Stephen Wallick June 25, 2019 No Comments

Announcing Our New Partner, Michael Wallick, MBA

Please join us in welcoming Mike to the Stephen Wallick and Associates team!

Michael Wallick, MBA

Michael Wallick has joined Stephen Wallick and Associates as a partner.  Mike will be opening our new Philadelphia PA Office and will split his efforts between Nashville and Philadelphia.  Mike holds a degree in Management with an emphasis in Accounting and a Masters of Business Administration.  Mike also served in the United States Navy and is a Disabled American Veteran.

Mike began his career in public accounting and over the last decade as a consultant with various national and international companies with a host of accounting and tax-related issues.  Mike is also Certified in Sarbanes Oxley with extensive experience in risk management and compliance in addition to Six-Sigma process improvement methodologies.  He has also conducted Quarterly and Annual reviews to assure that public companies were in compliance with SEC reporting guidelines

A sampling of clients that Mike has worked with include PharmaNet, Penske, Generally Electric, Urban Outfitters,  GSK (Global Pharmaceutical Company ), Flint Group, Cenlar and Lehigh Cement Company to name a few.

Mike is also the founding and managing partner of Phoenix Transitional Living.  PTL currently serves the community with a focus on providing safe, clean and sober living arrangements to anyone in Recovery.  Mike started PTL with the intent of helping Veterans that struggled from addiction as a result of injuries or psychological trauma related to the effects of war and military service and has evolved into helping anyone suffering from Addiction.  As of today, this has grown incredibly into 6 homes through the Philadelphia metropolitan area.

Mike is currently completing his Enrolled Agent licensure and holds other professional certifications.

Mike is married to Sarah and together they are raising their 4 children.

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Stephen Wallick April 19, 2018 No Comments

Investment Property Tax Deductions

Paying property taxes is a part of the American home-owning process. Luckily, the tax code has many rules allowing rental property owners to save money and reduce their taxes.

Investment properties have some great tax deductions that you can use to minimize your total taxes due. However, some of you may find these investment property tax deductions very confusing and it can be difficult to understand which tax deductions to claim.

Before claiming any deductions ensure to have detailed and thorough records to back them up. Track your expenses as you make them, this will make your tax prep much more manageable if you are organized throughout the year. The IRS scrutinizes these deductions and you need to be prepared to get audited. Failing to present appropriate receipts and validating the business necessity of each expense will result in paying the amount due with interest when you get audited.

Here are top three investment property tax deductions you might be missing out on:

1) Loan Interest/Points

If there is a mortgage on the property then the loan interests will be probably your single largest deductible expense. Further, if you paid buy-down points on the property purchase or mortgage refinance then you’ll be able to deduct those as well.

  • Mortgage Interest (primary & secondary)
  • Credit card interest on items used for the property
  • HELOC Interest for loans used to repair or improve the property
  • Mortgage Points to purchase or refinance a rental property

Remember you’ll only be able to deduct the money which was actually spent on your rental business and you won’t be able to deduct the interest of a withdrawn line of credit which is sitting in your bank account.

2) Taxes

Usually, the real estate taxes are paid through the mortgage company, and so they show up on the Form 1098 which is sent from the bank. If the property is free and clear of any mortgage, then congratulations!! But in case you didn’t keep receipts of those payments then you will have to look up your tax records online. Other taxes such as business-related wage taxes, personal property taxes or permit fees are also allowed deductions:

  • Social Security Taxes for Employees
  • State, County and City Taxes
  • Medicare and Unemployment Taxes for Employees
  • Permit Fees/Inspection Fees
  • Personal Property Tax/Vehicle Tax

3) Depreciation of assets

Generally there are three types of costs that you need to capitalize and depreciate:

  • The value of improvements such as windows, appliances, countertops, carpet, etc.
  • The value of the structure and not the land
  • Computers/ Equipment/ Laptops

Remember that these expenditures cannot be deducted in a single year, but rather they must be depreciated over multiple years. Or else people would abuse the system claiming $100K for repairs in a single year in order to remove all the tax liability and then the next year they could sell the property to recoup their renovation ROI.

If you have any questions about investment property tax deductions, give me a call today at 615-326-TAX9.

Stephen Wallick April 11, 2018 No Comments

Deductions Every Real Estate Agent Can Claim on Their Taxes

Tax season is here and here are some ways all real estate agents can maximize deductions. Most real estate agents have various expenses and can confidently identify which expenses to use as deductions to help you keep more money in your pocket. Whether you are filing taxes on your own, or if you have an accountant, you need to take advantage of these deductions. No matter where you are in your career, understanding which expenses are allowed will help you to avoid overpaying on your quarterly as well as your year-end taxes.

