All Forum Posts by: Jake Hottenrott

Did you do real estate related activities on more than 50% of the days time?

Did you already take the trip? 

If so, was the timeshare meeting the reason for the trip?

@Khemaro N. - Ok, do you currently own any real estate investments or other time shares?

@Khemaro N. - Do you intend to profit from your timeshare activity? (This is the first of many questions, but it's early and I'm working on a cup of coffee so we will take them one at a time.)

@Johnny Situ - I wrote a blog post awhile back covering this topic https://www.biggerpockets.com/blogs/5926/53215-questions-as-common-as-the-cold---llc

In short, at the beginning an LLC is likely unnecessary because you can A. - cover yourself with an umbrella insurance policy and B. - you can get better financing in your personal name vs through a business lender. If you do transfer the properties from your name to the LLC, you could trigger the due on sale clause in the mortgage. While, this may be rare, it could cause quite a headache if the bank calls the note.

@Kristen R. brings up good points about the umbrella for protection and the single member LLC being a pass through tax entity. While Kristen brings up the S election, you will rarely want to hold rental properties in a C Corp or S Corp.

You will be able to deduct the same expenses (parent's contracted labor) whether you are a sole prop, llc, etc.  The only additional deduction an entity can take vs a sole prop is the entity filing fee.  

Let me know if you have any additional questions!

@Chad Lamb - I would tell the owner than owner financing through an installment sale would accomplish two main goals for the owner.  First, the interest income would immediately create an income stream that is secured by tangible property. Secondly, through the installment sale the owner would only be required to report the proportion of the gain each year in relation to the payments received less interest.  This is extremely helpful if your owner is in the 15% income tax or lower and can get the benefit of the 0% long term cap gain treatment.  This may also help keep them in that bracket rather than a one time hit that vaults them into a tax bracket that causes the cap gains to be taxed.  If they are in a higher tax bracket, you are helping them defer the tax payments into future years. 

Hopefully that helps!   

@Katherine Robbins - You set your company up correctly for your activities, but you need to be taking paychecks.

One of the key things the IRS looks for to open an audit is the lack of reasonable compensation of officers in an S Corp.  Without getting too far into your particulars, your accountant is correct in that you need to be taking wage paychecks (at a level of reasonable compensation) and not just profit distributions.  You need not take all income in paycheck form, but you also can not "avoid" the FICA/Medicare altogether.

Let me know if you have additional questions.

@Account Closed - If you find a deal good for both people, you probably wouldn't want to cash them out anyway because fees/headaches would outweigh the refinancing benefit.  You may be able to insert a prepayment clause with a penalty or define a set time before the note can be refinanced away in the contract.  

I just had to sprint over to the computer to prevent this from going to far.  DON'T MIX ACTIVE ACTIVITIES AND PASSIVE ACTIVITIES IN THE SAME ENTITY!!!!!!!!!!!!

Fix and Flip - LLC or LLC taxed as an S.

Buy and Hold - LLC or held in personal name