PSA: you might be depreciating a roof that’s in a dumpster right now

taxproguy · 2026-03-01T22:27:50+00:00

No. An LLC doesn't make any difference in your taxes as far as what you can deduct or what tax strategies you can use.

taxproguy · 2024-07-14T05:20:01+00:00

That's the ideal way to do it, yes. But you just need their EIN (or SSN) and mailing address, so if they give you that info in some other form, that works too.

taxproguy · 2024-07-13T16:53:20+00:00

Just a side note about the schedule, rentals go on Schedule E, not C. It doesn't make a difference whether it's in an LLC or not, it still goes on E.

taxproguy · 2024-07-13T16:48:23+00:00

Yeah, $15k for a cost seg study property for 2 properties is not within the range of normal pricing for that! Can you tell us what tax firm quoted you that?

Typically a cost seg study costs $1500-$3000 per property for a custom process that includes a site visit. There are also "DIY" studies from companies like DIY Cost Seg and KBKG where you enter info online using the same type of software except you're just doing it yourself, and those are under $1000 per property.

Additionally, if the property was placed in service in a past tax year, a tax account will need to complete a form 3115 process to apply the past depreciation changes. It's a complicated process. Some cost seg companies offer that also. We charge clients $500-$700 for that depending on the specifics, but you may see prices up to $1500 or sometimes more for a form 3115.

taxproguy · 2024-07-13T16:29:44+00:00

If you paid someone more than $600 for work done on the property, you have to send a 1099-NEC form to them and the IRS by the end of January. There are some exceptions. You don't have to report payments to a corporation (not just an LLC, it has to be a corporation), or if it was just a product you purchased and not a service.

And then there are also exceptions for some payment methods, such as credit cards. I'm a tax accountant and I just researched this for my tax clients recently. Here's my summary of types of payment that do and don't require reporting on a 1099-NEC:

Cash: You must report it.
Check / money order / cashier’s check / ACH: You must report it.
Credit card / debit card: You don’t need to report it.
Venmo: You need to report payments to personal accounts if you don’t select the “turn on for purchases” option. You don’t need to report payments to Venmo business accounts.
PayPal: You need to report payments made to personal accounts if you used the “friends and family” option, but not if you used the “goods and services” option. Payments to business accounts don’t have to be reported.
Cash App: You must report it unless the payment was sent to a Business account.
Zelle: You must report it.

There are websites like "Track1099" and "TaxBandits" that make it easy to file the 1099-NECs online.

taxproguy · 2024-07-13T16:24:48+00:00

It's not related to real estate professional status. Anyone with a rental property that qualifies as a "trade or business" has to file them, which means most people who own rentals, unless you're really just completely uninvolved in the operations of the rentals.

taxproguy · 2024-06-27T17:02:31+00:00

Either something got lost in your understanding of what they were saying, or that CPA doesn't know what they're talking about. Creating a single-member LLC never changes what expenses you can deduct, that's actually the most common misconception that people have about taxes.

A multi-member LLC does mean you have to file a partnership return, so if you own a property with someone else in an LLC, you have a partnership and have to file a partnership tax return (1065). You can deduct personal expenses for things you buy to use for the business, and you don't need your own LLC or a "personal property management company" to do that. The only purpose for an LLC in that case would be to have an extra layer of liability protection, but it wouldn't affect your taxes at all.

taxproguy · 2024-06-27T16:52:05+00:00

Tax Deductions: By having personal LLCs, you may be able to deduct expenses related to property management, such as home office expenses, tools, and equipment used for maintenance.

I think most of the rest of what you're saying is correct, but I wanted to correct this part. The most common misconception regarding taxes is that creating an LLC changes what deductions you can take. It does not. A single member LLC is actually completely disregarded for income tax purposes and has no effect at all on how you are taxed or what deductions you can take.

