The Tax Advantages of Being a Landlord

The promise of ‘tax breaks’ for investing in real estate is one of the biggest draws, but what are they?

Minimizing taxes is often promoted as one of the top reasons to invest in real estate. Yet, few investors are aware of what those tax advantages are and how they can be maximized. That often leads to thousands of extra dollars being shelled out to the tax man each year. So what are the real breaks available?

Here are five ways to lower your taxes as a landlord, plus a couple of extra power strategies to investigate…

Depreciation

Depreciation is one of the biggest tax breaks for landlords. Properties and improvements degrade and become worn over time. You can get a tax credit for that. Under the new PATH Act some types of properties can enjoy accelerated depreciation, and their landlords get bigger breaks sooner. Note that this is one of the few deductions out there that mortgage lenders will allow you to add back to your qualifying income when applying for loans.

Financing Costs

Mortgage interest, lender points, and other financing fees may all potentially become tax deductions. That can be a big motivator and perk for using financial leverage to grow a portfolio faster and earlier.

Taxes, Taxes, Taxes

Yes, you can actually write off other types of taxes you pay in conjunction with investing in real estate when it comes time to file your taxes. You can also deduct what you pay in accounting and tax preparation fees. That’s a big reason to get the best tax prep help you can get.

Losses

Some real estate investors and business owners may experience net paper losses in the first couple of years. Those losses may be used to offset other earned household income. These essentially become credits against other income tax liability, and maybe rolled over to cover future year’s liability. Don’t overlook this one.

Property Management

It’s sad to see so many real estate investors running themselves ragged, taking on extra liability, and hurting their net profits all because they think they are saving by not using professional property management. Ironically those ‘costs’ can be a tax break too.

More Miscellaneous Expenses and Tax Breaks for Landlords

According to Landlordology and House Logic some of the other commonly neglected breaks for landlords include advertising expenses, payroll and commissions paid, property maintenance, insurance premiums, and legal fees.

Advanced Tax Strategies for Serious Real Estate Investors

While LLCs, SDIRAs, 1031 exchanges, and other asset protection tools can add another layer of tax write-offs and defense, and are frequently referred to as ‘advanced’, they should be utilized by far more investors. Don’t wait till you’ve got a big tax bill to try and fix the situation. These tools can open the doors to breaks for offices, vehicles, communications, education, and more, as well as shielding investors from taxes on gains so they can snowball and enjoy compounding results for decades.

Disclaimer: It is always crucial talk to your own individual licensed professionals for custom advice and to create a real tax strategy before making any financial moves.

Authored by Matthew C. Mullhofer, PC

Matt is a licensed California attorney specializing in asset protection, trusts, corporate law, succession planning, bankruptcy, real estate, and tax law. He has successfully represented clients to the highest levels of the justice system in fighting to protect them, and their finances. Matt has served as the Ethics Chairman for Le Tip International, The Chapter of Orange for 15 years, and is a member of the revered Wealth Counsel.

 

probate

What are the Costs to Probate an Estate in California? Orange County

What are the costs to probate an estate in CA?

It’s not something most want to think about. Yet, the costs of avoiding dealing with these questions can make that inevitable moment even harder for everyone. Avoiding this conversation and taking the simple smart actions to ensure an estate is passed on to designated heirs, can mean the complete waste of a lifetime of work and discipline, and sets a precedent likely to be repeated by those you love too.

If you don’t think it’s that serious, just consider the costs and consequences of failing to prepare.

The Costs of Probate in California

There are multiple fees and costs associated with probate in CA, including:

  • ·        Court filing fees
  • ·        Estate appraisal fees
  • ·        Compensation to attorneys and representatives

The basic statutory fees for a probate case in California scale in relation to the value of the estate. This can range from $4,000 to over $163,000. The court can also allow or assess greater fees for cases they consider complex, or which have higher values.

The Pros & Cons of the Probate Process

There is an advantage of allowing an estate to fall into the probate court. That is allowing for a judge to hear arguments and solve disputes between competing heirs. However, the cons can include; elimination of privacy, risk of your desires not being fulfilled, and extended processing times. That’s all in addition to the costs.

