All Forum Posts by: Jake Hottenrott

@Mark Stone - I'd love to give you exact advice, but without knowing your specific situation, it depends.  There are a myriad of questions to ask that would help lead to the right answer.  I'd definitely talk to a CPA who can help you make the best decision for your situation.

Some of those questions are -

- Are you classified as a real estate professional?

- Are you single or married filing joint?

- Is your AGI over $150K?

- Is your property already at a loss?

Those questions are some that a CPA will ask to help to frame what the correct answer is for you.  Best of luck!  

The hard answer is ask a CPA.  The easy answer is to read everything the IRS provides.  A nice starting point is https://www.irs.gov/publications/p527/ch02.html.

The quick points to remember and hopefully help you on your way.

- the refinance has nothing to do with the basis in the property and and depreciation deductions.

- the cost basis should be the lower of the purchase price or of the FMV on the date of conversion. (Regs. Sec. 1.168(i)-4(b)).

I've been waiting all day to use this.  Thanks @Brandon Sturgill!

First of all, I probably wouldn't do it. But since we are playing in pretend world, I'll play along.

1- Since it was rent ready, I would depreciate the individual components as you replace them.  The reason being that it's much lower life and it was not included in the initial rent ready basis.  As an additional document to verify that it was rent ready for the IRS, I'd have a signed lease before I swung a hammer.

2- I'd depreciate the items replaced through their date of disposal.  Depending on if you sold them for cash, which would lower the loss (or pick up a gain potentially), you should take a loss on the disposition of the assets.  

Again, all this is hypothetical so I'd talk to a CPA about your real life situation.

@Sam Levin you are correct in stating that cost segregation studies can be very beneficial to to the knowledgeable investor.  The trick is that your technique and logic must be very well documented and must be done in a manner approved by the IRS.  Providing information to other investors can be very valuable, but be careful about the manner in doing so.  The tax and penalty ramifications of having a cost segregation done improperly and disallowed partially or in whole by the IRS can be significant.

@Natalie Kolodij hits the nail on the head that many of the CPAs and EAs on these message boards use these type of studies regularly to help clients where applicable. If you meet with a REI focused CPA, this is the type of value that can be provided to you. A general tax CPA may not encounter this regularly. Many of us have contacts that do nothing but cost segregation studies nation wide and would be happy to provide those contacts to you on request.

Also, not to be nit picky, but I'm a CPA so attention to detail is a must.  The depreciation life of a residential real estate asset is 27.5 years.

If you can manage them yourself and have a strong background in property management, go for it.  That is not an ideal location for a new investor.  You can surely be successful there, but I wouldn't start there.

@James P. the best way for you to do this is to gather some questions and talk with a CPA.  While you can surely learn a few tax strategies on this site and gather some intel, without someone sitting down with you and understanding what you have done and what your future plans are, you won't really be getting advice tailored to you.

As most of the successful people on the podcasts have said, they stay in their lane and do what they are good at to add value to a deal.  Let the attorneys do contracts and litigate, let the accountants account, the painters paint and the deal makers make deals.

Best of luck!

"No regular place of work. If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. These are nondeductible commuting expenses."

@Jeff B. - That excerpt is directly from IRS Pub 463.  Again, like all of us CPAs on these threads typically say, it all depends on the particular facts in your situation.  With that being said, if you don't have a "Home Office" or a defined primary place of business, you are just commuting when driving around.

Also taken from IRS Pub 463.  

"Office in the home. If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business.)"

Which supports what @Natalie Kolodij and @Daniel Hyman are bringing up.

AND if you really want to nerd out tonight, here's a direct link to the aforementioned IRS Pub 463. It's a nice light refresher read for me after answering a few ACA tax questions this afternoon.   https://www.irs.gov/publications/p463/ch04.html

@Mike Trupiano Here is a a nice guide from the National Association realtors on RESPA.  I'm not a Realtor or in the mortgage industry, but this topic appealed to me because my insurance agency has to beware of referral fees and incentive programs we offer to make sure that we also stay on the right side of the law.  

FAQ https://www.nar.realtor/topics/real-estate-settlem...

@Shay Allen I'm going to be self serving here and mention that I just covered this in a recent blog post https://www.biggerpockets.com/blogs/5926-taxes-and... Many of the other great CPAs on BiggerPockets have covered this topic as well.  There's always a few different view points but those views are backed up by experience and expertise that has been developed.

As far as who you should pick for your CPA and PM.  My recommendation is someone that works the same way you do, who you know you can speak with and enjoy working with and someone who has experience and a proven track record to back them up.  That goes for both sides of that coin.