All Forum Posts by: Ebere Okoye

I have purchased and used AL's program and do reference quite often when working with my clients. The good thing is that I understand what he is saying. For some of my clients though, they feel it is over their head and still need the help of CPA. For others, its easy to follow. I would not be worried about setting up a C corp quite yet. I agree with the multi-member LLC but remember that you need to spend at least 750 hours(about 14 hours/week) in real estate AND more time in real estate than you do in any other active profession. You need to meet these two requirements and not just one.

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[quote=
Example :
In 2009 I spent $10k on Rich Dad's course to learn all about real estate (Ha ! Look, this is just for sake of the example) But I did not do anything, so I'm not in business so no deductions for the course.

Sounds too real to be an example LOL!

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Originally posted by Tod Radford:

I think you could only deduct 50% as Entertainment Expense only :)

Hi Tod, I would not consider education expense as an entertainment unless of course, SOMEONE chooses to be entertained during the teaching, lol

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Originally posted by ladymarshall:

I paid for some rich dad course, Can I get a write off on them? how do I get a write off for education

I agree with Charles on the expense needing to be ordinary and necessary which for a real estate investor

For my clients, I would usually treat those costs as start up costs subject to the $5k first year deduction and then the balance over 15 years.

There are other instances where I accelerate the amortization if the client has shown significant real estate activity.

And for my clients who do rehabs within their first year, I include in the cost basis of the property.

CAVEAT: I usually shy away from taking this deduction for clients that do not have a registered and viable business because then the question becomes, if you do not have a real estate business, was this "NECESSARY"

2 Votes

Originally posted by So, if the SDIRA holds a rental property for, say, two years and then sells the property for a gain... is UBIT due on the gain? What about one year? What if the property is sold with seller financing to the tenant after 18 months? 6 months? Does 'intent' play any role in what is considered a "businesses" to the IRS? Any insight appreciated. [/quote:

Here is my take on this issue;

Any property held to produce income is debt-financed property if at any time during the tax year there was acquisition indebtedness outstanding for the property. When any property held for the production of income by a tax-exempt organization or IRA or Roth IRA is disposed of at a gain during the tax year, and there was acquisition indebtedness outstanding for that property at any time during the 12-month period before the date of disposition, the property is debt-financed property. In general, average acquisition indebtedness for any tax year is the average amount of the outstanding principal debt during the part of the tax year the property is held by the entity or IRA.

The amount of gain or income taxable as UDFI for any tax year is the total income, multiplied by a fraction. The numerator is the average amount of acquisition debt, and the denominator is the average of the adjusted bases at the beginning and at the end of the year.

So having debt plays more role in calculating UBIT/UDFI compare to intent/holding period. As long as the IRA "PURCHASED" the property with some kind of debt. It does not matter "HOW" the property is "SOLD" to the tenant (seller financing, out right, wrap around, etc)

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Originally posted by Damien Hall:

Thanks a lot guys. I was thinking about Quickbooks since I am familiar with it. I was hesitant because I wasn't sure if it accommodated to the real estate industry as far as investing is concerned. I'll look into it again. My company is small and just starting out. Have you heard anything about Timberline or MRI? I just want a system with a good G/L and can also provide forecasting and job costing for various projects.

I think quickbooks is good since your are starting out. We use timberline and MRP more for heavy construction clients with lots of depreciable assets and WIP inventory. Without knowing your real estate strategy, I will say that quicken works well for landlords, rehabbers, wholesalers, etc.

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Originally posted by Ken Yearwood:

Perhaps a naive question, but for someone like myself looking to purchase my first 2 properties this year, could someone walk me through the benefits of using quickbooks pro vs simply keeping track of income and expenses in an excel spreadsheet?

I think its based on your ease of use. I usually have my newer clients start out with excel and get comfortable with the art of record keeping and then migrate to quickbooks when necessary. Each property can have its own workbook and as long as you ensure that you are not co-mingling funds and 99.9% of your income and expenses can be traced to a bank account or receipt log, then I think excel is a good start.

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Originally posted by Matt R.:

Hi Ebere,
yeah, I know what you mean.
But when I went through the exercise, I really do work a lot of hours (I'm not trying to boast - I wish I could work a lot less).

Once I started to actually track how many work hours vs real estate hours it became clear that work was going to be the clear winner by a mile - so there's no way I could ever qualify.

Oh well - no worries. I just have to save up the depreciation for when I sell. That should see me sailing into retirement with a bucketload of tax free $$$

I agree Matt. See you on the other side of retirement!

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Originally posted by David Beard:

Ebere -- what is the value of being a RE professional, other than not having to worry about passive loss limits. Are there other deductions you're entitled to, or other perks??

The main value is in being able to deduct passive losses. And for those of us where buy and hold is our primary strategy, it becomes very valuable. Apart from this, most other deductions/perks are available to other classes of real estate investor. I hope this helps

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All Forum Posts by: Ebere Okoye

Ebere Okoye has started 0 posts and replied 108 times.

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Post: (income tax question) Active vs. Passive