1. Marketing and Advertising

Marketing and advertising costs such as flyers, business cards, ads, signs, and promos are all deductible. Production costs such as design and writing fees, whether the materials are produced by an agency or part-time hire are also deductible. Online and digital advertising costs include website design, search engine marketing, hosting fees, video production, pay-per-click advertising and any other IT-related costs and are quickly becoming the largest area of spending for real estate agents.

2. Vehicle Mileage or Expense

You spend your days driving between the appointments and properties. How do you determine whether to go with the standard mileage deduction or track all the auto-related expenses? For instance, if you drive 10,000 miles or more per year for your real estate business, it is likely that you’ll get the greatest tax benefit by taking the standard mileage deduction. If you are a lower mileage driver or have especially high car payments, then the actual cost method may yield a higher deduction come tax time.

For those of you who drive over 10K per year, the IRS needs you to keep a detailed log so that you can claim this deduction. Your records should include the time, date, purpose, and mileage of the trip. You can use an app which tracks and records your trips.

3. Home Office Deduction

Do you have a dedicated area of your home for work? If so,  you are eligible for a home office deduction even if you also have office space at your broker’s office (unless you are already deducting the desk fees). The home office deduction provides an option: a regular or a simplified method. Many self-employed people find that the simplified method maximizes their deduction. On the other hand, if you reside in a very high-cost region or have a particularly large home office, then the regular method in which you track the actual expense may yield the highest deduction.

4. Office Supplies and Equipments

Whether you are taking the home-office deductions or the desk fees, you can still claim other office-related expenses including the photocopies, stationery, and any other consumables required to run your business. Other huge purchases such as fax machines, furniture, computers, copiers or telephone, and the related bill can be fully expensed or depreciated over a period of years. You can deduct the full expense for a dedicated landline telephone for your business. If you use a cell phone, only then you are eligible to deduct the business percentage of that expense. Keep careful records of all receipts.

5. Desk Fees

Your desk fees are deductible even if you are hanging your license under a national franchise or with an independent broker. However, note that you will not be able to claim the home office deduction if you are taking deduction fees for the brokerage desk fees.

If you are a real estate agent with specific questions on deductions for your business, contact me today at 615-326-TAX9 for a free consultation.

Stephen Wallick April 4, 2018 No Comments

What is a 1031 Real Estate Exchange?

The simplistic explanation of a 1031 real estate exchange is that you negotiate the sale of your property and transfer ownership to a “Qualified Intermediary”, a professional position just for these exchanges. Your Intermediary then sells the property and holds the proceeds on your behalf. You then identify new properties and negotiate a purchase. The Intermediary makes the purchase with the proceeds they held for you and transfer the ownership of the new property to you.

With the 1031 real estate exchange, the capital gains and recapture taxes you would have otherwise owed from the sale of the first property are deferred until you sell the new property. This can also be done in reverse by acquiring the new property before selling the old property, however the process is more complex.

Remember these nine extra rules while undergoing 1031 real estate exchange:

  1. Any property involving in a 1031 real estate exchange must be used for business or investment. You can’t sell or receive a home, land under development or property purchased for resale. Sometimes the secondary and vacation homes can be qualified as investments but only if personal use was quite limited.
  2. Property received must be of “like-kind” to the property sold. In case of real estate, nearly everything is of like-kind; undeveloped land is of like kind to corporate offices and apartment buildings.
  3. The Intermediary is a necessary legal buffer because if you receive any money before the exchange is finished completely, then the tax-deferred treatment of gain is broken and all taxes become due immediately.
  4. Due to the complexity of 1031 exchanges, you are not allowed to act as your own Intermediary, nor designate anybody else who has acted as your agent for the last two years including the real estate agents, accountants, investment brokers, employees, and attorneys, so there are a brand of professionals who are Qualified Intermediaries.
  5. From the day the property is sold, you have 45 calendar days to find the potential new properties and 180 days to complete the exchange. These windows are strict, and they count holidays and weekends which cannot be extended or run concurrently.
  6. Identification must be made in writing with a clear description of the new properties and must be delivered to and signed by the Intermediary or current owner of the new property.
  7. Purchasing a new property of equal or greater value than the one you sold is a good idea because any funds left over at the end or additional property received with the new real estate are counted as “boot” and immediately taxed as capital gains. When the newly acquired property is transferred back to you by the Intermediary along with any boot such as leftover funds or the additional property acquired then the exchange is completed. Fortunately, the boot and net gain due to the real estate exchange are taxed instantly in reality and they do not void the deferral of capital gain and recapture taxes that were rolled into the new property.
  8. The cost basis for the new property is equal to the basis of the old property. The new basis is decreased by the amount of any boot received and then increased by any gain which is taxed during the exchange.
  9. Last but not least; be cautious while engaging in this kind transaction with family members because the tax-deferred gains can be forced into recognition in an exchange between related parties if either party sells their property before two years pass.

