Good point! Does anybody know if there's any benefit to having the Blocker corp in the same state as the real estate investment? Or is it always better to go with a no/low tax state regardless?

There can be advantages to having your Blocker corporation in the same state as your real estate investments, primarily related to simplifying compliance. When your corporation owns property in a different state, you often need to register as a "foreign entity doing business" in that state anyway, which creates additional filing requirements and possibly fees. For pure tax purposes, low/no tax states like Wyoming, Nevada, or Delaware are typically better. However, the compliance simplification might outweigh the tax benefits in some cases, especially for smaller investments. Each additional state filing increases your annual maintenance costs and complexity.

Based on your numbers, you'd have about $240k in debt financing (60% of $400k). Assuming typical rental returns of 6-8% annually on the property value, you'd generate around $24k-32k in income, and roughly 60% of that would be debt-financed income potentially subject to UBIT - so about $14.4k-19.2k. With current UBIT rates, you'd pay roughly $3k-4k in taxes. Corporate formation and maintenance costs vary, but typically run $1.5k-2.5k annually when you factor everything in. So you're potentially saving $1.5k-2.5k per year with a Blocker - definitely in the range where it makes sense.

Were there any differences between your return and your brother's? Like did you claim any credits or deductions that he didn't? Sometimes certain things trigger additional review.

What kind of documentation do you need exactly? My divorce was in 2016 and I've been deducting alimony, but I'm always paranoid I'm doing it wrong.

You should keep copies of canceled checks, bank statements, or other proof of payment that clearly shows the amounts and dates. I also keep a yearly summary log that matches my payment records. Make sure you have your divorce decree handy too, since it specifies the alimony amounts. You'll need your ex's Social Security Number for Form 1040 (the recipient is required to provide it). If you're using tax software, it will specifically ask for this information in the alimony section. Just don't confuse any child support payments with alimony - only the alimony portion is deductible for pre-2019 divorces.

Unfortunately, you've been deducting incorrectly. The law is very specific about the cutoff - the divorce or separation agreement must have been executed before January 1, 2019. Since yours was finalized in February 2019, you fall under the new rules. I would strongly recommend consulting with a tax professional about amending your previous returns. You may owe back taxes plus potential penalties for the incorrect deductions.

7 That's actually super smart! Would you also recommend printing these out or is digital storage enough?

22 Digital storage is generally fine, but I always do both. I keep a digital folder for each tax year, and I also print important items for a physical folder. The key is making sure you can easily find these documents for at least 3 years (the standard IRS lookback period for audits), though 7 years is even better. For something like this payment situation, I'd definitely print the TurboTax acceptance, the IRS $0 balance screen, and your payment confirmation. It's that extra layer of protection that can save you tons of stress if there's ever a discrepancy.

16 It's because Congress has been underfunding the IRS for years. They're running on systems from the 1960s and 1970s in some cases. I read that they still have code written in COBOL which hardly anyone knows how to program anymore.

Did you have to completely redo your operating agreement or was there some kind of amendment you could add? We're already 2 years into our business and wondering if we need to start from scratch with a new agreement.

We didn't have to completely redo the operating agreement. Our attorney drafted an amendment specifically addressing profit allocations that referenced the original agreement. All partners had to sign it, and we made sure to include clear language about the business purpose for the special allocation. We also addressed your exact situation by including provisions for how to handle changes in future years, requiring unanimous consent for any allocation changes and setting deadlines before year-end for making such decisions. This prevented last-minute surprises at tax time when someone might change their mind.

This happened to me! Got allocated 45% of profits due to "sweat equity" but actual distributions were split evenly. Ended up owing way more in taxes than I expected and didn't have the cash. Now we adjust distributions quarterly to account for estimated tax payments.