Years ago, one of the largest owners of real estate in Houston came to our firm with a new-fangled tax structure they were about a week away from executing. Looked great on paper and hit their pain points. But in reality it would have handed the IRS a gift tax bill in the millions, and nobody in the room had any idea. Here is what they were trying to do - something not uncommon: The parents were in their sixties. They owned all this commercial real estate, and for historical reasons it sat...
12 days agoย โขย 4 min read
It's that time of the quarter: the check-in on whether your operating agreement will survive tax scrutiny. Today I want to show you the section I check first on every agreement. ๐ Liquidating Distributions ๐ What this section does When the partnership sells and winds down, this section decides who gets the money. Most read the same way: creditors first, then partner loans, then the partners. The middle can get nuanced. The ending can't. The final split has to match the real economics of the...
19 days agoย โขย 4 min read
Calls with prospective clients often turn into "show me what you got" contests. But tax strategy doesn't work like that... It's a multi-phase process of decision making. Before we name a single strategy, we have to answer three questions about you. The answers decide which moves are on the table and which are noise. And this process compounds with time - as we learn your tendencies, goals, and risk appetite. And with our selling season picking up steam, I wanted to share how we think about...
26 days agoย โขย 5 min read
I met with a young business owner this week - one of his questions is the most common ones I get asked all the time. "I took out $150,000 from my business, so I'm going to have to pay tax on that right?" The answer in his case was, "you already have." He stared blankly back at me and we ran through this concept ๐ When a Distribution is Taxable If you own a "pass-through" business (you get a K1, or are a sole proprietor) then you get taxed income of the business whether you take out a...
about 1 month agoย โขย 4 min read
The best attorneys are specialists - ideally at keeping you out of trouble. This specialization mostly comes in the form of transaction structuring, risk identification, or legal procedures. A few of them have taken a wrong turn and wound up as tax attorneys. But of those few, even fewer have ever filed a tax return or allocated income and loss on K1s. Which is a shame because that's an experience that is sorely needed when drawing up operating agreements. I've been reviewing operating...
about 1 month agoย โขย 5 min read
3 years. Now on to the memes. ๐ Only kidding. Obviously there's a lot of nuance to this question I get several times a year (albeit less often with the real estate market being where it is now). Let's look at the factors that impact to Cost Seg or not to Cost Seg: Covering the Obvious - Recapture The primary argument against cost segregation studies is "depreciation recapture." ๐ฑ Most of my readers are likely real estate literate and understand the concept, but just quickly for those...
about 2 months agoย โขย 4 min read
Most buyers treat accounting as the cost of keeping score. You close on a business or a property, you hand the books to a bookkeeper, and you check back at tax time. The accounting department becomes a compliance expense. A necessary evil. Overhead. That framing costs you real money. Done right, the accounting function in a newly acquired business or property is one of the highest-ROI investments you'll make in the first year of ownership. It finds revenue you're entitled to but never billed....
about 2 months agoย โขย 7 min read
IRC ยง267 disallows losses on sales between related parties. ๐ช For older clients sitting on lower value real estate and corresponding capital losses they will never use, ยง267 has a quieter feature that can move real money to the next generation. This is especially interesting for those subject to estate tax (estate values > $30 million). ๐ฆ The feature is the "ยง267(d) offset." When a related-party loss is disallowed, it does not vanish. ๐จ It attaches to the property in the buyer's hands. If the...
2 months agoย โขย 5 min read
If you own a business with at least one other person, you have a document that governs how your business runs. Operating Agreement, Partnership Agreement, Shareholder Agreement - all driving the same things: Who can make decisions What happens when things go bad Who gets money when there is money to distribute How does it all get wound up For too many small businesses and real estate GPs, the agreement comes from their attorney and the attorney focuses on the things they're good at - risk....
2 months agoย โขย 6 min read