All Forum Posts by: Ebere Okoye

Agreed.
You would need to consider some form of retirement planning that involves pre-tax contributions. In addition, do you have the right kind of entity structure that minimizes the self employment taxes you pay on business income? There are several strategies available based on your specific situation

Re: depreciation, It really depends on your individual tax situation. Are you a real estate professional? Do you materially participate or actively participate in the rentals? Do you make under $100k/year?These are more questions determine if you would even benefit from depreciation due to the passive loss rules. You really should purchase based on the mechanics of the deal and not the tax benefits. Also remember that any depreciation that you take is recaptured when you sell

An investor that travels to a region for the purpose of acquiring a rental property will be allowed to capitalize this cost as part of the investment, but this travel would not be a current year expense. If you are investigating a specific property to buy, and the deal doesn't work, you can deduct your personal expenses on Schedule A of your Form 1040 as "miscellaneous expenses."
If you are searching for a property but have no specific property in mind, and you decide not to buy, you cannot deduct these expenses; they are not related to any specific property.

yes but it will be subject to the passive activity loss rules

Not that you add it back but those losses are only suspended and can be taken at a later date if you meet the requirements of now being a real estate professional, sell the property, or have passive income

I am glad you are asking this question now. When you calculate the gain/loss on the sale of the home, the IRS requires that you calculate the gain/loss amount based on depreciation allowable not depreciation actually taken. I just went through an audit where the examiner refused to pick up the difference between the depreciation taken and the depreciation allowable. So it's best to take the depreciation.

You should also consider some form of entity structuring where you could take the benefit of the depreciation now since your parents will not need it.

Usually, the mortgage company will not let you transfer the title without trigerring the due on sale clause. I have usually just transferred without getting them involved and as long as the mortgage is being paid, then you are fine. Going on almost 10 years of my properties being in an LLC still with a mortgage in my name.

Not sure how leasing gives you protection when it still shows your name.

Because you own the LLC, it will be considered a personal use dwelling and subject to limits. Bottom line is that if you rent to yourself, you are not allowed to deduct expenses in excess of income

It can be a pretty simple or completed process. The main task is to look at the rental property and to see if you have any items in the property that are considered personal property or leashold improvements. Personal meaning moveable, does not cause structural damage, etc. Items like Fridge, Stove, cabinets would qualify.

Leasehold improvements are alterations to a building to make the space more usable. Some examples of leasehold improvements include: painting, installing retail counters, partitioning, replacing flooring, and building dressing rooms, among many other things.

If you determine that you have the above two items, you can now depreciate the personal property over 5 or 7 year and the leasholds over 10-15 years. This accelerates the depreciation because before now, the whole property cost was being depreciated over 27.5years.

I have also had clients who have used reasonable methods such as allocating a % to personal property like 20% and 20% to land and the 60% to the building. Then any rehab is considered improvements.

There is also a website that can help you gather your data if you want to be more sophisticated and they charge you for that.

http://www.taxsegexpress.com/

It depends on the type of LLC, Single Member LLC are disregarded for tax purposes meaning that the income or expenses you receive from the LLC are picked up directly on your tax return. If it is a multi-member LLC, then you would need to file a form 1065. In this case, sounds like a SMLLC therefore that income retains the original character of being passive income and therefore belongs as interest not Schedule C income

Here is an IRS rule that suggests that there is flexibility in how you pick up the expenses that otherwise would have been fully deductible on schedule A.

Renting out part of home. If you rent out home into account. If you meet these tests, then you can deduct all

part of a qualified home to another person (ten- of the payments you actually made during the ant), you can treat the rented part as being used by you for residential living only if all of the following conditions apply.

· The rented part of your home is used by tenant primarily for residential living

· The rented part of your home is not a self-contained residential unit having separate sleeping, cooking, and toilet facilities.

· You do not rent (directly or by sublease) home to your main home. more than two tenants at any time during your tax year. If two persons (and dependents of either) share the same sleeping quarters, they are treated as one tenants