All Forum Posts by: Jake Hottenrott

@Alex Linden - I think @Austin Tondreau was referring to "income" tax free through proper tax planning and strategy and not "real estate" tax free.  Austin, please correct me if I'm wrong.

We are able to plan to maximize the tax savings on real estate investing to minimize the income tax paid by our clients.  I always tell my clients, there is no real magic pill, the government will get theirs.  What we are typically trying to accomplish is deferring as much of the tax for as long as possible.  As long as clients are expanding their portfolios, we can typically push taxes off, but if they stop their growth or shrink their portfolio, there will be a time we now have to pay the taxes due.

Hope that makes sense!

@Kevin Zhang - I second what @Natalie Kolodij says.  TurboTax is a platform built to follow a very narrow path of tax questions and answers.  It doesn't always say "did you consider this?" and it definitely doesn't tell the user "you can't do that!".  Yes, you can definitely use TurboTax to do your returns, what we do isn't theoretical physics, quantum mechanics or advanced mathematics.  A tax focused CPAs job is "clearly" (I use that tongue in cheek) laid out in the 70,000 pages of the Internal Revenue Code and is supported by many thousands of US Tax Court Cases, Revenue Rulings, Rev Procs, Private Letter Rulings, etc.  A Real Estate Investing focused tax pro is focused specifically on that parts of those that affect you directly. 

Specific to your situation you have multi state issues going on, you live in California (which can be a fun tax return in and of itself), and you have rentals.  If you are going to stop at 2 rentals, it may be worth it to pay a CPA to review your return in the offseason and provide you with notes on what you did wrong or an all clear.  On the other hand, if you are chasing financial independence and are going to keep adding properties you may want to have a professional by your side to help you plan.  That plan may be "expensive" today, but it will look cheap when you've been able to apply the plan and maximize your tax savings.

Best of luck and keep us posted as you grow your portfolio!!

@Ron Mussatto - Great question! A lot of times people jump into having an LLC before they even get a property, then they feel compelled to use that LLC but get scared off when banks tell them higher rates on a corporate loan. Next what happens is where a lot of investors get lost. They go back and buy the house in their personal name and plan to quitclaim deed it to the LLC. One of two things happens: they forget to do it, so they don't have the LLC protection OR they do quitclaim it over and they have triggered the due on sale clause in their mortgage contract. While the chances of this being called are probably low, it's still a possibility. I did a blog post a while back on when to set up an LLC. My personal preference is to get as many properties under your name as you can at those better rates and then get a large personal umbrella policy to mitigate your liability risk. Once you've hit the max, start that LLC and keep the fun going. Here's the link to the post:

https://www.biggerpockets.com/member-blogs/5926/53215-questions-as-common-as-the-cold---llc

Good luck!

First thing is first, why an S Corp? Typically this is not a good choice for passive investments.  Who suggested this to you?

If you are round robin providing funds, why not buy individually?

The bank approves the personal purchase then transfer to LLC now, but is the due on sale clause still in the loan docs? If so, have you essentially notified the bank that you've triggered the clause and they can call the note due at any time?

You’ll definitely need to work through this with a tax professional.  You have a lot of things in play and I’m not sure it’s going to be as straightforward as you think it will be.

@Tyler Duzick - Good morning (where I'm at)! While you COULD technically use your S Corp to invest in passive real estate, it's almost never advised from a tax perspective.  The potential cost of additional taxes from the S Corp structure would likely be much higher than the cost of setting up a new entity.  You may potentially be the exception to every rule, so I'd recommend sitting down with a tax professional and assessing your situation to see what's best for you.  

I think you mean a CP-eh.  I couldn’t resist.  Sorry.

Hope you find a qualified professional up that way!

I don't have a local recommendation for you, but I would recommend looking around BP for a tax pro/tax adviser. There are many great tax pros out there who work virtually with clients from coast to coast and work mainly with real estate investors. Most do their work through email, document sharing, client calls and skype/video if you want face to face communications. In the end it saves you time because you aren't traveling to an office for a meeting and the added bonus of a technologically advanced tax pro makes the process more efficient.

The best way would be to schedule consultations and get a feel for if their communication style works with yours.

Best of luck!

@Steven Hamilton II - Don't lie.  You don't HAVE to do bookkeeping, just bring a couple of grocery bags of receipts to your tax pro with a round number for mileage. Bingo Bango Bongo.... deductions!  Bonus, your tax pro will love you.

@Chris Munoz - It sounds like you are ready to get started!  Congrats!

Personally, I'd take the HELOC route and BRRRR every property I could. I wouldn't mess with a SDIRA just yet, I wouldn't worry about the possibility of the loan being called from your 401K (If you leave your job, lose your job, etc.).

There's a great book on biggerpockets about starting in real estate investing, check it out.  

Ask as many questions as you can but most importantly just get started! Do something and then do it again.  Your first action will be imperfect, but taking a step is the most important step.  Even a wrong step in the right direction gets you further than standing still and talking about it!

Best of luck and again, ask as many questions here as you can think of!

@Doug Dias - I second @Michael Plaks.  I don't have a local recommendation for you, but I would recommend looking around BP for a tax pro/tax adviser. There are many great tax pros out there who work virtually with clients from coast to coast and work mainly with real estate investors. Most do their work through email, document sharing, client calls and skype/video if you want face to face communications. In the end it saves you time because you aren't traveling to an office for a meeting and the added bonus of a technologically advanced tax pro makes the process more efficient.

The best way would be to schedule consultations and get a feel for if their communication style works with yours.

Best of luck!