If an estate has to go through the probate process in California it means months of legal hoops, stress, and filing papers. Some may just not make it through that. At best it can mean heirs are left without access to financial resources and assets while the cases hangs in the balance.

Ways to Lower the Risk, Costs & Time Associated with Probate

Fortunately, there are several ways to lower and avoid the risks, costs, taxation, and time frames associated with probate of an estate in CA.

This includes:

  • ·        Wills
  • ·        Durable powers of attorney
  • ·        Trusts
  • ·        Corporations

If you want to avoid the cons of probate, this is time to get proactive and talk to an expert about putting the right legal protections in place.

 

Authored by Titanium Asset Protection

Titanium Asset Protection is an elite asset protection firm with licensed California attorneys on staff who specialize in asset protection, trusts, corporate law, succession planning, bankruptcy, real estate, and tax law. Our team has successfully represented clients to the highest levels of the justice system in fighting to protect them, and their finances, with lead counsel Matt serving as the Ethics Chairman for Le Tip International, The Chapter of Orange for 15 years, being an honored member of the revered Wealth Counsel.

Can I Save on taxes

Sole proprietorship vs. S Corp Taxes

Can small business owners save on taxes by switching their entity types?

Although we have a new president who has sworn to cut taxes and boost American business, many independent professionals and small business owners are still feeling the burden of taxation. Many have gone into business for themselves to earn more and profit more, but can find they are almost worse off, and are pocketing less after tax time comes around. What can be done?

One commonly posed solution is switching entity types, or opting to be taxed differently. Every tax professional and attorney may have their own opinion of the best structure. Some of the options may include switching from sole proprietor to S-Corp. S-Corp to C Corp. Offshore trust to domestic LLC and so on.

Each entity has its own pros and cons. Different legal entities may have more or less advantages at different stages of business, and for different business strategies. However, let’s take a look at just one of these potential shifts and the benefits to be gained. Sole proprietors bear a big tax burden. This is especially true when it comes to self-employment taxes. Not all want to switch to a C Corp and all that comes with. Yet, there can be some potential perks of switching to a S-Corp. Most notably this is due to the difference in how income is taxed. As an S Corp owner only a portion of net proceeds needs to be taken as a salary. The rest can be taken as dividends, or reinvested in the business. You may even be able to back date these changes and enjoy more tax savings, or losses which can be carried forward to offset income in future years.

How do you change from sole proprietor to S Corporation? It’s smart to work with both your tax professional and attorney to make the right choice. Then have a corporate attorney file the necessary documents for you with the department of state. Note that the change isn’t 100% official until the change has been accepted and approved by the state.

You’ll also want to make sure all parts of your business are correctly rolled over to the new entity. This may include employment contracts, leases, business vehicles, bank accounts, business licenses, etc.

What’s most important for each self-employed person and small business owner to consult relevant professionals who can give expert and personalized advice for their individual situation.

 

Authored by Titanium Asset Protection

Titanium Asset Protection is an elite asset protection firm with licensed California attorneys on staff who specialize in asset protection, trusts, corporate law, succession planning, bankruptcy, real estate, and tax law. Our team has successfully represented clients to the highest levels of the justice system in fighting to protect them, and their finances, with lead counsel Matt serving as the Ethics Chairman for Le Tip International, The Chapter of Orange for 15 years, being an honored member of the revered Wealth Counsel.

Got kids? Blog

Got Children? The Importance of a Durable Power of Attorney & Health Care Directives

If you have children of any age a durable power of attorney and health care directive is a critical part of your family, estate, and wealth planning.

America has been increasing in popularity as a tax haven and safe place to build and store wealth. However, its litigious environment and legal quirks, especially in the area of health care can also make it risky. The best benefits can be lost without having important documents in place.

A Rising Risk Environment

While life expectancy may be rising, and health care breakthroughs continue to promise new solutions to aging, in many ways we are also in a rising risk environment.

1 in 5 adults in the U.S. experience mental illness according to Forbes. This alone costs almost $200 billion in lost earnings every year. Hurricanes and wild fires appear to be increasing. And we are seeing more and more stories of political and civil unrest, and terrorism.

Injury or incapacitation for any period of time can impact our finances and assets. Every day accidents and illnesses can impact important family members and their ability to make decisions. Not to mention incurring very hefty healthcare costs.

