Toby Mathis and Jeff Webb of Anderson Advisors answer your tax questions, including which business structure is best for real estate agents. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

What is the 1031 exchange? How is it used and is there any concern that it may go away? Section 1031 allows you to sell an investment property through a qualified intermediary (QI) and then replace that property; there’s no logical reason for the 1031 exchange to go away because it is a tax deferral not a tax avoidance technique

As a new wholesaler, what is the best way to set up my business structure? Through a corporation because a wholesaler is somebody that gets a property under contract and then sells the contract with a right to close on that property

How does the tax work on rent-to-own? The non-refundable deposit, monthly cash flow, and the backend? IRS views non-refundable deposit as a lease-purchase option or sale

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Resources:

Infinity Investing Workshop (Free virtual event on September 11)

https://aba.link/IIW

Infinity Investing: How The Rich Get Richer And How You Can Do The Same by Toby Mathis

http://aba.link/infinitybook

1031 Exchange

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

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.

Entity Formation

https://andersonadvisors.com/entity_formation/

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

Capital Gains and Losses

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

Section 121 - Capital Gains Exclusion

https://www.irs.gov/taxtopics/tc701

Real Estate Professional Requirements

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