All Forum Posts by: Zac Kucharek

Quote from @Austin Cheatham:

1. Learning the basics of property-related tax on your own can be helpful, especially if you’re interested in the long-term benefits of real estate investing. You might be able to manage without a CPA initially. However, a CPA specializing in real estate can offer insights that may help you avoid common pitfalls and optimize deductions early on. If you’re planning to expand your portfolio or want to maximize your understanding, consulting with a CPA upfront could set a solid foundation.
2. Your understanding is generally correct. Expenses that exclusively relate to the rental unit are 100% deductible, shared property expenses (like mortgage interest, insurance, and common area repairs) are typically 50% deductible, and personal residence expenses aren’t deductible. 
3. Improvements, like a remodel in the rental unit, are usually considered capital expenses and need to be depreciated over time. You can’t deduct the full cost in the year you make the improvement, but you would depreciate it over the useful life of the improvement (usually over a period specific to the type of asset, like 5, 7, or 15 years, or over 27.5 years for residential property improvements). You can look into a cost seg study to accelerate some of this depreciation.
4. Beyond the basic deductions, keeping a detailed record of shared expenses and understanding the split-use rules can maximize deductions.
5. For house hacks, depreciation is typically taken on the rental portion only (50% in your case). Depreciation recapture upon sale would apply to the portion of the property you depreciated. Using a strategy like a 1031 exchange can help defer this tax if you reinvest the proceeds into another property.

Thank you so much for your detailed response! Very helpful info

I currently live in a Duplex that we house hack, living in one unit and renting the other. This was purchased in December 2023 and I am trying to Tax plan for the coming year.

1. I have heard from others that you should learn and research tax if possible for your first property rather than hire CPA right off the bat as it should be less complex from strategy. Would you recommend hiring CPA for planning right off the bat for first property? I know that would be the easiest approach but wondering your thoughts.

2. I know many of the tax deduction in a House hack are 50% in a Duplex as half property is rental and half is residence. As I understand it 100% deduction on expenses that are soley related to the business or the rented unit, 50% deduction on expenses that relate to the general property as a whole ( mortgage interest, insurance premiums, common area repair expenses). And 0% deduction on expenses related to the live in unit. Is that generally correct?

3. I have saved and organized electronically all receipts for expenses as well as improvements on the property. How do you deduct "improvements" such as a room remodel in the rented unit. Is that something you have to depreciate over time?

4. Generally are there any specific strategies or deductions for house hacks that you would recommend from experience?

5. Finally, if I depreciate the value over 27.5 years to deduct? Is that so cut to 50% as it is a house hack? Secondly, would I have to pay that back in depreciation recapture upon sale? I'm sure there are strategies to mitigate that down the line when that time came such as a 1031 or something along that route?

Thank you in advance for your insight. Apologies for all the questions but figured it'd be more efficient all in one post.

Quote from @Randy H.:

Zac, after being a full-time real estate investor for the last 53 years I have learned a few things about how to hold title and asset protection. Here is my suggestion for you to consider. First, NEVER own real estate in your name personally. It is just too risky. Take title directly from the seller to a Trust. Make the Beneficiary of the Trust your LLC. There is NO registry for Trusts (like there is for LLC's and Corp's) so you get total privacy of ownership...which is your first line of defense when it comes to crazy tenants and contingency fee lawyers (and their dead-beat clients). The more successful you become, the bigger target you are for a frivolous lawsuit. Regarding single member vs. multi-member LLC's, you need "Charging Order Protection" (COP) to receive the best asset protection benefits. The problem is that single-member LLC's (husband and wife members are considered as only one member) do NOT give you Charging Order Protection unless you form the LLC in WY, NV, DE (and maybe 1 or 2 other states). What this means is if you form your LLC in a state that does NOT have COP, you do not have good asset protection (Google the Olmstead case in Florida). This may all seem overwhelming to you, but it is not. And besides, what is your net worth...worth? If it is worth your time, energy and money to build your assets, it is worth some time to learn how to protect it! Respond back if you want to discuss further.

P.S. A trust saved me from losing a 3.2-million-dollar property years ago. That's when I became a true believer!

Randy I have heard some about trusts and their benefits to holding properties. I was initially told from others I talked with on the subject that it is very complex structure for a single property portfolio and overkill. You are of the the opinion that it is beneficial on every single property right off the bat? Are there elevated general or tax related cost or complexity to structuring this way, that would make it non feasible for someone just starting?

Quote from @Jason Malabute:

Based on your assumption that you and your spouse file jointly, I agree with the others in the comments. I suggest listing only your name as the LLC member. This way, you can file as a single-member LLC with your 1040, avoiding the complexity of a 1065 partnership return and issuing a K1. It's simpler and less hassle.

This is what we ended up doing. Single member LLC. We also picked up an Umbrella Policy for our personal assets as well. But the reduced complexity of the single member set up and the improved liability coverage that is similar to 2 member LLC guided us this way, as well as others good insight. Another big part is just to officially have a business entity to help separate personal and business finances in an official manner.

We will do a quit claim deed in the future to transfer the title into the LLC.

