All Forum Posts by: Pauline Zhao

@Lex Shan I agree with Eamonn. It looks to me that you and your wife are equal partners of your LLC, and your LLC should do 1065 for partnership tax unless you have elected that your LLC be taxed as a Corporation. Generally current distributions from a partnership is not taxable. If it is a liquidation distribution, the gain is usually deferred unless you sold the property at the liquidation. But it looks to me that you are not intended to sell the property, you just need to move out for mortgage purpose. If that's the case, you will need to keep the basis of the property when you distribute it from the LLC to your personal. Please see below example:

Ex: Partner A, with an adjusted basis of $15,000 in his partnership interest, receives in a current distribution property having an adjusted basis of $11,000 and a FMV of $17,000 to the partnership immediately before distribution, and $3,000 cash. The basis of the property in A's hands will be $11,000, the same basis the partnership has in the property.

Before the distribution, the appreciation inherent in the asset held by the partnership was $6,000 ($17,000-$11,000). Rather than requiring the partnership to recognize $6,000 of gain upon the distribution to A, however, as shown above, no gain is recognized. Instead, the gain of $6,000 is preserved by giving A a basis in the property of $11,000. Now, if A sells the property for its FMV of $17,000, A will recognize the $6,000 of gain that the partnership did not recognize.

Hi Ben, I think it a good move that you have opened a joint bank account with your partner. I would have my property manager direct the money to this joint account, and then distribution the money 50/50 to you and your partner by yourselves, since you should both have the access to this bank account, it should be pretty easy. Use the joint account to pay any expense that relates to this property (repairs, insurance, taxes, etc.).

From the bookkeeping prospective, if this is the only property you and your partner buy and hold, it should be fairly simple to you or your partner to manage yourselves. Since it is likely not profit efficient for you to hire a bookkeeper. I would recommend you use "Stessa". It is a good software for buy and hold investors, and you can share the platform to your partner. It is free to use.  At the end of year, you could generate an income statement from this software and give it to your CPA, and you and your partner should be good to go.

Hi Lyle, 

Renovations - if the renovation/Improvements are done on your primary residence, I believe that you are able to increase the tax basis of your primary residence  When you sold your primary, you may qualify for Sec. 121 exclusion if you pass all the tests, which will allow you to exclude gain up to $250,000 if single and $500,000 if married and filing jointly. 

Tools and Supplies - I think that you are probably not able to write off the tools and supplies that you purchased to merely upgrade your primary home. However, if you are in a flipping/rental business, or you have an LLC, you are likely able to deduct those expenses.

Sole Proprietary - if you are a sole proprietary, there will be pointless for you to issue a W-2 to yourself because you will end up playing an in-and-out zero netting game here. Plus, you will pay self-employment tax on the Sch C. 

Other Legal Entity - If you have a different entity, your pay to yourself can be deduct on the business return, however, it will be the same time an income to your personal tax return. 

Hope it helps.

This is a great question and it is very important to keep record of the invoices. Usually we recommend invoices should be kept for at least 5 years, and legal documents should be kept permanently. It will come in helpful if you use a software to help you, but there are so many to choose and it can overwhelming to try out one by one. Here are a few options I think works very well depends on what type of investor you are:

Stessa - If you are a buy and hold investor, you don't have an LLC and you have a property manager takes care of the rents collection for you. You can use Stessa. It is free to use.

Cozy - If you are a buy and hold investor, but you manage the property by yourself. 

Quickbook - If you are an active investor (Flipping house, Airbnb, construction, etc.), or you have an LLC. I recommend quickbook.

Hope that's helpful.

Hi Jai, if you create an LLC and transfer your properties into the LLC, there are advantages and disadvantages by doing so.

The advantages includes but not limited to: (1) You get legal protection from your personal properties. For example, if a tenant in your rental fall and sue you, they can only go against the properties under the LLC, they can not go after the car holding under your personal name. (2) You get more deduction for tax benefits, and you have more options for retirement account/tax planning (3) If you create an LLC and you are the sole member under the LLC, you can file the business tax under your personal 1040 sch. C. If you do it that way, from the loan prospective, it will be the same thing as you are borrowing under your personal name. and they will need to check your personal credits and everything. However, if you file an S-Corp and do your business return in a separate business tax return from your personal 1040, and your LLC has tax records for three years, you will be able to do the finance under the business name. Besides, most hard money lenders prefer if you have an LLC and they will lend to the LLC. Most of they won't lend to personal.

The disadvantage is mainly from the cost perceptive. On the first year your form an LLC, your cost is around $1,500 just to open and maintain the LLC (including registration fee, legal fee, tax filing fee, etc). If you only own one or a couple properties, maybe it won't make too much sense to form an LLC from the cash flow prospective.