Allen First and foremost, thank you for your service. It's an honor to offer whatever help I can after all you've done for our country. 

Second, you are correct in saying that military personnel are allowed to "suspend" the 2-out-of-5 year rule to 2-out-of-15 under current law. However, there are three very important things to keep in mind:

1. This only applies if you were stationed (and, as a result, required to move) more than 50 miles away from the property in question. 

2. This special rule can only be applied to one property at a time.

3. If you converted any of the properties to rentals (which it sounds like you did), you will have to recapture any depreciation taken up until the date of sale (if you sell at a gain). This portion is not subject to the exclusion, only the capital gain portion is. 

I hope this helps!

@Account Closed Anytime :)

@Account Closed As long as it's paid to the taxing authority, you can deduct it. If it's received by the taxing authority and subsequently put in their own holding account, that's out of your hands. 

Hope this helps!

@Account Closed Property taxes paid to the taxing authority are deductible in the year paid, so prepaid 2018 property taxes would be deductible in 2017. 

This does not include prepayments to escrow accounts. Property taxes are considered "paid" when they are paid OUT OF, not INTO, the escrow account. 

Does that answer your question?

@Irina Belkofer Interest should be charged on all loans. That doesn't mean it always actually happens, but that is the rule.

With that said, it could be structured however the parties want (e.g., monthly payments, deferred to the end of the loan, etc.).

This link on the IRS website provides the applicable rates:

https://www.irs.gov/pub/irs-drop/rr-17-24.pdf

@Ron Gallagher  Yep, you got it! Here is the link from the actual IRS website:

https://www.irs.gov/pub/irs-drop/rr-17-24.pdf