All Forum Posts by: Sean Graham

I am looking for a CPA to help me and my business partner with Taxes as we currently have a rental out of state and live in California. Eventually it will be in an LLC.

Hi! My wife and I are hoping to close on a SFH soon with the intent on doing an STR! I have a tax question / real estate professional question.

I myself have a W2 job and my wife is a stay-at-home mom (no income). My thought was that it would be best if she does the primary STR work and log her hours and ensure that she spends more time on the STR than I do (at least officially logged hours... since I will most likely always be thinking about the STR... haha).

I am trying to find the most relevant information for our strategy to ensure we get the best joint tax deduction options against MY W2 income.

Is the following strategy correct?

- I maintain my W2 income job

- My wife does the primary amount of work on the STR and logs 150+ hours in a calendar year (I see 100 hours listed in some sites, and 150 in others...)

- We file our taxes as joint / married

- Her tax deduction benefits from qualifying as a real estate professional from the STR can offset my W2 income.

- She can use REPSTRACKER for this

I then of course have a plethora of other questions in terms of book keeping (tracking all purchases etc...) but I will save those for another time unless someone has the best offline resources I can start to learn from? 

Cheers!

Hi all,

As titled.. I did a IRA withdrawal of 300k to buy 2 condos in May/June 2024.

I didn’t paid the 10% penalty fee. 

I’m not currently working so my income is basically the 300k + (28k gross or 15k net) from another rental property. 

can I do a cost segregation to offset my tax bill incurring from the Ira withdrawal for 2024? 

I heard that you need to be a realtor, but also heard that since I don’t have w2 job and only doing real estate investing then I can do the cost segregation. 

Appreciate your help answering this! 

@Basit Siddiqi and @Sean Graham let’s play this out a bit for discussions sake.

$3M MF property, depreciation and mortgage interest are ~$180,000. Cash flow in year 1 was $50k. If W2 income was $300k and losses are now $130k…we can write those losses off against the $300k making taxable income -$170k.

All hypotheticals but is this accurate? 

Hi all - my wife and I are planning on a April 2025 1031 exchange into a larger (for us at least...like 5-8 units) multifamily unit. An idea we have is, I am burnt out from W2 life, and wife makes great money (+$300k) , and I could take the year to repair/renovate, manage, rent, repeat the units in the MF qualifying for REPS status (50%, 750hrs, material participation, etc). 

This could have three fold impact ---> allow for writing off paper losses against W2 income, increase the property value by increasing monthly rent, and all the normal cash flow benefits for RE...right? Anything else I'm missing?

What we're struggling to understand is how to underwrite/estimate the paper losses that a MF would produce and IF this strategy is worth it from an income/tax savings perspective. Am I overthinking it, or is the underwriting...Depreciation (with or without Cost Seg), Mortgage interest, normal operating expenses? 

I appreciate the guidance! 

Closed on a 55-Unit Apartment Complex!

Hey BP family,

I’m excited to share a major win with you all! Our team at Missional Capital Group just closed on The Timbers Fund—a 55-unit apartment complex located in Alabama. 🎉

This deal came with several benefits that we believe set it apart from traditional syndications:

1. Low Leverage & Investor Protection: We’ve committed to a low-leverage strategy to protect our investors, which we believe adds an extra layer of security in today’s market. We’ll only consider additional debt when it maximizes liquidity or improves risk-adjusted returns. For this particular deal, we put down 55%. When it makes sense to refinance in the future, we'll take advantage of that.

2. Attractive Investor Returns: With an 80/20 LP/GP split for cash flow and upside, we've projected a 12-16% IRR over a 5-10 year hold period. We also offered a unique 85/15 split for investors who commit $250K+ (Missional Shares), including an 8% preferred return. Plus, we've given $1,000 to a charity of choice for every Missional share purchased!

3. Local Market Growth: Florence is part of the growing Shoals area, with 39%+ population growth since 2000 and proximity to Huntsville, one of the fastest-growing MSAs in the U.S. The area’s economic development is strong, supported by tech sector growth and proximity to several major cities like Nashville and Birmingham.

4. Added Value: Since we've invested in this market for the past 6 years, we have incredible property management in place. The biggest opportunity we saw with this property was operational and management efficiencies. Some of the rents were as low as $800 and we've successfully brought those up to market ($1,000+). There were also a number of vacancies. As of this post, all 55 units are occupied. This has all been accomplished in just a few short months.

5. Tax Benefits & Investor Alignment: We’ve lined up cost segregation studies, allowing our investors to benefit from bonus depreciation in Year 1. Additionally, the Missional team has committed more than $500,000 of our own capital into the fund, aligning our interests with our investors’.

