May 13, 2025

Can You Boost Depreciation After a 1031 Exchange?

1 hour 6 minutes

In this episode of Tax Tuesday, Eliot Thomas, Esq. is joined by Anderson CPA Barley Bowler. They explain how transfer-on-death titles still provide beneficiaries with stepped-up basis advantages and clarify that short-term rentals don't qualify for real estate professional status. You’ll hear proper entity structures for rental properties, recommending against holding appreciating real estate in C corporations. They thoroughly explain the 280A "Augusta Rule" that allows tax-free rental income from personal residences to your business for up to 14 days annually. With input from bookkeeping expert Troy Butler, they recommend QuickBooks Online for tracking rental property finances. Additionally, they cover Roth IRA conversions, tax withholding strategies, and 1031 exchange rules for deferring capital gains.

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Highlights/Topics:

"When a house is under a transfer on death title, does the beneficiary still get a step-up in basis?" - Yes, they still get a stepped-up basis.

"If I already qualify as a real estate professional rep status via short-term rentals and add long-term rentals to the mix. Can I lump the two kinds together? And does having an S corporation that manages everything affect my rep status?" - Short-term rentals don't qualify for REP status. S-corps generally don't affect REP status.

"Where real estate properties are in individual LLCs, disregarded and owned by my C corporation, does the C corporation maintain one bank account and collect rent for all individual properties?" - Not recommended. Use a management company instead.

"If you get started in wholesaling, should you file as an S corporation?" - Yes, use S or C corp.

"What kind of bookkeeping is needed for rental real estate? Do you have any bookkeeping software to suggest?" - QuickBooks Online is recommended. Track properties separately.

"When doing an IRA to Roth conversion, are there any limits? Are pre-tax conversions always treated as ordinary income? Is it true that the IRS does not know or care when the conversions were done during the year?" - No limits. Yes, ordinary income. IRS treats as earned throughout year.

"How does tax work if a business owner is paying himself as an employee, do we have to tax twice? Once for the business income and once as an employee?" - No, payroll is deductible business expense.

"How do I do a 1031 exchange? And how do I maximize real estate property depreciation after I do a 1031 exchange? Am I stuck with the previous depreciation rate and amount of the previous property?" - Use a qualified intermediary. Trade up for more depreciation.

Resources:

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