Rental Real Estate and Taxes


This post is in: Blog, Real Estate
No Comments

Rental Real Estate and Taxes

In my last blog, I talked about the real estate professional tax deduction and what it takes to qualify.

Almost immediately, I received a couple of questions on the blog, which I answered, and two questions at USTaxAid.com.

One thing is sure. People have a lot of questions about real estate and taxes!

Here is one question I received:

Q:

I can no longer depreciate my properties. I’ve owned them for more than 30 years. My commercial property does not have a mortgage on it. Here’s my question: How do I get my accountant to list me as a real estate professional? I spend a lot of time running back and forth to my buildings EVERY DAY. I do most of the work needed myself. My day starts at 3 am, at my buildings. I always owe a lot of money at tax time. My commercial building is set up as an LP and Corp. My triplex is listed in my name. With the amount of time that I put in at my buildings every day, I should think I would qualify for a listing as a real estate professional.

A:

Depreciation is a great tax break. But the fact is, after you’ve owned them for awhile, your depreciation is going to be reduced and eventually go away entirely.
What do you do then?

In this case, the writer is asking if being a real estate professional will help him reduce his taxes.

The answer is simple: Probably not. Even if you qualify as a real estate professional, there are a lot of deductions because the depreciation is gone or mostly gone and there is no mortgage.

So the real question is where can you pick up more deductions.

I would take a look at a couple of things. First, are you taking all of the indirect expenses that you can. That may include your cell phone, computer, home office, travel, auto for business and the like. Maximize the legitimate deductions you have.

You may also want to pay yourself a salary just so you can build up a pension.

And finally, you might want to consider buying more property. If you do a cost segregation study you can front end load depreciation on the new properties so that it creates tax losses. Those can be used to offset your income from the properties you’ve held for a longer time.

Q:

Is there a way to exclude assets from your personal taxes if you have LLCs that hold property? My son is now in college and I could not get a dime in tuition help because of my income. I filled out that FAFSA and after doing research on the web I believe because I had more than their minimum amount of equity in real estate the time spent was a waste. How is it that people making much more than me can get double digit $$ to help with their kids tuition?

A:

There are a lot of different programs for financial aid, including scholarships and special school programs. If you know other people who have gotten funding, it could be that their child qualified for a different program.

The amount of aid is determined by assets (as you discovered), the income you make plus the number of people in your household. So, again, there can be different qualifications.

In answer to your question, though, if you hold an asset inside an entity, you have value for the stock or units. Bottom-line, either way, it’s an asset.

Remember though, it’s the equity in the property, not the full value of the asset that you report.

 

 



Leave a Comment