All Forum Posts by: Account Closed

Hey Dina, 

The extensive repairs discovered during inspection could ultimately provide a tax benefit by increasing the depreciable basis of the property. Major issues like foundation work, bathroom renovations, and deck repairs are considered capital improvements, which can be depreciated over time, allowing you to offset a significant portion of your rental income with those deductions. While the repairs will temporarily affect rental operations, the long-term tax advantages from depreciation could help recover some of the initial financial outlay.

In terms of negotiations, it would be wise to push for a larger price reduction instead of accepting a cashier's check, given the magnitude of the repairs and the expected loss of rental income during the downtime. You can strengthen your position by documenting the repair estimates and the potential loss of income due to the disruption in bookings. Additionally, consider negotiating the ability to delay or cancel some bookings to complete the necessary work sooner, avoiding further damage.

Quote from @David H.:

Hi. We have a large lake house in the midwest that attracts multi-family stays from Memorial to Labor Day.  This past summer was our first year, so to test the market we had a 3 day minimum, and we filled every weekend with 3-5 day stays easily but we had holes in the midweek.  We plan to open reservations now for next summer (2025) and want to avoid the mid-week vacancies.  

We are considering either a Fri-Fri, Sat-Sat, or AnyDay to AnyDay 7 day minimum strategy. It seems that there are pro & cons to each. Our cleaner says she has another house on the lake that does Fri-Fri and fills the whole summer...unfortunately (or fortunately) there aren't a lot of other STR large lake houses around for us to comp.

For those of you that also do 7 day minimums, what is your preferred strategy?  Or does anyone find that having a 5 or 6 day minimum is also effective?

Thanks!

 Hey David, 

For your lake house, implementing a 7-day minimum could work well, especially if you aim to take advantage of the short-term rental tax benefits, such as the "short-term rental loophole." Under this rule, if your average stay is seven days or less and you materially participate in managing the property, you can treat it as non-passive income and potentially use tax losses (like depreciation) to offset other income. Many hosts find a Fri-Fri or Sat-Sat strategy works best to maximize bookings since families often prefer a full week vacation, and it aligns with popular check-in/out days. This can also simplify cleaning schedules. However, an AnyDay to AnyDay strategy might give you more flexibility, filling in midweek gaps. Since there's low competition in your area, you could test which option fills up faster and adjust as needed for maximum occupancy.

Hey @Mariangela Ciciarelli, 

Many of our clients invest casually in short-term rentals (STRs) near Disney in Orlando, and while there is potential, extra due diligence is crucial. Many properties are in HOAs that restrict or heavily regulate STRs, sometimes requiring a property manager. It's smart to research the area's saturation on STR platforms to assess competition, pricing, and occupancy rates. Look for high-demand amenities in successful rentals and ensure the numbers make sense for profitability. Self-managing can be challenging or restricted, so be sure to factor that into your decision.

Hey Tyler, 

It's important to work with a real estate-focused accountant, especially as you begin managing rental properties, to ensure you're taking full advantage of available tax benefits. While your parents may have experience and a simpler approach, even with just two properties, you could miss out on key deductions like depreciation and interest without professional guidance. An accountant can help you navigate complex tax rules and keep your records in order, potentially saving you more than their fee. The cost of hiring an accountant could be offset by the tax savings they help uncover. However, if you feel confident using tax software and understanding rental property tax rules, you might manage without one. A consultation with a real estate-focused accountant can help determine if their ongoing services are worth the investment.

Hey Joe, 

Having a large number of rental properties and installment sales can certainly make your tax return voluminous, but as long as you're maintaining accurate records, filing everything correctly, and reporting all income, the size of your return itself is not necessarily an audit trigger. The IRS typically selects returns for audit based on unusual or suspicious patterns, not the sheer length of a return. In your case, with a history of passing audits and having a CPA who is experienced in IRS representation, you're in a strong position should an audit occur.

Regarding audit statistics, the IRS generally audits fewer than 0.5% of individual returns, with even lower rates for those earning under $1 million annually. In fact, those with incomes under $1 million have about a 0.2% chance of being audited, with the rate increasing slightly as income rises. The key factors that may raise audit risk are discrepancies in reported income, excessive deductions that appear out of line with your income level, or unusually complex transactions. Since your CPA is advising that your current structure is sound and not worth changing, it seems you're well prepared, especially with your past audit experience.

Quote from @Drew Sygit:

@Tony Thomas no advantages that come even close to covering all the expenses and paperwork headaches!

What MAY make sense is to setup a Master LLC that operates like a PMC and collects all your rents, pays all your property-related expenses, etc.

The owner of each property (you, LLC, trust, IRA, ect.) would have to execute a management contract with the Master LLC, so the Master LLC could legally act on behalf of the property owner(s).

Check with @Account Closed about all this, but also an attorney!

 thanks for the shoutout Drew!

Quote from @Tony Thomas:

We own and self manage three rental properties. Two of them are in Kentucky and one in Florida. We would only plan to manage our own properties.

Would there be any tax advantages to starting our own property management company

Hey Tony,

There are definitely several tax advantages to starting your own property management company. First, it could help you qualify as a real estate professional (REP), or at least make it easier to qualify, which would allow you to offset passive losses from your rental properties against your active income. This could lead to significant tax savings, especially if you're actively involved in the management and operations of your properties.

Additionally, starting a property management company would allow you to deduct a wide range of business expenses related to managing your properties, such as office supplies, travel, marketing, and payroll (if you hire help). These expenses would lower your taxable income and further reduce your overall tax liability. It would also give you more control and flexibility in how you manage your properties while ensuring you can take full advantage of tax deductions available to businesses.

Quote from @Inga Davis:

Hello,

I just started my real estate investing journey this year and am looking for a local CPA in Columbus OH who could help me with tax planning now and in the future. 

Thank you,

Inga 

Hey Inga, as tax accountants, we are not allowed to self-promote in the tax forum as it is against the forum rules. I would highly encourage you to reach out to accountants who are providing other people value and seeing if they're accepting new clients. Best of luck.

Quote from @Kevin T.:

Hi All, does anybody work with a good CPA that is knowledgeable with real estate investing? I am need of a new CPA and any referrals would be greatly appreciated. I would prefer to keep it local to Lee and Collier County (Florida), but I am aware that in the age we live in it doesn't really matter, where he/she is located and almost everything can be done online. 

Hey Kevin, we're currently accepting new clients for the 2024 tax year. We specialize in working with real estate investors who are either high W-2 earners or own small businesses.

If this sounds like you, please let me know we can setup some time to chat. You can also see our website in my bio to see if its a fit 

Hey Kevin, as tax accountants, we are not allowed to self-promote in the tax forum as it is against the forum rules. I would highly encourage you to reach out to accountants who are providing other people value and seeing if they're accepting new clients. Best of luck.