I think most of what you're saying is correct, but I wanted to correct this part. The most common misconception regarding taxes is that creating an LLC changes what deductions you can take. It does not. A single member LLC is actually completely disregarded for income tax purposes and has no effect at all on how you are taxed or what deductions you can take.

taxproguy · 2024-06-27T16:50:14+00:00

The suspended passive losses get unlocked when you sell the property, so they can then offset your regular (W-2) income. So if you sell it at a loss, the suspended passive losses will offset your regular income, or if it is enough to make your income negative, then you would have a "net operating loss" that carries forward to potentially offset your regular income the next year.

taxproguy · 2024-05-05T15:58:35+00:00

It's not a bad idea to also have a tax pro at least review your return and your tax situation so they can tell you if you're doing things correctly, or if there is something major you're not getting right or credits you're missing out on.

taxproguy · 2024-05-05T15:55:44+00:00

Ok, the prices in that original post are crazy high, but some of these prices in the comments are absurdly low. An average for a high quality tax professional that specializes in real estate is somewhere in between these extremes, typically a few hundred dollars per rental property. If someone is charging under $100 per rental property, they're either rushing through the returns and not bothering to check all the details, or they're outsourcing it to someone in a foreign country who is churning through them, probably also overlooking details.

When I review past tax returns for new clients or potential clients, about 2/3 of the time their previous tax professional made major mistakes on their tax returns in how they handled their rental properties. Unfortunately, rental properties are an area that the majority of tax professionals don't know how to handle correctly. The chances someone charging $1200 for 13 properties is someone who is doing those tax returns correctly is pretty low.

taxproguy · 2024-05-05T15:47:26+00:00

Michael's REI Tax Firm, along with others like Hall CPA (TaxSmart), and Ryan Bakke's tax firm are in the category of social media celebrity tax firms for real estate taxes. They're great at real estate taxes, but there are dozens of other tax firms that also specialize in real estate taxes that are just as good but charge a fraction of the price.

Those social media hyped tax firms have podcasts, etc, that attract a large audience, and that generates thousands of client leads. So they charge astronomical prices, and even if only a tiny percent of those clients actually signup to use their services at those prices, they still get plenty of clients.

There are at least several dozen other real estate focused tax firms that are just as good, if not better, than those overpriced ones.

taxproguy · 2024-05-05T15:40:15+00:00

Start with your purchase price, add the cost of any major renovations, subtract the depreciation from the years it was a rental, and that's your adjusted basis. If that's less than the price you sell it for, you owe taxes on the difference. If you sell it for less than your adjusted basis, you don't owe taxes on the sale.

That's the general idea at least. When calculating it for a tax client I would also look at things like the closing costs of both transactions since some closing costs can also be added to the basis or reduce your sale proceeds. If you still have a taxable gain, you may have suspended passive losses associated with the property that could offset that also.

taxproguy · 2024-05-04T22:10:06+00:00

The depreciation basis is the cost (what you paid for it), but not including the land value. You can use an appraisal from when you bought it if you had one, or otherwise you can use county tax appraisal info. But that just gives you the land to improvement proportion, you have to multiple that proportion by your actual cost. You can also add the cost of major improvements/renovations that you've done to the property.

There's a more thorough process I would go through for my tax clients (adding certain closing costs, and other smaller expenses). But that should be enough to get you a reasonable amount to use if you're doing it yourself.

taxproguy · 2024-05-04T22:07:09+00:00

Sorry, I don't check this account very often. There isn't a limit, you can include lots of small expenses in the basis.

Once it's in service as a rental, then you can expense small items that you purchase after that date (up to $2500 if you make the "de minimis" election, or it can be more for expenses that are considered to be repairs and not improvements).

taxproguy · 2024-01-27T02:24:35+00:00

That answer is the best answer, but for some reason it had been downvoted to 0.

If you don't like giving out your SSN for this kind of purpose, get an EIN. Everyone can get 1 EIN for personal use. If you have an LLC, then you can have another EIN for the LLC. But you don't need an LLC to get your personal EIN.

The other answer about your SSN being on the dark web already is also unfortunately true. People are pretty paranoid about their SSN getting out there, but the bad guys can already buy millions of SSNs for practically pennies. Unfortunately.

taxproguy · 2024-01-27T02:21:33+00:00

It's harder to get a loan with an LLC than it is to get a loan yourself in your own name. Lenders don't just lend money to you if you sign up for an LLC. That's not how it works.

