All Forum Posts by: Nicholas Aiola

@Ron Gallagher The IRS requires a minimum amount of interest to be charged on related party loans (e.g., a loan between family members). Why? Because if there is no interest being charged, the IRS says the borrower is receiving a benefit from the lender in the form of interest-free money. They would want to see this "benefit" reported on a gift tax return. 

Payment of interest along with repayment of the principal is your way of telling the IRS it was an actual loan, not a gift. 

Does that make sense?

@Ron Gallagher To add to Brian's point, loans are never considered taxable events. Interest paid and received is, however. Another thing I should mention - be careful with non-spouse jointly-owned bank accounts. If you are listed as a joint owner of the account, the money is still considered yours even though you are paying your parents back because you have the ability to withdraw it. This could trigger a gift tax filing requirement if the initial amount given to you was over $14,000.

@Cara Lonsdale I'll "tag back in". C Corp double taxation occurs because it is not a pass-through entity and all income is taxed at the corporate level. If you (as the shareholder) withdraw money from the C Corp, that is considered a dividend paid by the C Corp to you, personally. Therefore, your income is taxed once at the corporate level and again at the personal level (as dividends). There is no flow through from C Corps to individuals like there is with LLCs, partnerships, and S Corps.

Hope this helps!

@Charan K. Since rental losses are considered passive, generally, you can't offset them against other income, unless you are a "real estate professional". There are some caveats, however. Even if you're not considered a "real estate professional", the IRS allows you to deduct up to $25,000 of passive rental losses against other income as long as your modified adjusted gross income is below $100,000. The $25,000 phases out when your income is between $100,000-150,000. Once you surpass $150,000, you cannot deduct any of the passive rental losses (they get carried over).

Does this make sense?

@Navid A. You're very welcome!

From a tax standpoint, you wind up in the same spot. Rental income generated through a single-member LLC will be reported directly on Schedule E of your personal tax return, just like if the rental property was owned in your own name. Multi-member LLCs will generate K-1s for each of its partners, in which case the rental income will flow through to your personal return via the K-1 received from the LLC and will be reported on the same schedule (Schedule E) of your personal tax returns.

The LLC structure is more for liability reasons. I'll have to defer to an attorney to provide you with the legal advice on that one.

Hope this helps!

@James R. Copeland Unfortunately, that's true. The new rule would be 5 out of 8 years if your home is sold after January 1, 2018. The one exception is if a written contract is in effect before 1/1/18. 

@Llewelyn A. Great questions...

I won't sugarcoat it - I think the elimination of the SALT deduction is awful. Sure, I'm biased being a NY resident, but this will negatively impact a lot of people in a lot of other high-income states, as well.

High-income earners will certainly lose a hefty amount of Itemized Deductions (especially SALT), but the top rate of 39.6% has been reduced to 38.5%, so the overall net tax impact would depend on how high that income really is (and what other deductions came into play, of course).

As for migration to tax-exempt states, I don't see that being a vastly popular move. I feel like it would take a little more than the elimination of the SALT deduction for people to move to a new state. But, as you said, that's only my opinion; I could be completely wrong. However, it certainly might make Florida even more of an attractive retirement spot for New Yorkers ;)

@James Canoy You bet! Stock losses can be used to offset real estate capital gains.

When it comes to stock losses, you'll have to wait until after 30 days from the date of sale to repurchase shares, otherwise your losses will be disallowed. This is called the "wash sale" rule.

I'll extend the same offer to you if you ever pass through NYC :)

@Dave Foster Thanks for the compliment! I've learned a lot from your posts and replies in my BP travels and really appreciate the kind words from a verified expert and professional :)

@Brian Schmelzlen Yes, sir! I addressed that in a follow-up post. Thanks for keeping me on top of my game!