Investor Patrol Services

With our Investor Patrol Services, everyone is a snowflake. Each real estate deal is unique, right? Each real estate investor is also unique. The above Investor Patrol Service plans are our attempt to give you an idea of the value proposition. Here are some pre-launch things we need to sort through-

Rental Setup

Why do we have setup fees at all? We must ensure your prior depreciation is correct (especially if acquired with a 1031 exchange), all assets are correctly identified with original cost basis including acquisition costs, and loan amortization is properly recorded. We see a lot of junk out there which is not big deal until you want to sell the rental property, and minimize your tax pain.

Why do we charge extra for short-term rental setups? They are more intensive because there are more questions that need to be answered from us (and from you!), and we have to comb through furnishings and other boot up expenditures to ensure they are properly handled.

Why would I need a 3115 with a cost segregation study? If your rental property has already been in service and tax returns have been filed, then we need to request permission from the IRS to basically accelerate your depreciation on your current tax return. Alternatively we could amend your prior tax returns which is messy and expensive. Also, there is some tax arbitrage potentially if your income is higher today than it was when you first purchased your rental property. Lots to discuss here!

Why do we charge extra for a rental property acquired in a prior year 1031 like-kind exchange? We need to confirm that the previous tax professional computed the exchange correctly since once we prepare the tax return, we own the data including prior data.

State Tax Return Complexity

You live in Colorado and have a rental property in California. You will need to file a California non-resident tax return even if the rental loses money. You have an income-generating asset in their state. Also, please consider that a taxing jurisdiction has the right to inspect your books and records to ensure your loss is truly a loss.

Keep in mind that some states and cities consider rental properties to be business ventures like any other, and more are focusing on short-term rentals as well. What makes things worse is that some taxing jurisdictions will impose an income tax based on gross rental receipts regardless if the activity is profitable. Yuck.

Here is some other complexity-

• Several states decouple from the federal tax code, and do not honor bonus depreciation. However, they allow Section 179 expensing which means we must optimize your tax position between bonus and Section 179. This in part means that you could have a federal tax loss yet have a taxable state profit.
• California does not allow for real estate professional status and passive activity loss deductions.
• Some states require property managers to withhold income taxes based on gross rent, and they often mess it up (adding back-end complexity).
• 1031 like-kind exchanges across state lines are messy, and some states (California) require annual filings into perpetuity until the property is sold (and they get paid).

While we have your attention or perhaps even your interest, please read our State Problems With Your Rental Property section from our book “I Just Got A Rental, What Do I Do?”

Partnership Holding Company

These fees assume a 1040 tax return filing. At times, reporting your rental activities on a partnership tax return (Form 1065) might be a good idea to lower audit rate risk and mechanically show at-risk basis in the assets. Should a partnership exist such as a multi-member LLC owning rental properties that would be an add-on fee as shown above. (see our fee page for partnerships).

Here are some additional considerations during rental property tax return preparation.

Cost Segregation Study

How does all this black magic work? With a cost segregation report, or some say a cost segregation study, all the sticks, bricks and stuff inside are figuratively torn down and put into different piles. Some piles (5-year or 7-year) are eligible for accelerated depreciation, another pile would be a 15-year pile which varies a bit, and the remaining pile will revert to the 27.5- or 39.0-year typical residential or nonresidential commercial use depreciation.

Technically, and with full-on geek-speak, cost segregation separates property elements that are “dedicated, decorative or removable” from those that are “necessary and ordinary for operation and maintenance of the building.” These piles are called asset classes, and they are maintained separately within your property’s depreciation schedule.

From there, and with the help of bonus depreciation and in some cases Section 179 expensing, you compress the multiple years of depreciation into one. Yay!

Short-Term Rental Loophole

If your average guest stay is 7 days or less and you materially participate in the activity (500 hours, 100 hours and more than anyone else, or substantially all hours) you likely qualify for the short-term rental loophole. Given the intricacies with STRs, and additional time and diligence spent, we commonly have an add-on fee for these types of rental properties. We are short-term rental experts.

Disposition or Sale of a Rental Property

When you sell your rental property, including a 1031 or 721 exchange (don’t forget about Delaware Statutory Trusts), there will likely be an add-on fee of $250 for a straight-up sale or $500 to $750 for a like-kind exchange. This is where the rubber hits the road in terms of capital gains, and we need to spend the extra time to ensure a) your purchase price is correctly being considered including acquisition costs, b) improvements are accounted for and c) selling expenses and other things are factored in.

Other Out of Scope Stuff

Our approach to starting off this relationship with you is to comprehensively understand your needs and objectives, and then design a malleable system as needed. Additionally, the following activities are considered out of scope and might incur a separate fee-

• handling IRS or state notices for matters that WCG was not originally engaged to perform,
• verification letters for mortgage loans,
• postage and delivery beyond simple letters,
• financial planning or investment advice,
• QuickBooks, QuickStart or other accounting software setup or training,
• annual corporate governance such as filings, resolutions and meetings,
• reviewing legal documents such as Operating Agreements, Shareholder Agreements, contracts, etc.,
• extensive coordination with attorneys and financial advisors, and

If we believe the requested service is outside of scope and not included in the Investor Patrol Services, we will have that awkward conversation with you ahead of time so an agreement can be reached. We will never do work and then bill you without an estimate of time from us and approval from you. In other words… ask away! It is up to us to pump the brakes with a “umm… yeah… can we chat about what’s involved for a bit first?”

The button below is a sample proposal for our real estate Investor Tax Patrol Service.