Apr 20, 2021
Real Estate Accounting w/ Keystone CPA
- BRT S02 EP16 (63) 04-18-2021
Things We Learned This Week
- Many CPAs do not know or understand business and real estate, and how transactions work, if investing in real estate, need a good advisor
- Real Estate 101: Depreciation & Expenses write offs, LLCs for real estate / asset protection & get Umbrella insurance – make sure property, & activity of investor is covered
- S Corp – active real estate income, commissions, wholesale, fix & flip – S Corp can save you 7 – 15% in taxes, can choose how you want to pay taxes
- Cash out w/ 1031 Exchange (for like value property, to avoid Cap Gains tax) – also can refinance & pull $ out of real estate
- HNW (High Net Worth) – invest in rental real estate, get lots of tax write offs and can create tax free rental income
Guest: Amanda Han & Matt MacFarland w/ Keystone CPA
Having helped thousands of investors across the US to save on taxes, Matt MacFarland and Amanda Han are founders at Keystone CPA, Inc. As both tax strategists and real estate investors, Amanda and Matt combine their passion of real estate investing with their expertise knowledge in tax strategies.
Accounting Background: Worked in Big 4 Accounting Firms (ie: Arthur Andersen; Coopers & Lybrand; Deloitte & Touche; Ernst & Young; KPMG; Price Waterhouse)
Their goal is to help investors with strategies designed to supercharge their wealth building using entity structuring, self-directed investing, and income offset opportunities to keep more of what they make.
Amanda and Matt’s highly rated book Tax Strategies for the Savvy Real Estate Investor is amongst Amazon’s top seller list.
They are also frequent contributors, speakers, and educators to some of the nation’s top investment and self-directed IRA companies. Their cutting-edge tax strategies have been featured in prominent publications including Money Magazine, Realtor.com, and AllBusiness.com. Matt and Amanda were speakers at “Talks at Google” that features influential thinkers and creators. They have also appeared in CNBC’s Smart Money Talk Radio as well as BiggerPockets podcasts.
We discuss all things Accounting for Real Estate from: 1031 exchanges, depreciation, buying / selling properties, tax traps, trusts, retirement, corp. setup, capital gains, book-keeping, write offs, expenses, and more
Notes:
Many CPAs do not know or understand business and real estate, and how transactions work, if investing in real estate, need a good advisor
Depreciation – write off is real estate 101
UBIT – real estate tax trap
https://www.irs.gov/charities-non-profits/unrelated-business-income-tax
https://future.aicpa.org/resources/article/unrelated-business-income-taxes-ubit-in-a-nutshell
Organizations that are not generally subject to UBIT requirements include:
- corporations that have been organized under Acts of Congress and that are instrumentalities of the United States, and
- certain charitable trusts not subject to the tax on private foundations
Unrelated business income is:
- income from a trade or business which is regularly carried on and is not substantially related to the charitable, educational, or other purpose that is the basis of the organization's exemption.
Unrelated business income will result in UBIT unless an exception or exclusion is available.
Retirement accounts – self directed w real estate
Lease option
You don’t want to take tax advice from your realtor, or your dentist
LLCs for real estate for asset protection
Umbrella insurance – make sure property, and activity of investor is covered
Debt – can be protection for creditors or someone trying to sue, because little equity
Multiple properties – no tax difference personal owner vs llc
S Corp – active real estate income, commissions, wholesale, fix & flip – S Corp can save you 7 – 15% in taxes, can choose how you want to pay taxes, compare activity and determine if C Corp later makes more sense
Do not recommend S Corp owns long term rental property
Own in personal name or LLC
Move property from personal name to LLC – and make sure insurance (& title) are updated
Due on Sale Clause – in mortgages, you sell, and bank calls loan to paid back in full
Often CPA recs to leave debt where it is, and just transfer title
offset strategies - income shifting, charitable planning, Ozone / Opportunity Funds, etc.
Cash out w/ 1031 Exchange (for like value property, to avoid Cap Gains tax) – also can refinance & pull $ out of real estate
1031 Exchange – A 1031 exchange gets its name from Section 1031 of the U.S. Internal Revenue Code, which allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value.
Advanced -
Syndication Real Estate Deals – multiple investors in bigger deals
HNW (High Net Worth) – invest in rental real estate, get lots of tax write offs and can create tax free rental income
If you have enough write offs, use tax loss, and offset W2 taxable income if considered real est prof
Charitable Trusts – donation deduction of the property, buy real estate, and then give with real estate investing, do not need the income, but want the asset
Family Owned Partnerships – giving partial ownership of properties to heirs
Investing trust vs LLC – get comparison for taxes
Sell your primary home – get tax deduction $250k (to $500k) exemption to sell tax free
If convert to rental property, then sell within 3 years to still claim tax exemption
If improve a property, consider if worth the upgrade investment
Tap into Equity – strategies
Parent’s Net Worth - $10 mil or lower, put $ in trust for kids to inherit
Step Up Basis – Kids receive inherited asset at present day value (gain of the asset)
AMT – alternative minimum tax
Cash for Keys – amount you pay someone to move out is deductable
Partnership – file as tenants in common at 50 / 50, even if partner gets more $ from deal
AirBnB rentals – short term rentals treated differently b/c of how long guests stay, treated like hotel biz if average rentals is 7 days or less, ordinary income tax, self employment tax, etc. – should have LLC – if renters on average are there 7 days +, than it is a rental setup
Income deduction max out at $150K – cannot deduct anymore, but do have carry forward loss, does not apply if real estate prof (tax world term, does not have to be licensed)
Wholesale Market – find property for sale, acquire and flip to buyer, get fee of $5k
Investing Topic:
https://brt-show.libsyn.com/category/Investing-Stocks-Bonds-Retirement
Real Estate Topic:
https://brt-show.libsyn.com/category/Real+Estate-Construction-Land-Farming
Thanks for Listening.
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