Anderson Business Advisors Podcast What Is The Best Business Structure For Real Estate Agents?
Aug 8, 2023
54:27
In today’s Tax Tuesday episode, tax experts Toby Mathis, Esq., and returning guest Jeff Webb, Esq., CFO of Anderson Business Advisors discuss a number of common tax topics including IRA to Roth conversions, real estate depreciation deductions, LLC’s, S-Corps and Sole Proprietorships, gifting vs. inheriting property, and the title question about structuring your real estate business. Submit your tax question to taxtuesday@andersonadvisors.
Highlights/Topics:- "If I move money from my SDIRA, which stands for self-directed IRA, to a Roth self-directed IRA, can I use bonus depreciation from real estate owned outside of my IRAs to offset the taxes I owe from the Roth conversion?" - It's really going to depend on where that depreciation is coming from.
- "I'm new to real estate investing and haven't purchased the property yet. Do I need to have an LLC to claim deductions this year on real estate–related expenses already incurred?" - An LLC really has nothing to do with taxes. It is strictly for liability protection, and asset protection.
- "I'm a small business owner with three other employees working for me. I'm trying to open a solo 401(k) or some other retirement plan for myself as an owner. I believe I need to offer the same to my employees as well, which I can but am not interested in offering any matching contributions to other employees. How does it work? What is the best way to set this up?" - yes, you can open up a 401(k) and have your employees participate assuming they're eligible to participate. However, you can't pay yourself a match and not pay them a match. You have to treat everybody equally.
- "I won $10,000 worth of furniture from a raffle or gaming event. How do I report this on my income tax?" - Whoever you won it from should be issuing you a 1099 miscellaneous with $10,000 of other income on it. You'll record it on your tax return as other income.
- "I'm a realtor operating as a sole proprietor. Should I be operating under a different entity to minimize taxes and liability? Over the years, I've received conflicting information and just don't know." - the math is 14.1% in addition to your state income taxes, in addition to your federal income taxes. The way you nix that is you run it through an S-corp or an LLC taxed as an S-corp.
- "At what point in my real estate operation should I move from a single-owner LLC to S-corp for tax purposes?" - If we're talking about investment real estate and rental properties, you don't ever want to put them in an S-corporation. It's a bad idea.
- "If I transfer my rental property into an LLC for the purposes of depreciation, will the LLC get a step up and basis to the current market value of the property? Or will the LLC inherit my lower basis? - If you contribute property to any kind of entity that you own, it gets your basis.
- “Do unrelated businesses have to have separate schedule Cs or LLCs, or can I rebrand myself on my Schedule C, DBA, JL Enterprises, and put everything together? What are the advantages or disadvantages?" -...most times I don't see a whole lot of advantage to grouping unless it's a real estate activity with an operation or something like that.
- "In my father's will, he's leaving me a house." Yes. "I've been living in it for nine years." "If he puts my name on the title now along with his name, will I have to pay more taxes? I prefer to do that now. What would the difference be? He does have a living will." - He would have to file a gift tax return for his basis in that half, or actually its fair market value on that half. I'm not a big fan of mixing things up under these circumstances…
- "We are fixing the downstairs area of our home to rent out as a short-term rental. Are there any expenses that can be used in tax deductions? Should we run it under an entity?" - The repairs that you're doing down there would be deductible. If you're doing improvements to the property, it would be depreciable.
- Send us your questions, and check out the event schedule listed in the resources section.
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