The most beneficial use of the 1031 exchange rules is to keep exchanging the acquired property. The deferred taxes will roll into that property to be recognized on its sale. If the property is retained long enough, and the last acquired property is passed on to heirs, it will receive a step up in the cost basis at which point the taxes due vanish effectively. A 1031 exchange is tricky to manage but definitely worth investigating.

If you have questions about the 1031 real estate exchange, contact me today at 615-326-TAX9 for a free consultation.

Stephen Wallick March 28, 2018 No Comments

Second Mortgage Interest Is No Longer Deductible

Generally, second mortgages on the same property do not carry any special income tax benefits. However, if you get a second mortgage on a new property then under the Tax Cuts and Jobs Act of 2017, you are able to deduct the interest on your first and second home as long as the loan total is less than $750,000. This $750,000 cap applies to a purhase of a new home or a second home which is taken after December 15, 2017, through 2025. If your home loan was taken under a binding contract before December 15, 2017, then you can deduct a higher dollar amount of home mortgage interest. (Up to $1 million of interest and an additional $100,000 of home equity debt.)

So what is a second mortgage?

A second mortgage is a loan that uses your home as collateral. Often, a second mortgage is an additional mortgage on a house or other property where the original mortgage is still in effect. In such situations, the term “second mortgage” refers to the loan’s priority. If you were to default (if you foreclose on the home and it is sold to pay off the loans) then the proceeds will go towards paying the original mortgage before the second mortgage is being paid.

When do people get second mortgages?

Most people take out a second mortgage in order to pay for expenditures which are too difficult to cover with other means of payment such as credit cards. A new car, add-ons to a home or other home improvement projects, a boat, and college tuition are just a few examples. Some people also use the second mortgages to consolidate other, more expensive debt.

When is the interest on Second Mortgage Payments Deductible?

Usually, you can deduct the interest you paid on second mortgages that were taken out after October 1987. The number of second mortgages taken out before this date will be factored into your total acquisition indebtedness (the debt incurred while acquiring, constructing or substantially improving a qualified residence).

Beginning in the year 2018 through 2025, the Tax Cuts and Jobs Act of 2017 has suspended the tax deduction for the interest paid on the home equity loans and lines of credit, unless you use the proceeds to buy, build, or substantially improve the home which secures the loan. If you use proceeds of the equity debt to make home improvements, then the first mortgage balance plus the HELOC remain deductible, as long as the total doesn’t exceed the $750,000 dollar cap. However, the interest cannot be deducted at all if the HELOC is used to pay off the car loan or other personal expenses.

Advantages of a Second Mortgage

There may be other advantages to using a second mortgage. For example, the interest rate may be lower than the rate of personal loans or credit cards. Nonetheless, a second mortgage may be an easy way to borrow a large sum of money, still, it can be risky since you are using your home to secure it. Ensure you speak to a qualified tax professional in your region before moving forward with a second mortgage as we will be able to assist you to make the best financial decision for your particular situation.

If you are considering taking out a second mortgage and want to prepare financially, contact me today at 615-326-TAX9 for a free consultation.

Stephen Wallick March 8, 2018 No Comments

How federal tax liens affect your ability to get a mortgage

There are many different types of debt that can show up on your credit report. Perhaps the worst debt to show up when you are applying for a mortgage is a federal tax lien.

When the IRS has put a lien on your home, it means that they have the first rights to the proceeds of your home; the mortgage lender does not. This puts your mortgage lender in 2nd place when it comes to having the debt paid off. This is not the situation that any lender wants to be in, which makes them very unlikely to provide a mortgage to anyone with a federal tax lien whether for a purchase or refinance.

Good news, the IRS has made efforts to help taxpayers with changes to their lien process.  The announcement in relation to mortgage financing is that the IRS is willing to withdraw tax liens for taxpayers who owe $25,000 or less in tax liability, if a Direct Deposit Installment Agreement (DDIA) is set up.  This means you can start one now, convert your existing installment agreement into a direct debit one, or if you are already in one then just call up and make a request to withdraw the tax lien.  Of course it’s not instant in all situations as the IRS wants to make sure that payments will be honored so there is an initial probationary period.

In practicality, this means someone who has an IRS tax lien can improve their creditworthiness to a mortgage lender by opting to go into the DDIA and eventually having the IRS withdraw their tax lien.  It doesn’t guarantee that someone who couldn’t get approved before will now be approved, but it is a huge step in the right direction.

If you have any questions or need help removing a lien, please feel free to give me a call, 615-326-TAX9.