CPA Tax Professional Search

The government wants to provide tax incentives for real estate. The government wants to encourage entrepreneurships and business that make money (so they can tax a portion of that money.)

CPA Tax Professional Search

• What real estate moves I need to make to decrease by tax liability. 

• Need a Tax Planner and a Tax Strategist - proactively plan the best way to conduct your business; maximize tax efficiency

• Someone who can help me reach my goals:

  • Properties under an LLC/S Corp, under a Trust

  • Script: I've been investing in real estate in the DMV and I'm looking for a Real Estate Savvy licensed CPA. I've been doing my own taxes for some time and I'm well versed in many of the common real estate tax incentives that I've been using (e.g. 27.5 year depreciation, writing off expenses, etc.). However, I want to grow my real estate portfolio and  I have real estate specific questions on how to plan strategically so that I can minimize my tax liability and take advantage of all of the tax incentives. I have questions regarding some of the following: choosing between an S Corp, or LLC, or LLC taxed as an S S Corp for my rental property; How holding rental property in a living revocable trust impacts taxation;   Cost of Selling (ex. depreciation recapture, 1031 exchange tax implications); Pros and Cons redoing my taxes for the past 3 years to get Bonus deprecation Section 179; Is a cost segregation study worth it?, 

How to choose a real estate savvy accountant?

General Questions and Notes

• Which states are you licensed in as a CPA

• Do you have experience working with real estate investors extensively?

Real Estate Specific Questions and Notes

• How does Section 179 and Bonus depreciation work

  • Cares Act says it can be taken back 3 years

• Should I get a segregation study?

• Qualified Business Income

• How 1031 impacts my taxes

• Selling a primary residence if I lived in it 2 of the prior 5 years

• Can I write off down payment or closing costs  for rental property acquisition 

• How to limit tax liability when Flipping? What gets taxed

• Itemized Deductions is less than Standard deduction

Tax Incentives, Loopholes, and Benefits

• Tax Incentives I need to learn more about 

  • Write off vehicle purchased under business name - over 6,000 lbs

    • How much gets written off?

    • How much gets written off if:

      • Less than 6,000 lbs

      • Bought in personal name

    • 40

From my Research this is what I have learned:

OWNING INVESTMENT PROPERTIES

• Tax Incentives for Real Estate Investors

  • • Depreciate Value of the building over 27.5 years

      • • You CANNOT depreciate land

    • Write off Repairs

    • Depreciate Upgrades and CapEx

    • Pass-Through Deduction 

      • Write off Expenses (property taxes, property insurance, mortgage interest, property management fees, etc.)

      • Qualified business expenses: advertising, office space, business equipment (computer, stationary, business cards), legal and account fees, travel.

        • • Pass-through deduction allows you to deduct up to 20% of your QBI on your 

      • Write offs

        • Standard Mileage Deduction

        • 
          

• TAX Entity

  • LLC vs. S Corp vs. Umbrella insurance

    • LLC

      • 
        

    • S. Corp

    • Umbrella Insurance

      • This is not a tax status. This just says, if someone wants to sue you, your insurance company will take on the case within reason and they will pay up to $X dollars (e.g. $1 million policy) if they lose the case or can't settle. 

  • Pros of LLC

    • LLCs are considered as "pass-through entities" so they avoid double taxation. LLC owners do not pay corporate federal income taxes, unlike C-Corporations. 

  • Cons of LLC

  • Reservations regarding putting property under an LLC Now.

    • Due on Sale Clause being triggered

    • Cost associated with LLC formation and annual filing fees

    • Figuring out which state to have the LLC in order to maximize tax advantages

    • FICA taxes (15.3% - 12.4% for Social Security and 2.9% for Medicare)

      • • Employment income is subject to FICA payroll taxes (15.3% of your gross wages). 

    • Double Taxation 

    • Which is better LLC, S. Corp, Trust

  • Research based on Reservations 

    • FICA Taxes for an LLC

      • FICA doesn't apply to LLC (Limited Liability Company) owners, though. For tax purposes, an LLC is considered the same tax entity as its owners, and all tax obligations flow through to the individual members. LLC members are not considered employees and do not receive paychecks from which FICA is withheld.  - Source: Do LLC Owners Pay Self-Employment Tax - March 2020

    • FICA Taxes for an S Corp

      • The S Corp advantage is that you only pay FICA payroll tax on your employment wages. Your S Corp pays (7.65%) half of the 15.3% payroll tax on gross wages. The S corp can write this off as a business expense. The employee pays the other half. (It's typically withheld from their check). The remaining profits from your S Corp are not subject to self-employment tax or FICA payroll taxes. Those profits are only subject to income tax. - Source: S Corp and Self Employment Tax: What you need to know - 

    • What is the LLC Income Tax Rate 

SELLING INVESTMENT PROPERTIES

• Capital Gains Tax

  • Short Term Capitol Gains is taxed at ordinary income 

    • Short Term = you held the property for 12 months or less; less than 1 year

  • Long Term Capital Gains is taxed at 15%

    • Long term = you held the property for 12 months and 1 day or more; more than 1 year

• Ordinary Income Tax Brackets for 2022 - (and How Tax Brackets work)

  • Single -- (For Married, you can table most of these numbers, except for with the 35% and 37% Tax rate)

    • Tax Rate of 10% for Income up to $10,275

    • Tax Rate of 12% on income between $10,276 to $41,775

    • Tax Rate of 22% on income between $41,776 to $89,075

    • Tax Rate of 24% on income between $89,076 to $170,050

    • Tax Rate of 32% on income between $170,051 to $215,950

    • Tax Rate of 35% on income between $215,950 to $539,900

    • Tax Rate of 37% on income over $539,900

REAL ESTATE PROFESSIONAL

• You must spend more time working as a real estate professional than any other job that you have. The Internal Revenue Service (IRS) defines a real estate professional as someone who spends more than half of their working hours in the rental business. This may include property development, construction, acquisition, and management. You must also devote more than 750 hours per year to working on your real estate rental properties to qualify as a professional.

  • Source: National Society of Tax Professionals

  • Source: Real Estate Professionals: Avoiding the Passive Activity Loss Rules - July 2014

Entity questions

• LLC or S Corporation structuring 

  • How and when to elect S corp status for your LLC

• Who gets taxed more, me or my LLC

• Double taxation 

  • LLC's default tax structure is not subject to double taxation 

  • LLC profit and losses will pass through to the owners of the LLC aka pass-through taxation

    • If I have an LLC, can I report losses and profits on my personal tax return or do I have to file taxes for each LLC separately?

      • In the default tax sturcture, the LLC's profit, after expenses, is taxed on the owners personal tax return. The owner then pays self-employment tax on the amount. 

  • Do I need to pay self-employment tax with an LLC or with an S corp?

• How is a trust taxed?

• Single-member LLC - is by default considered a disregarded entitu by the IRS. 

  • No federal tax advantages

  • However, the owner will still have liability protection as long as theyh maintain their coproate veil

• LCC has fewer regulations

  • simpler formation requirements with the state

  • no required annual meetings

  • impler recordkeeping rules

  • Your LLC can purchase another LLC

  • Your LLC can be owned by anotehr busiens sor LLC

• When to choose an LLC?

• When to choose an S corp?

• Structuring my LLC's to pay me

• Should my self-managed property management stuff be under a different LLC

Sources:

• Tax Benefits of Real Estate Investing: Top 6 Breaks and Deductions - April 2022