Question regarding REP status

[neilnf]

My girlfriend (RN) and I (Attending MD) are planning to buy a duplex soon. We have decided that she will work on getting REPS status in addition to working as an RN.
My questions are as follows.

1. As we are NOT married and are filing taxes separately, her having REP status right now is NOT going to do anything to my taxes. Is this correct?
2. When making an LLC to put the property/purchase it do I put her name AND mine on the LLC now or just do my name for now and then add her once we are married? Does having an LLC with 2 NON-married individuals make things more complicated?
3. If we buy the property through the LLC can she get tax benefits via REP status for now and I can get it later, once we are married?

Thank you so much for any/all advice.

[jfoxcpacfp]

1. Correct
2. I would buy in her name only
3. Correct

[Tim]

https://www.whitecoatinvestor.com/real-estate-professional-status-reps/

Good luck and hope this works out for you.

[Larry Ragman]

Regarding two non-married individuals as owners of the LLC, it isn’t more complicated per se. The default is that the LLC would be treated as a partnership and issue a schedule k to each member for tax purposes. (You can elect to be taxed as a corporation if you want.) if married you can elect to have the LLC disregarded for tax purposes.

[Larry Ragman]

1. Correct
2. I would buy in her name only
3. Correct

Johanna, re #2, I don’t follow why it would be best to buy in just her name. Because if not married she can claim the passive losses and not him? The flip side is that he gets no benefit from the investment if only she owns it and losses the asset if they don’t eventually get married. I would have said buy in both their names and he could let his passive losses accrue. Would you say a bit more on why buy in just her name?

[jfoxcpacfp]

Johanna, re #2, I don’t follow why it would be best to buy in just her name. Because if not married she can claim the passive losses and not him? The flip side is that he gets no benefit from the investment if only she owns it and losses the asset if they don’t eventually get married. I would have said buy in both their names and he could let his passive losses accrue. Would you say a bit more on why buy in just her name?

You make good points! I was thinking about marital status only, figuring they could change to joint if and when they got married. And also thinking about having to file a partnership tax return in the meantime. One thing I’m not sure of is whether they would share the accrued PAL at marriage, and, while I think they would, SR (or you!) might be able to provide more clarification. Also, I just generally not in favor of an unmarried couple owning joint property only. Maybe it would be better for him to purchase in his name alone - what do you think?

And thank you for so kindly saying “i disagree with you!!!’😂

[SeattleCPA]

Pretty tough for someone to accumulate more than 750 hours on a single property... Especially if "planning to buy soon" means she hopes to accumulate more than 750 hours between now and end of year.

FWIW, my reaction to a multiple member LLC is same as jfoxcpacfp 's initial reaction which I read as "gosh sure be nice to avoid having to pay for and deal with a partnership return... if you can."

P.S. The premarital passive losses stay passive even if once married one of spouses qualifies as a real estate professional.

[jfoxcpacfp]

Pretty tough for someone to accumulate more than 750 hours on a single property... Especially if "planning to buy soon" means she hopes to accumulate more than 750 hours between now and end of year.

FWIW, my reaction to a multiple member LLC is same as jfoxcpacfp 's initial reaction which I read as "gosh sure be nice to avoid having to pay for and deal with a partnership return... if you can."

P.S. The premarital passive losses stay passive even if once married one of spouses qualifies as a real estate professional.

Thank you for adding that PS - I should have included you on the “expert” list bc you definitely belong there🤦🏼♀️, sorry about that!

[Larry Ragman]

Personally, if I were the OP in this situation I would buy and own the property as tenants in common with the girlfriend rather than LLC. The only nominal benefit of the LLC is liability protection, and I think that is overhyped. Instead I would buy appropriate umbrella insurance. Then they can both divide the expenses and continue to file their own taxes with no partnership returns.

[SeattleCPA]

BTW something else I wish I'd remembered to point out. This first year? Seems possible that one or both of you guys might qualify as active real estate investors.

General rule is if your income is $100K or less, you can write off up to $25K if you actively participate.

This IRS webpage gives detailed info in the section labeled, "Special $25,000 Allowance." https://www.irs.gov/publications/p925

[jfoxcpacfp]

BTW something else I wish I'd remembered to point out. This first year? Seems possible that one or both of you guys might qualify as active real estate investors.

General rule is if your income is $100K or less, you can write off up to $25K if you actively participate.

This IRS webpage gives detailed info in the section labeled, "Special $25,000 Allowance." https://www.irs.gov/publications/p925

Excellent point! I tend to assume everyone on this forum lives in the rarified atmosphere of doctor incomes, I suppose b/c that’s what i talk about all day, but it’s nice to be reminded about the other 99% of the world.🤦🏼♀️

[spiritrider]

My girlfriend (RN) and I (Attending MD) are planning to buy a duplex soon. We have decided that she will work on getting REPS status in addition to working as an RN.

Pretty tough for someone to accumulate more than 750 hours on a single property... Especially if "planning to buy soon" means she hopes to accumulate more than 750 hours between now and end of year.

Not too mention, the >50% rule.

[White.Beard.Doc]

My spouse was able to qualify for REPS after quitting her prior job. So RE was her only job at that point.

[SeattleCPA]

Not too mention, the >50% rule.

No, yeah, that's another essential point. Thank you for pointing that out too.