Don’t be embarrassed or feel like an idiot when it comes to taxes. You’re not alone. A little knowledge goes a long way. Toby Mathis and Jeff Webb of Anderson Advisors answer your tax questions. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

What are the requirements for being a real estate professional, and what are the benefits? Either you or your spouse must have 750 hours and greater than 50 percent of personal services in real estate, and both spouses must materially participate per property unless the aggregation election is selected; and the benefits are that you get to write off losses that you typically wouldn’t be able to write off as a landlord

I have a fully depreciated rental in a high-tax state. Can I do a 1031 exchange and buy some farmland in a different state and not pay taxes to the high-tax state? Yes, temporarily, unless or until you sell the farmland property

I have an S-Corp business. I hired my 12-year-old son to work and he gets a W-2 with an annual income of about $1,400. Does he need to file a tax return? If he does not file a tax return, will that increase my chances of getting an audit for my business? If your son makes less than the standard deduction, he does not need to file a tax return, and your business is unlikely to be audited

Can I write off my monthly car payment if it’s financed and in my corporation’s name? Write off the expenses and interest, but depreciate the car if in the corporation's name; you may have more income from that vehicle than the vehicle is worth–track and reimburse your mileage

I have a rental property that is owned by a self-directed IRA. Does it need to be in an entity or is it safe in the IRA? Having the property in an LLC within the IRA is preferred, especially if there are other assets in the IRA

On a “subject to” deal, who pays capital gains and who pays depreciation recapture when the owner grants the deed to the “subject to” buyer? Seller takes care of their own capital gains and depreciation recapture; buyer resets basis and starts depreciation

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Resources:

Infinity Investing Workshop (Free 1-day virtual event on March 13)

https://andersonadvisors.com/

Tax Toolbox

https://andersonadvisors.com/taxtoolbox/

Capital Gains and Losses

https://www.irs.gov/newsroom/capital-gains-and-losses-10-helpful-facts-to-know-0

Entity Formation

https://andersonadvisors.com/entity_formation/

Real Estate Professional Requirements

https://www.irs.gov/pub/irs-utl/33-Real Estate Professionals.pdf

26 U.S. Code 469(c)(7)

https://www.law.cornell.edu/uscode/text/26/469

1031 Exchange

https://www.irs.gov/pub/irs-news/fs-08-18.pdf

Bonus Depreciation

https://www.irs.gov/newsroom/new-rules-and-limitations-for-depreciation-and-expensing-under-the-tax-cuts-and-jobs-act

Depreciation Recapture

https://www.investopedia.com/terms/d/depreciationrecapture.asp

MileIQ

https://www.mileiq.com/

Retirement Plans

https://andersonadvisors.com/retirement_plan/

Self-Directed IRA (SDIRA)

https://www.investopedia.com/terms/s/self-directed-ira.asp

Opportunity Zones

https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions

Step-Up in Basis

https://www.investopedia.com/terms/s/stepupinbasis.asp#:~:text=A%20step%2Dup%20in%20basis%20is%20the%20readjustment%20of%20the,for%20tax%20purposes%20upon%20inheritance.&text=The%20asset%20receives%20a%20step,of%20property%20transferred%20at%20death.

Charitable Organizations

https://www.irs.gov/charities-non-profits/charitable-organizations

Form 1120

https://www.irs.gov/forms-pubs/about-form-1120

Cost Segregation

https://andersonadvisors.com/using-cost-segregation-residential-real-estate/

Schedule K-1 Form 1065

https://www.irs.gov/forms-pubs/about-schedule-k-1-form-1065

FHA Loan Requirements

https://www.fha.com/fha_loan_requirements

Wills and Trusts

https://andersonadviso