This win marks another step in our mission to deliver stable, long-term real estate investments while making a positive impact. If you’re curious to know more or share similar experiences, we'd love to connect!

Stay invested!

P.S. Huge shoutout to BiggerPockets and the community! We got our start back in 2016 with a single family foreclosure and now own 95 units. Upward and onward!

The most recent data show that record momentum continues for the residential rental industry especially for the short-term rental industry, with year-over-year bookings now exceeding pre-pandemic levels.

The complexity of the problem hinges on the definitions of “short-term” versus “long-term” rentals for tax purposes. Depreciation rules for the two definitions are different.

A short-term rental (STR) is a dwelling unit that is used on a "transient" basis. If the unit is occupied more than half the days of a taxpayer/owner's tax year by a tenant(s) that stays for less than 30 days, it is considered a transient basis rental. (Note that this is the typical arrangement for Airbnb rentals and other temporary rental-type properties.)

Rental property used on a transient basis is depreciated over a 39-year period, not over 27.5-years as is the case with longer-term residential rental property (LTR). Long-term rentals typically derive at least 80% of their gross rental income from residential dwelling units. If any portion of the building or structure is occupied by the taxpayer, the gross rental income from the property must includes the fair rental value of the unit occupied by the taxpayer.

IRC 168(e) defines a dwelling unit as “a house or apartment used to provide living accommodations. A dwelling unit does not include a unit in a hotel, motel, or other establishment in which more than 50% of the units are used on a transient basis.”)

Benefits of a Cost Segregation Study

Capturing depreciation on STR property begins with a cost segregation strategy to maximize deductions. Cost segregation is a commonly used strategic tax planning tool that allows companies and individuals who have constructed, purchased, expanded or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.

When a property is purchased, not only does it include a building structure, but it also includes all of its interior and exterior components. On average, 20% to 40% of those components fall into tax categories that can be written off much quicker than the building structure.

A Cost Segregation study dissects the construction cost or purchase price of the property that would otherwise be depreciated over 27.5 or 39 years. The primary goal is to identify all property-related costs that can be depreciated over five, seven and 15 years. The studies can address current year assets as well as those placed in service in prior tax years without the need to amend prior tax returns.

Conclusion

Understanding the difference between short-term and long-term rentals is crucial for real estate investors, particularly when it comes to depreciation and tax planning. By correctly classifying your property, you can ensure that you’re complying with IRS guidelines and maximizing your tax benefits. Performing a cost segregation study on these types of properties can offer additional tax savings. While substantial financial benefits are available, it's essential to meet IRS criteria, keep meticulous records understand depreciation, and stay informed about local regulations.

When considering a Cost Segregation study, here are a few things to consider:

https://www.biggerpockets.com/forums/51/topics/1206189-cost-...

Don't believe the hype and misinformation out there.

This is the fourth deal we've closed this year.

1. There still are fantastic deals and more will be hitting the market

2. You need to go big in multifamily to make money

3. It may be challenging right now, but the cycle is shifting

4. Get out there and network with all the brokers in your market

I would love to hear what some of the hype you're all hearing out there. Please share below or DM me.

Here are the details:

• 33 Units, $4.5 Million.
• A 2008 build with a mix of 2 & 3-bed Townhomes.
• This checked all of our Buy Right Criteria©. Great median income, unit mix, age, and location.
• Financing:
• Credit Union --> 80% Ltc, 25 Yr. AM, 1 Yr I/O
• Self Funded

It was sourced from a broker relationship. This is the fourth deal with this broker just this year!

We closed on a four plex in April, followed by a 62 and 67 unit with the same agent.

Why is this “small” 33 unit life changing?

Purchase price is 4.5 million. Appraisal for post renovation is 5.5 million.

1 million equity for one deal and around 9,000 per month in cash flow once stabilized is life changing to me, along with the cost segregation.

You can make money in real estate in so many ways, whether you're @Jay Hinrichs funding deals and developing, or @Brian Burke syndicating, or wholesaling, buying single family homes, fixing and flipping, short term rentals, etc.

The key is to pick you vehicle and master it.

I would be remiss to say that I believe multifamily is the holy grail of real estate investing. But I didn't start with a 100 unit. I started with a tri plex, met Jake and then started buying larger deals.

The key is to treat real estate as a business. At Jake & Gino, I say we are creating multifamily entrepreneurs!

All to say behaviors are belief driven. If you believe the hype and there are no deals and you need to go big, then your actions will mirror your beliefs.

If you think you can close a 6 unit, then you eventually close it, and then move on to a larger deal.

Be prepared for the opportunities that are about to hit the market!

All the best,

Gino