All Forum Posts by: David V.

Hi Eamonn, thanks for your reply.  

1) i will be relying on case law and take my chances

2) good points - makes me not want to combine giving the complexity here and that it may be actually incorrect.

3) same as above - may not do it now based on all the feedback.  

Thanks

Originally posted by @Eamonn McElroy:

@David V.

You're asking a very complicated question that doesn't have a yes or no answer.

First, we have to establish if you're even eligible for the QBID.  Either you can meet safe harbor under Notice 2019-07 or you can qualify under case law.  There's not enough info here to make that determination and it's a bit outside the scope of this forum.

Second, we're conflating multiple rental properties with multiple trades or businesses.  Unless there are material differences in classification and management, generally speaking you'd only be dealing with one trade or business.  e.g. the trade or business of residential rental real estate.

Third, you're only asking one of three relevant questions on aggregation for IRC Sec 199A purposes.  "Can I combine" is great but it is only one third of the puzzle.  Next is "should I combine" followed by "which/what should I combine" as Sec 199A aggregation is not all or nothing.

@Natalie Kolodij is correct that even professional software vendors (for CPAs/EAs) are still ironing out the kinks.  Mine appears to be there for Partnerships & S Corps but is still working on individuals.

I wouldn't be surprised if we see a few lawsuits pop up in the next few years against TurboTax et al.  E.g. "Assisting" taxpayers in making an IRC Sec 162 determination with no case law knowledge after a brief interview screen.  Also letting them choose whether or not to aggregate, which can't be changed year-over-year unless there is a material change in circumstances.  As far as I know finding out an aggregation wasn't the best initial choice after being lead to believe that by a software vendor isn't a material change in circumstances...

Hi Ned, thanks for the reply.  Sole proprietorship. Not combined in any legal way 

Originally posted by @Ned Carey:

@David V. I am not an accountant, nor have I even heard of this. However I don't see how combining the businesses would increase your overall deduction.  2+2 still equals 4. 

You did not mention how these properties are titled. They may actually be combined anyway.

Hi Natalie,  very good point.  I will likely wait till April to file or file for an extension.  

Originally posted by @Natalie Kolodij:

Holy hell the QBI calculations are so complex, and were literally finalized a few days ago. 

Most professional software is still not calculating it all correctly- I'd be shocked if turbo tax did. 

You may want to hold off on filing for a bit. Tax pros are all double checking the calculations their software are coming up with and needing to force some parts of it- If you're trusting turbo tax to be 100% correct this soon that's a big gamble. 

Hi michael, thanks for all your replies.  I will have a total net rental profit of about 13K and my total income (mostly from wages) will be around the 175K area.  And i mean total income not AGI.  With this said, based on your replies and the others i have determined that 1) its likely best to wait at a minimum until April to file or file for an extension with the hope that the software is updated to report the new tax law more accurately.  2) it also sounds like i likely meet the criteria but the inability (or greater difficulty) to switch in future years may prevent me from combining them.  I will take your advice to see what the savings would be, if any, under combining or not combining.  But if its minimal (likely based on inaccurate software calculations) i will not combine just to avoid any headaches. I dont have all the answers on how i would benefit from this combination but when i saw this possibility pop on in the software i thoght i would ask the group of tax pros on this site.  Do u agree with my thought process on how to approach this?  I have never been audited and quite naively do not fear the IRS as whatever i do would be a simple mistake with small amounts and not consitute fraud so if i dont get everything right i can sleep at night as i will just correct anything they want and may actually benefit from those mistakes.  Thanks so much 

Originally posted by @Michael Plaks:

@David V.

Yes, you probably can combine. "Probably" is a necessary disclaimer for all accountants, since there's always a chance of some unusual complication. But should you?

You don't care about combining if one of these conditions is your case:

1. Your total deductions from your 4 rentals, including depreciation, are greater than the total rental income from these rentals. In other words, you have a net loss. It's very common if you have mortgages.
2. Your "taxable income" (see TT for this number) is under $157,500 if single or $315,000 if married.

If neither condition applies - then I recommend you use professional help. And since you're unlikely to take this advice, then your 2nd best move is to compare your TT results with and without combining. 

When entering information on my Turbo Tax Premiere software I see a screen that asks the following:  If this business shares common ownership and operates co-operatively with another business, you may want to report them as a combined business to allow the combined wages paid (I have none) and assets held by both businesses ( 4 rentals) to give you a higher overall deduction.  

Factors that allow businesses to be combined

In order to be eligible to be combined, any businesses that are being combined must meet all of the following factors

1) The same person or group of people must own at least 50% of all businesses involved. This can include indirect ownership.  For example, you directly own 40% of business ABC, and you also own 50% of an investment partnership that owns the other 60% of ABC.  So directly you own 30% of ABC through the partnership (because you own 50% of 60%, which comes to, which comes out to 30%), which gives you total ownership of 70% (40% plus 30%).

2) The 50% ownership by the same people exists for the majority of the tax year.

3) The businesses operate on the same taxable year.

4) A Specified Service Trade or Business (SSTB) is not eligible to be combined with any other business, - and -

5) All of the combined businesses must meet at least two of the three following conditions:

- They provide products and services that are the same or customarily offered together. (For example, car washes are customarily offered at gas stations.

- They share facilities or share significant centralized business elements, such as personnel, accounting, legal, manufacturing, purchasing, human resources, or IT resources.

- They are operated in coordination with each other. (For example, a person owns a laundromat and people to make purchases at the cafe. While these aren't services that are customarily offered together, the owner operates them collaboratively.  They are right next door to each other, and both businesses offer discounts to customers of the other business to encourage people to make purchases at the cafe while doing laundry.

Owning 4 rental properties - I think I meet factors 1 through 4 and the first two of 5.  So thus I can combine the properties?

I welcome any feedback on this.

Dave

Along the same topic - does it make sense to even pay extra for loss of rents coverage in the first place. I ask because it appears that most damage to a rental (in my case townhomes) would likely take a month or so to fix. So u just get one months rent. Plus more importantly i will always try my best to avoid making an insurance claim if possible because once u make it ones insurance premium will most likely increase on the subject property as well as any other properties you may have (in the CLUE database). So its a costly move to make unless there is substantial damage. I currently have loss of rents coverage for my 5 townhomes but am considering removing it. Any thoughts on this.