All Forum Posts by: Nicole Bernshaw

You need to know what the purpose of an LLC is before you get into it.

The major reason for an LLC is to hold long-term (e.g. rental) property. The asset protection becomes increasingly important as the equity in the property increases.

Another, an LLC protects the owner from the operations of the rental (e.g. someone twists their ankle while walking on the lawn). The best illustration for this is that plaintiff will not get access to your personal residence if the assets of the rental are not sufficient to satisfy the claim from the lawsuit.

Set your LLC in the state where your property is located for best advantage/protection and to maintain the corporate veil. Setting up your LLI in Nevada (or Delaware, or Wyoming, or New Mexico) will not save you taxes in the state where the property is located.

I believe you have a great opportunity to make a bundle here.

1. if you have owned and lived in your current home for more than 2 of the last 5 years, sell it and move into the property you are planning to purchase. You will not pay capital gain tax because it is your personal residence.

2. while you live into the newly purchased house, build on the vacant lot and use the profit of the sale of your 1st residence to invest into the new construction.

3. Sell the newly constructed house, and attached land, the cost of which will be proportional to its surface area at the time of sale. Make sure that zoning allows splitting the lot before you start construction.

As an aside, my preference is to rent the new construction to generate cash flow and increase wealth. Basically, the tenant will pay your PITI.

A sole proprietorship leaves you and your personal property exposed to lawsuits: you could lose everything. It is also the most limited entity for raising capital. It is just an extension of its owner. 

The best structure for rentals is an LLC in most cases, as it provides asset protection, hence its name: limited liability.

@Shawn H, @Lance Lvovsky, I too was not aware that investors in rental properties were not allows Section 179 deductions. I would be interested in seeing the primary reference. However, I do know that a property that is rented or leased (e.g. equipment, vehicle, land) cannot be allowed Section 179 deduction.

According to QuickFinder 2016 (I do not have the 2017 book yet) with the page numbers for those interested:

• Section 179 can only be claimed in the year the vehicle is placed in service. p. 11-3

• heavy vehicles (such as yours) are subject to a $25,000 limit on the Section 179 deduction (p. 11-3)

• to qualify for Section 179 deduction, the property must be used MORE THAN 50% in a trade or business and be acquired by purchase from an unrelated party (e.g. you cannot have purchased it from you brother, or exchanged it for another piece of property) p. 10-9

• the total of the Section 179 expense plus MACRS depreciation may not exceed the Section 280F limit. p. 11-4

According to IRS URL: https://www.irs.gov/publications/p946#en_US_2016_p...

you may be interested in the following:

You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. However, the $25,000 limit does not apply to any vehicle:

• Designed to seat more than nine passengers behind the driver's seat,
• Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible from the passenger compartment, or
• That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.

Only the side where you reside counts as your personal residence. However, your net worth does not include your personal residence.

I assume you know that you can qualify with your income alone as an alternative to figuring out what your net worth is: $200K income in each of the last 2 years (if single) or $300K (for joint income).

UDFI tax is levied only on the percentage of the profit generated by the amount leveraged (that is, outside SDRA amounts) after all expenses have been subtracted (that is, net profit).

Naturally, make sure that your investment "partner" is not a prohibited person.

I would not close if I were you.

My bias is for a Roth account because all proceeds will be tax free. You are young and "starting in life." At this time, you are probably at the lowest tax bracket you will experience in your life. As you become successful in both your W-2 job and your real estate investments, your income will increase and so will your taxes. If your RE investments profits are generated through your Roth account, you will be spared the taxes on all these profits.

As long as your RE investments with a Roth account are done according to IRS rules (3rd party custodian and the whole jazz), you can use the profits immediately to reinvest.

By the way, you do not have to wait until you are of retirement age to access your retirement funds if you want to invest in RE. Consult a tax advisor/CPA who is a RE investor him/herself so that the IRS rules are followed correctly.

There is a lot to think about when entering in a partnership: share of work, share of financial contribution, share of profit, share of loss (as unpleasant as it may be, plan for the worst even though we all wish it will not happen), how each party will be protected, to mention only a few items. Make sure everything is written into the partnership agreement.

Long term is MORE THAN one year. 

Short term is one year or less.