The unexpected happen often. Fortunately, we can be prepared with the right legal structures and documents.

Living Wills & Advance Healthcare Directives

Again, one of the biggest threats we face isn’t the end of our lives, but that purgatory of being in between in an incapacitated state. This is not only an issue for real estate investors and heads of the estate now, but for their heirs as well.

Of particular concern today is when our children head off to college. By law a physician cannot share any medical information on your child, if your child is 18 or older, and is injured or becomes sick, even if you are paying the bill. Furthermore, you are not able to access bank accounts or financial records if a child is ill or incapacitated.

In these cases powers of attorney, Living Wills, and Advanced Health Care Directives can be a priceless asset. The necessary legal power to make decisions on medical care, treatments, and preserve the family’s financial management powers. They ensure more control of these decisions by family members you trust and designated professionals. They aid in avoiding steep costs that are incurred without this legal protection, and provide privacy protection.

No family with children should be without these documents. You never know what tomorrow will bring. If you don’t have them yet, today is the day to have these conversations and put them in place.

Authored by Titanium Asset Protection

Titanium Asset Protection is an elite asset protection firm with licensed California attorneys on staff who specialize in asset protection, trusts, corporate law, succession planning, bankruptcy, real estate, and tax law. Our team has successfully represented clients to the highest levels of the justice system in fighting to protect them, and their finances, with lead counsel Matt serving as the Ethics Chairman for Le Tip International, The Chapter of Orange for 15 years, being an honored member of the revered Wealth Counsel.

 

ADA Lawsuits

Frivolous ADA Lawsuits Being Filed Against CA Business Owners – THE LAW OFFICES OF MATTHEW C. MULLHOFER

California business owners continue to fall victim to frivolous and malicious lawsuits. How can they protect themselves?

At a recent hearing California State Representative Ken Calvert declared “California has become ground zero for ADA lawsuits,” and is “home to more federal disability lawsuits than the next four states combined.” In fact, KCRA 3 quotes executive director of California Citizens Against Lawsuit Abuse, Tom Scott as revealing that “California has about 12 percent of the nation’s disabled but attracts 40 percent of ADA lawsuits.”

Having laws to defend our rights is important. The problem is when unscrupulous individuals and firms begin to use loopholes to victimize innocent business owners. There are insurance scams, renter scams, and now the Americans with Disabilities Act has become responsible for massive and widespread victimization of California investors and businesses.

These lawsuits are hitting restaurants, gyms, sales and rental establishments, senior centers, and all types of accommodations including homeless shelters. The impact or freeloaders looking to make easy money at someone else’ expense can be devastating. Yes, the disabled should have reasonable access. They shouldn’t be discriminated against, and nor should anyone else. Yet, one character alone filed 250 of these suits over the last few years. He doesn’t even in live in California. Other disabled members of the community have reported being recruited to file suits, even against places they haven’t visited. This can mean thousands of dollars per complaint, and hefty legal fees. If the defending business owner wins, they’ve still lost an incredible amount of time, money on legal fees, business, and their reputation and good will in the community.

Some have posed that the answer is to require all businesses to obtain a certification of meeting ADA standards to avoid these suits. Whatever the solution is, one is needed. Otherwise we are facing a sizable risk to the state as it becomes unaffordable for businesses to operate. In turn the disabled will be among the many suffering from a lack of services and talented local professionals.

Utilizing voting rights is one of the most obvious tools as the disposal of California business owners, investors, and entrepreneurs. Of course, changing the law takes time, and the outcome isn’t always perfect. So, what can you do?

Having a great and ethical California attorney on retainer in case of any issues is just good sense. Having your place of business evaluated for accessibility and compliance in advance also seems to be a sound and thoughtful practice. Sadly, these two actions alone may not save you. Small business owners are especially vulnerable to lawsuits. All too often they don’t have the right estate and business structures and documents in place to preserve their finances, and to minimize their appeal as victims.

Be conscious about your privacy. That means watching what you post on social media, using LLCs and other entities to guard your data, and solid accounting which separates your business, investment, and personal finances. Talk to a qualified California lawyer and define a legal plan to keep you safe, serve your customers well, and be sure to be proactive about using your voting rights for what you believe in.

Authored by Titanium Asset Protection

Titanium Asset Protection is an elite asset protection firm with licensed California attorneys on staff who specialize in asset protection, trusts, corporate law, succession planning, bankruptcy, real estate, and tax law. Our team has successfully represented clients to the highest levels of the justice system in fighting to protect them, and their finances, with lead counsel Matt serving as the Ethics Chairman for Le Tip International, The Chapter of Orange for 15 years, being an honored member of the revered Wealth Counsel.

 

Buy-Sell Agreement

The Importance of Buy-Sell Agreements in Closely Held Businesses

Why are buy-sell agreements so important in closely held businesses?

When you go into business with someone else or buy stock you are always doing so from an optimistic perspective. You wouldn’t be buying in and putting your time or money on the line if you thought things were likely to go south, or even sideways on you. But they do.

A ‘buy-sell’ or shareholders agreement governs how stock is traded, and in this case specifically the sale of shares to outside parties. It lays out when stock can be sold, who to, the rules of selling that stock, and often how much for.

This is particularly important in a closely held business. According to Pew Research there are a lot more closely held businesses than most think. In fact, despite what the name some of these are very large corporations with tens of thousands of employees. Pew Research identifies some of these as family owned firms like Cargill which has 140k employees, and had revenues of almost $140B as of 2013. Hobby Lobby which is another multi-billion dollar firm and is ranked on Forbes has around 23,000 employees. There are also over 4 million S Corporations which may also be considered closely held companies. So these companies run from very small family businesses and partnerships to massive global entities. The current surge in real estate crowdfunding and other structures under the JOBS Act could fuel the birth of many more organizations in this category. Note that according to the IRS the official definition of a closely held corporation is one which has 50% or more of its outstanding stock owned by 5 or less individuals, and is not a personal service corporation.

With so few shareholders and ownership and control is dramatically more important than in a massive publicly traded corporation that many have thousands of small stakeholders. This means the impact of a single party can significantly change the company, its direction, performance, and value, as well as the value of shares.

Factors that can have heavy negative influence potential here can include disagreements between owners, disability, mental incapacity due to age or substance abuse, or death. If a large portion of shares are transferred who knows what that person will do with that control? They could resell them, hurt operations, devalue the company, and wipe out other shareholders yields and wealth. The buy-sell agreement is instrumental here to regulate how shares can be transferred, even in the case of death. Sometimes this will include specific share price calculations, first right of refusal to purchase shares by existing owners, etc. Just know that it is always easier when a written legal framework is in place, and one which was created when things were amicable and objective.

Authored by Titanium Asset Protection

Titanium Asset Protection is an elite asset protection firm with licensed California attorneys on staff who specialize in asset protection, trusts, corporate law, succession planning, bankruptcy, real estate, and tax law. Our team has successfully represented clients to the highest levels of the justice system in fighting to protect them, and their finances, with lead counsel Matt serving as the Ethics Chairman for Le Tip International, The Chapter of Orange for 15 years, being an honored member of the revered Wealth Counsel.

 

landlord liabilities

Asset Protection: Are Landlords Liable for Dog Bites?

Are landlords liable for dog bites? If so how can real estate investors protect their assets?

The short answer is – yes, they can be.

According to some data sets:

  • Someone seeks medical attention in the US for a dog bite every 40 seconds
  • Almost 5M people are bitten by dogs each year
  • 60% of dog bites happen at residences

Theoretically property owners can be held liable if a tenant’s dog attacks someone on the property, gets loose and attacks someone off of the property, and can even be fined if the type of dog is illegal in that jurisdiction, or is being neglected. Harsh, but true.

Now the exact law varies from jurisdiction to jurisdiction all around the United States. There are normally tests to determine the extent of the landlord’s liability. This commonly includes their knowledge of the animal on the premises, breed of dog, and the level of control the owner has over the animal. However, just because you appear to be in the clear doesn’t mean you can’t have problems when there are pets in a rental property.

The Biggest Threats

Whether it is a dog, an exotic animal, or the tenants themselves, landlords can find themselves on the wrong end of lawsuits, and often do.

When this happens there are two big threats to deal with:

  1. Limiting liability to avoid being personally bankrupted
  2. Minimizing the disruption caused by the lawsuit itself

Without the right investment structure many landlords are just leaving themselves wide open to potentially have their personal and family assets, and incomes levied as the result of a malicious lawsuit. Without a steel asset protection umbrella your home, cars, kids’ college funds, retirement accounts, and future earnings can all be up for grabs.

Yet, while winning these cases is important, the damage done simply by being party to a lawsuit like this can be devastating. The legal representation costs are often the least of this. There is lost time off of work, expenses dealing with the case, potential for loss of rental income and even the property itself, and the ensuing loss of other income and your reputation.

True or not, all it takes is one news story or Facebook post and all of a sudden you are only known to the whole world as “that notorious property owner whose dog mauled that poor child.”

Shields Up

Picture any battle scene you like. Knights, soldiers, or Spartans; they all carry around their shields, and enter the battlefield with their shields firmly raised between themselves and the threat. Can you imagine if they all lined up facing each other, and then only after being pelted with barrages of arrows, then went to look for their shields or to ask the ironsmith to make one? It would be way too late right?

Sadly, that’s just how many real estate investors enter the property market.

Smart steps to being protected include:

  • Acquiring title to properties under the right entity structure
  • Having sufficient insurances
  • A smart asset protection plan which separates business and personal assets and income
  • Having a great attorney on staff

Perhaps even more important is not putting yourself out there as a juicy prospective victim. If you walk around with wads of hundreds falling out of your pocket, rocking expensive jewelry, and carelessly waving your new iPhone around when traveling as a tourist, you would expect to be robbed right?

If you kept those things out of sight in your pocket, your chances of being a victim may go down by 90% or more.

The same goes for being an investor and property owner. Smart asset protection moves can preserve your privacy and dramatically limit the chances your tenant’s neighbors are going to be running around wrapped in bacon begging the dog to bite them.

Authored by Titanium Asset Protection

Titanium Asset Protection is an elite asset protection firm with licensed California attorneys on staff who specialize in asset protection, trusts, corporate law, succession planning, bankruptcy, real estate, and tax law. Our team has successfully represented clients to the highest levels of the justice system in fighting to protect them, and their finances, with lead counsel Matt serving as the Ethics Chairman for Le Tip International, The Chapter of Orange for 15 years, being an honored member of the revered Wealth Counsel.

 

tax

The Tax Advantages of Being a Landlord

The promise of ‘tax breaks’ for investing in real estate is one of the biggest draws, but what are they?

Minimizing taxes is often promoted as one of the top reasons to invest in real estate. Yet, few investors are aware of what those tax advantages are and how they can be maximized. That often leads to thousands of extra dollars being shelled out to the tax man each year. So what are the real breaks available?

Here are five ways to lower your taxes as a landlord, plus a couple of extra power strategies to investigate…

Depreciation

Depreciation is one of the biggest tax breaks for landlords. Properties and improvements degrade and become worn over time. You can get a tax credit for that. Under the new PATH Act some types of properties can enjoy accelerated depreciation, and their landlords get bigger breaks sooner. Note that this is one of the few deductions out there that mortgage lenders will allow you to add back to your qualifying income when applying for loans.

Financing Costs

Mortgage interest, lender points, and other financing fees may all potentially become tax deductions. That can be a big motivator and perk for using financial leverage to grow a portfolio faster and earlier.

Taxes, Taxes, Taxes

Yes, you can actually write off other types of taxes you pay in conjunction with investing in real estate when it comes time to file your taxes. You can also deduct what you pay in accounting and tax preparation fees. That’s a big reason to get the best tax prep help you can get.

Losses

Some real estate investors and business owners may experience net paper losses in the first couple of years. Those losses may be used to offset other earned household income. These essentially become credits against other income tax liability, and maybe rolled over to cover future year’s liability. Don’t overlook this one.

Property Management

It’s sad to see so many real estate investors running themselves ragged, taking on extra liability, and hurting their net profits all because they think they are saving by not using professional property management. Ironically those ‘costs’ can be a tax break too.

More Miscellaneous Expenses and Tax Breaks for Landlords

According to Landlordology and House Logic some of the other commonly neglected breaks for landlords include advertising expenses, payroll and commissions paid, property maintenance, insurance premiums, and legal fees.