Quote from @Greg Kasmer:

Zac - I'm not an attorney, so take my thoughts as just that - my thoughts from my experience in which I've had a single member LLC and a two member LLC. I think you asking two different questions. A single member LLC you can be considered a disregarded entity and therefore have it roll up to your personal taxes without a separate filing. If you have two members of the LLC then I believe you would have to file a separate business tax return and then have the income flow over to your personal return via a K-1. That would add costs to your tax return. I don't think either is "more protective" than the other. As for your ownership of the duplex.... If you already have title and loan into both your personal names then you'll need to change title and loan to the LLC (irrespective if the LLC is a single member or two member LLC). I don't think it will be any "harder" or "easier" changing title/loan into the LLC from a mechanical standpoint, but the lender might be more willing/able if the same people were in the LLC as the original loan. I would contact the lender first and get their opinion. Good Luck!

Greg,

thanks for your answer! Yeah I am not worried at all about which may have more protections. I am definitely the one doing the work on the LLC as well as the tax complications being lower with a single member versus the spousal partnership. More so just heard that if you transfer title into LLC it can "uncap" the property and cause a new tax assessment the following year and raise your future tax expense. I am hoping to avoid that. So I had read if you transfer into the LLC of like ownership it would not uncap? But would me and my spouse being on the title together and just me as the only solo member in the LLC be a "common ownership" or would it have to be exact and me have both of us as members of the LLC! That's my predicament if that makes sense all typed out.

1 or 2 members for LLC for spouses when loan/title are under both spouse names:

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Hello,

I am starting an LLC and have some general questions. I am using the LLC mainly to shield liability from the rental property from personal assets.

-The property: Duplex that we are house hacking and living in one unit while renting other side out on long term leases.

- mortgage: loan and title under my wife and I’s name 

First question:

I am unsure as to start the LLC with 1 or 2 members. My wife and I both as members of the LLC solely for the purpose that the loan and title are under both of our names so when transferring this property over from personal to the LLC I am trying mainly to prevent the property from technically changing ownership and "uncapping" its value for property tax purposes.
I have been told LLC under 1 name as a single member LLC is less complex and less expensive etc preparation wise. But I would like to avoid uncapping the property value. So if there is a way I can structure the LLC under single never but also avoid a technical “change of ownership” that is my main question!

My LLC is already created and I am filing for the EIN and was held up on this 1 or 2 member step for these reasoning. I know I should consult a CPA or attorney but wanted to get input as some may have been through this. Thank you In advance!

Quote from @Kyle Mast:

Hey Zac, Kyle Mast here from the BP Podcasts. Shoot me a PM. I started in financial planning at 24, started my own firm at 26, got my CFP at 27, sold my firm at 37, while building up real estate along the way. Still maintain my CFP designation while spending tons of time with the young fam these days and managing our investments. I’m up for a phone chat if you are. Lots of different routes you can go in the cfp career but it’s a phenomenal one for flexibility, income, and helping people. 

Hey Kyle,

I am definitely familiar with you as I am a frequent listener of most of bigger pockets offerings! Thank you for your response. I am just looking for a kind of realistic overlook of the field and see if making the move would be worth it as I have been quite interested just the step back to take a step forward has been the hesitation. I’m sure your insight would be highly beneficial! I will PM you!

Hello,

I have considered a career change into financial planning. I did not know of this career in college so I did not go this route and am now in a different career. I am currently full time employment in a reliable position. But have recently thought about the longer term picture and my passions don’t align with my career even though the job is comfortable and technically what many would call a great spot to be as a Physical Therapist. I love helping people and truly do enjoy my job, but I am already at a young age topped out for compensation and in this field with insurance reimbursement structure the way it is, I am likely to not move up much at all in the future unfortunately.

I have always loved personal finance and after accruing ungodly amounts of student loans and navigating paying them off all while efficiently investing in the stock market as well as now real estate I have not only realized how strong my interests are in this area but also my personal skills align in financial planning and personal finance. I am constantly hungry to learn and do more in this realm and I have considered the CFP route for awhile.
Problem being it would be a large pay cut initially I presume and would need over 2years of full time work in financial planning to qualify for the CFP.  

I am wondering if anyone out there is a financial planner and/or CFP and has any insight on the situation as I think about it.

@Jake Andronico

thank you for your thoughts, and great real world examples here. Definitely expect fixes and maintenance and money put in for upgrades. I anticipate that for sure, I am quite conservative and will be saving up reserves quickly for sure as I expect these things you discussed as well as want to be ready for them! I plan to keep any money in the property and add more from my W2 to build up a solid reserves fund, then hoping as the property stabilizes I can contribute more from the property cash flow to further sustain this reserves account!

@Ryan Thomson

Thank you man, I do believe you're right as putting reality into my expectations. With the low down payment, large prices after a run up, and high interest it leads to a near impossible environment to cash flow. I was definitely thinking that going in and surely seeing it. I have calculated some NWROI in my area and the first year have a near 90% return on some of the really good properties that I have analyzed. So that is a metric I am paying close attention to as well as trying to get to PITI and PMI full coverage with some slight amount left over to allocate toward building reserves and hoping this amount builds over time to build that reserve fund up as many of the other positive wheels of real estate hopefully start churning!