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
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: 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: