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I Just Got a Rental, What Do I Do?
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- Chapter 1 Introduction
- Real Estate and Rental Properties as a Business
- Basic Business Entities For Real Estate Investment
- Sole Proprietorship
- Single-Member Limited Liability Company (SMLLC)
- LLC Benefits For Rental Properties
- Multi-Member Limited Liability Company (MMLLC)
- Limited Liability Partnerships (LLP) and General Partnerships (GP)
- Benefits of Rental Property In Partnership Entities
- Summary Of Rental Properties In Partnerships
- Downsides Of Rentals In Partnerships
- C Corporations
- Rental Property In C Corporations
- S Corporations
- Pass-Through Versus Disregarded Entity Taxation
- Your Spouse As A Business Partner (Happy Happy Joy Joy)
- Owning A Rental Property With Others
- Real Estate Investing With Family Partners
- Real Estate Holding Company and Operating Company
- Pure LLC Holding Company
- Chapter 1 Frequently Asked Questions
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- Chapter 2 Introduction
- Economic versus Equity Interests
- Structuring Real Estate Deals with Angel Investors
- Loans or Capital Injections
- Multi-Entity Rental Property Tiered Structure
- Using a Trust In Your Real Estate Holding Company
- Operating Agreements For Real Estate Partnerships
- Real Estate Succession Planning
- Fallacy Of A Nevada LLC (or Delaware, or Wyoming, or wherever!)
- Liability Protection Fallacy Of An LLC
- Charging Orders
- Using A Self-Directed IRA Or 401k To Buy A Rental Property
- Trapped Rental Assets In An S Corporation
- Chapter 2 Frequently Asked Questions
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- Chapter 3 Introduction
- Getting The Rental Business Launched
- Rental Property Acquisition Costs
- Real Estate Asset Setup On Your Tax Returns
- Closing Disclosure Items
- Rental Property In Service Defined
- Converting Primary Residence To A Rental
- Moving Your Rental Property Into An LLC
- Chapter 3 Frequently Asked Questions
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- Chapter 5 Introduction
- Material Participation Rules
- Material Participation Audit Tests
- IRS Can Use Material Participation Tests Against You As Well
- What Time Counts For Material Participation
- Time Spent Renovating
- Quick Preview of Qualifying as Real Estate Professional
- Material Participation Time Logs
- Material Participation Time Summary
- Regulations 1.469-9(g) Election
- Material Participation Frequently Asked Questions
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- Chapter 6 Introduction
- Cost Segregation Study
- Cost Segregation Mechanics
- Do It Yourself Cost Segregation Study
- Pushing Your DIY Cost Seg Envelope
- Opted Out of Bonus Depreciation
- Cost Segregation Pitfalls
- Cost Segregation Summary
- Retroactive Look-Back Cost Segregation Study
- Cost Segregation Frequently Asked Questions
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- Chapter 7 Introduction
- Short-Term Rental (STR) Loophole
- Computing Average Guest Stay
- What Time Counts for STR Material Participation
- Short-Term Rental Material Participation Tests
- Short-Term Rental (STR) Time Logs
- Additional Short-Term Rental Loophole Considerations
- Owners Only Stuff
- Short-Term Rental Loophole Summary
- Short-Term Rental Loophole Frequently Asked Questions
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- Chapter 8 Introduction
- Real Estate Professional Status (REPS)
- Quick Preview Of Qualifying As Real Estate Professional
- Passive Activity Losses Revisited For REPS
- Material Participation Revisited For REPS
- What Hours Can You Count for REPS
- Pitfalls With Real Estate Professional Status
- IRS Audit Questions For Real Estate Professional Status
- Strategies For REPS
- Tax Court Cases for Real Estate Professional Status (REPS)
- Real Estate Professional Status Frequently Asked Questions
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- Chapter Introduction
- Five Basics to Warm Up To
- Value of a Rental Property Tax Deduction
- Rental Property Tax Deductions Themes
- Section 199A Rental Property Deduction
- Common Rental Property Tax Deductions
- Splitting The Rental Property Baby
- Allocation of General Rental Expenses
- Rental Property Travel Deductions
- Rental Property Meals
- Mortgage Interest Tracing
- Acquisition Costs (revisited)
- Rental Property Repairs Safe Harbor (revisited)
- Repairs Versus Improvements (revisited)
- Rental Property Depreciation (revisited)
- Automobile Deductions with Rentals
- Automobile Decision Tree
- Home Office Deduction
- Real Estate Education Expenses
- 185 Rental Property Tax Deductions You Cannot Take
- Deductions the IRS Cannot Stand
- Cohan Rule For Rental Property Owners
- Reducing Taxes
- Rental Property Tax Deductions Frequently Asked Questions
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- Chapter 10 Introduction
- Rental Property Repairs Safe Harbors
- Improvement Versus Repairs
- Common Repairs Versus Improvements Conundrums
- Rental Property Renovations (Rehab)
- Accelerated Depreciation and Section 179 Deduction
- Qualified Improvement Property (QIP)
- Partial Asset Disposition (PAD)
- Repairs and Improvements Frequently Asked Questions
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- Chapter 11 Introduction
- Allowed Versus Allowable Depreciation
- Capitalizing Construction Interest And Carrying Costs
- 1031 Like-Kind Exchange
- Selling Your Rental Property
- Buying Out Your Real Estate Partner
- Taking The Rental Out of Service
- Idle Property Versus Vacant Rental Property
- Changing Depreciation Between 27.5 and 39.0 Years
- Chapter 11 Frequently Asked Questions
Pass-Through Versus Disregarded Entity Taxation
By Jason Watson, CPA
Posted Saturday, August 3, 2024
This will be a quick section. A disregarded entity is just that, disregarded for tax purposes. All the activities will be reported directly on your Form 1040 tax return as if the entity doesn’t exist. You will get this with single-member LLCs and multi-member LLCs between married couples in community property states should they elect as such.
A pass-through entity (PTE) has a separately prepared and filed tax return, but does not generally pay taxes at the federal level (there are some rules when C Corps elect to be taxed as S Corps). Rather, the activities are reported on a K-1 and that resulting information is pulled into your Form 1040 tax return on Schedule E Page 2, and other schedules and forms depending on the data reported. For example, capital gains, depreciation, interest income, among other things within the pass-through entity’s activities are considered separate items on a K-1. If interest income is earned within the PTE, this will be reported directly on Schedule B on your 1040.
PTEs and disregarded entities have two things in common. First, the ultimate handling of the tax effects and calculations are done on your Form 1040 tax returns. Second, the state might impose a franchise tax or some other related fee or tax on the entity; this is where a slight diversion occurs. PTEs will pay this state level tax directly within its state return, and disregarded entities will pay as part of the state tax return filed as a person.
I Just Got A Rental, What Do I Do? 2025 Edition
This KB article is an excerpt from our 420+ page book (some picture pages, but no scatch and sniff) which was updated May 25, 2025, and is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles online, click on the fancy buttons below or visit our webpage which provides more information.
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