All Forum Posts by: Account Closed

 Hey Clay, 

When it comes to fix and flipping, the profits from the sale of a property are generally taxed as ordinary income rather than capital gains, especially if the property was held for less than a year. Setting aside 25% of your net profit is a reasonable estimate for taxes, but the actual amount depends on your overall tax bracket. Since flipping income is considered active income, it combines with your W2 earnings and can push you into a higher tax bracket, so it's important to set aside funds for both the increase in income tax and self-employment taxes. 

Hey Todd,

It sounds like you're dealing with a complex combination of tax situations across multiple states. First, it's important to note that CPAs do not need to be licensed in all three states (South Carolina, North Carolina, and Illinois) to help with your personal and business taxes. CPAs can typically practice across state lines as long as they're in good standing with their licensing board. However, some accountants may choose not to handle taxes for states they aren't familiar with or aren't set up to manage. The fact that many tax professionals are responding with "not taking new clients" likely has more to do with their workload—especially given the upcoming personal tax filing deadline for clients on extension—than with licensing issues.

If you're struggling to find someone locally, hiring an Illinois-based CPA to handle your real estate business taxes and doing your personal taxes yourself could be a reasonable option. TurboTax can handle both personal and business taxes, including depreciation and other tax benefits, but it may not offer the same personalized advice you'd get from a real estate focused accountant. I'd recommend reaching out to folks offering value in forums and seeing if they're accepting new clients, as that might yield better results. Best of luck! 

Hey Tanya, 

That sounds about right, I know folks that can do it for slightly cheaper but around that range is fair. Are they giving you advisory as well or just tax prep? 

 Hey Gavin, 

You don’t need to complete the separation by January 1st, 2025, to eventually write off the rental portion of your closing costs and other expenses, but you can only start deducting them once the rental portion of the property is officially "in service," meaning ready for tenants and actively marketed. If the separation is not done until 2026, you can still write off the portion of closing costs allocated to the rental unit at that time, but they would likely need to be amortized over the life of the loan. Expenses related to the personal-use portion where you live won’t be deductible for rental purposes.

 Hey Jessica, as accountants, we can't self-promote on the forum. I'll say that finding an accountant by the 15th is going to be very difficult. Depending on how complex your situation is, it still may be possible, however unlikely. I'd reach out to the folks in the forum providing value who are active and seeing if they're accepting new clients. Best of luck!

Hey Gavin, 
It's not a stupid question at all—you're asking a very valid one! In general, the IRS allows you to deduct certain expenses, including closing costs, in the year the property is placed in service as a rental. If you haven't fully separated the units and started renting one out by January 1, 2025, the property won't yet be considered "in service" for tax purposes. As a result, you wouldn't be able to deduct the rental portion of closing costs or other related expenses until the rental unit is fully ready for tenants. The key is when the property is available and actively marketed for rent.

If the separation isn't completed until 2026, you could still deduct the portion of closing costs allocated to the rental unit at that time. These costs would need to be amortized over the life of the loan or treated as capitalized expenses. The timing of when you can take deductions depends on when the rental portion of the property becomes available for rent, not necessarily when you incurred the costs. Keep in mind that personal-use portions, like the half you live in, won't be deductible for rental purposes.

 Hey Marc, 

Claiming Real Estate Professional Status (REPS) for a taxpayer (TP) who is a W-2 employee and involved in asset management is indeed challenging. To qualify for REPS, the taxpayer must spend more than 750 hours per year in real estate trades or businesses in which they materially participate, and more than half of their total working hours must be spent in real estate activities. Asset management, though closely related to real estate, is typically considered more strategic and financial in nature rather than direct involvement in day-to-day property operations. The IRS tends to scrutinize W-2 employees claiming REPS, and there is only one tax court case I know of where a W-2 employee qualified. In that case, the taxpayer had individuals testify to his character and work in court, which is an unusual scenario and highlights the difficulty of making such a claim.

If the TP cannot qualify for REPS, they may still be eligible to claim material participation in the deals, even with less than 5% ownership in some of them. Material participation requires meeting certain tests, such as spending 100 hours or more on the activity and participating more than anyone else. However, if all the activity generates passive rental income (line 2 of the K-1), there may not be significant benefits to claiming material participation. Without REPS, the passive losses from these rental activities may still be subject to passive activity loss limitations, so it may not yield any meaningful tax advantage.

Hey Marc, 
When tracking your real estate activities for STR management, particularly to prove material participation, it's important to clearly document each task you perform. For example, if you had a 1-hour conversation with a general contractor (GC) about renovations, you can simply summarize this in your activity log. Include the date, duration, and a brief summary of what was discussed (e.g., "Discussed renovation plans with GC for STR property"). While it's not required to take a snapshot of the phone call, you can keep call logs or email exchanges as backup for extra support if needed. The key is to be detailed and consistent in your logging.

For our clients, we provide a custom spreadsheet to help track activities more effectively. It’s designed to capture all relevant details, including hours worked, descriptions of tasks, and the specific nature of the involvement. However, only the time you personally spend on managing or coordinating the property counts. If the GC is performing work on the property, you can only log the time spent communicating with the GC or overseeing the project—not the hours they work independently on your behalf. This ensures you accurately reflect your active involvement in managing the STR.