Advanced Tax Strategies for Serious Real Estate Investors

While LLCs, SDIRAs, 1031 exchanges, and other asset protection tools can add another layer of tax write-offs and defense, and are frequently referred to as ‘advanced’, they should be utilized by far more investors. Don’t wait till you’ve got a big tax bill to try and fix the situation. These tools can open the doors to breaks for offices, vehicles, communications, education, and more, as well as shielding investors from taxes on gains so they can snowball and enjoy compounding results for decades.

Disclaimer: It is always crucial talk to your own individual licensed professionals for custom advice and to create a real tax strategy before making any financial moves.

Authored by Titanium Asset Protection

Titanium Asset Protection is an elite asset protection firm with licensed California attorneys on staff who specialize in asset protection, trusts, corporate law, succession planning, bankruptcy, real estate, and tax law. Our team has successfully represented clients to the highest levels of the justice system in fighting to protect them, and their finances, with lead counsel Matt serving as the Ethics Chairman for Le Tip International, The Chapter of Orange for 15 years, being an honored member of the revered Wealth Counsel.

 

The Big Perks of Owning Real Estate in an LLC

LLC Benefits

What are the real advantages of owning real estate in a limited liability company? What common blunders could cost investors big time?

Bizadvisor.com proclaims “the limited liability is the top choice for real property.” A review of recorded real estate transactions from Property Shark by the wealthiest and most sophisticated investors and funds in hot Manhattan over the last year show LLCs almost exclusively used for taking ownership. So why are these legal structures and investment vehicles so popular with savvy investors? What are the real pros and cons?

The Advantages of Investing in Real Estate with an LLC

The most popular benefits of using LLCs in real estate investing include…

Privacy

The security conscious and those desiring anonymity from frivolous and malicious lawsuits prize vehicles like these as an extra layer of privacy.

Limited Liability

Chief Strategist of Breakwater Equity Partners, Jack Rose, says “One major advantage of an LLC over a partnership is that the liability of the members of an LLC can be limited to their financial investment,” and “so if the worst happens, the most the owners can lose are the assets being held by the LLC.”

Lack of Double Taxation

Limited liability companies offer lack of double taxation which can be a big issue that takes a large bite out of revenues and returns when using other entities.

Flexibility

LLCs can provide members and investors far more flexibility in operations and structure than some other types of legal entity.

Reduced Paperwork and Time Burden

Some legal structures require regular board meetings and the recording of minutes. Burdens like these can expose investors to risk if they fail to stay on top of them. Or may eat away at time and resources if they do.

3 LLC Pitfalls to Watch Out for

1. Filing Reports

Original applications and annual renewal fees must be kept up with in order to enjoy seamless operations and ongoing coverage. In some states an LLC can be filed online, in 5 minutes or less, for just around $100. However, with anything this important it is crucial to obtain professional legal advice, personalized advice on your unique individual circumstances, and ensure paperwork is completed and filed flawlessly.

2. Timing

One of the most significant mistakes real estate investors make is putting off registering a LLC until late in the game. Transferring an owned property to an LLC or especially an IRA LLC can potentially trigger substantial tax consequences.

3. Piercing the Corporate Veil

As with any corporate structure it is vital for investors to avoid any activities which could allow for exposure to piercing the corporate veil. Activities such as comingling funds could result in the failure of the LLC to maintain its protections in court.

Summary

LLCs have many advantages. Used well they can be invaluable. Used poorly they can increase liability. Consult a professional and find out if a LLC is right for you and your strategy, and look out for the June 2016 presentation on Asset Protection at the top ranked West Coast real estate investors club 12 Rounds.

Authored by Titanium Asset Protection

Titanium Asset Protection is an elite asset protection firm with licensed California attorneys on staff who specialize in asset protection, trusts, corporate law, succession planning, bankruptcy, real estate, and tax law. Our team has successfully represented clients to the highest levels of the justice system in fighting to protect them, and their finances, with lead counsel Matt serving as the Ethics Chairman for Le Tip International, The Chapter of Orange for 15 years, being an honored member of the revered Wealth Counsel.