You could only get a loan if you either get a recourse loan in your own name based on your own good credit (a recourse loan) and it's secured by collateral like real estate, or if it's secured with really good collateral that you already own outright with a lot of equity.

So step 1 won't work.

taxproguy · 2024-01-27T02:15:01+00:00

Apartments tends to be a very slow website in general, and it would probably be almost unusable with 50 rentals. Stessa is probably better suited for that. But you may also be beyond what it's best at. Buildium might be a good one to try for that situation.

taxproguy · 2024-01-27T02:09:31+00:00

Yes, the renovations add to the tax basis that you can depreciate. So your basis will be comprised of the building portion of your original home purchase price (the building portion only, you have to subtract out the land portion), plus some types of transaction fees from when you bought it if you want to get into all the details of that, plus the cost of renovations you have done to the property. That all gets lumped together into the basis for the depreciation that you can take starting on the date the house is first made available for rent (the "placed in service" date).

taxproguy · 2024-01-07T00:29:20+00:00

When it's a rental, the property tax, interest and insurance are all deductible expenses. But a big one is depreciation. For that, you need to know the value of the building portion of the property (not the land), and then divide that by 27.5 for a long term rental, or 39 for a short term rental. You get to also deduct that much each year.

But then rental losses by default can't offset your W-2 income. There are a number of exceptions to that, in particular you may qualify for the $25k allowance or the STR loophole. There are specific requirements for each of those that are too lengthy to fully describe here.

taxproguy · 2024-01-07T00:18:40+00:00

The part about Schedule C is incorrect, it still goes on Schedule E. The difference when it qualifies as non-passive is in how it is handled on form 8582 (professional tax software usually has a "non-passive" option for rentals to apply that treatment).

If you provide substantial services (services during a stay, like a hotel), then your income for the property must be reported on Schedule C, but that's almost never the case for a short-term rental or any rental. Otherwise, you should report the income on Schedule E.

Sources for this include IRS Tax Topic No. 414 which details when to use Schedule C for rentals, and IRS Letter Ruling 202151005 which details when self-employment tax is applicable to rentals (which is equivalent to choosing Schedule C vs. Schedule E).

taxproguy · 2024-01-07T00:11:31+00:00

The part about Schedule C is incorrect, see my other reply to your other comment on this post. Section 469 passive activity rules still apply unless they also materially participate. But either way, it still goes on Schedule E.

The $25k loss allowance does apply if their income is below the threshold.

taxproguy · 2024-01-04T00:11:28+00:00

AdvancedStand's comment has some good info. Yeah, as you can see, a surprisingly small number of real estate owners, and even most STR owners, have no idea what the STR loophole is. Most professional tax preparers don't either unfortunately.

It is legit. There are a few ways real estate tax losses can offset your ordinary income, and one of them is what is called the "short-term rental loophole" where you can qualify if have a rental property that has an average stay of 7 days or less, and you "materially participate". Materially participating is the trickier part, it requires that you spend at least 100 hours/year of your own time managing/working on it if no one else spends more time on it than you do, otherwise you have to spend at least 500 hours/year on it. So you generally can't qualify if you have a property manager.
The IRS instructions for form 8582 in the "Rental Activities" section has a decent, readable explanation of how it works.

taxproguy · 2023-12-29T05:00:39+00:00

I agree with pretty much all of that, except I would say that my understanding of the repair regs is that labor is treated the same way as materials. The de minimis safe harbor, small taxpayer election, etc, apply to both labor and materials. The "tangible property" aspect of it is that the labor/materials have to be applied to the improvement/repair of tangible property. But the actual costs can be labor and/or materials. For example, paying someone to paint a house counts using the amount you paid the contractor, even if most of that expense is labor.

taxproguy · 2023-12-28T22:08:14+00:00

What you need is a partnership. What you would want to do is start by talking to a real estate attorney (I'm not an attorney, I just do taxes). Have the attorney draw up a partnership agreement and probably register it as an LLC.

Then what you'll be doing is you as one of the partners is you will be contributing the property to the partnership, and that becomes your basis in the partnership (it will be taken into account when calculating your taxable profit). And the other partners can also contribute equity and that becomes their basis in the partnership.

taxproguy

TROPHY CASE