I hadn't even thought about insurance or retirement accounts! Do you have recommendations for affordable E&O insurance for a solo developer? And for the Solo 401(k), can I set that up myself or do I need to go through a special provider?

For E&O insurance, I use Hiscox which has reasonable rates for solo developers - usually $500-1000/year depending on your projects. Some clients actually require this in contracts, so it's worth having anyway. For the Solo 401(k), you can set it up yourself through providers like Fidelity, Vanguard, or Charles Schwab for free. The paperwork is a bit involved but not terrible. The huge advantage is you can contribute both as the "employee" (up to $22,500 in 2023) AND as the "employer" (up to 25% of your net earnings) for a much higher total than regular IRAs allow. Just make sure you set it up before December 31st of the tax year you want to use it for.

Adding to this - make sure you're accounting for self-employment tax (15.3%) on top of regular income tax. It catches a lot of first-time contractors off guard. You pay both the employer and employee portions of Medicare and Social Security taxes. You can deduct the employer half though.

Do all states tax capital gains? I thought some states like Florida and Texas don't have income tax, so would they still tax capital gains from property sales?

You're absolutely right - states without income tax generally don't tax capital gains either. Florida, Texas, Wyoming, Nevada, South Dakota, Washington, Alaska, and New Hampshire don't have state income taxes, so you wouldn't pay state-level capital gains taxes in those locations. However, even in those states, you still need to pay the federal capital gains tax. And some states have other property-related taxes or transfer taxes when selling real estate that could still impact your total tax burden.

Are routine maintenance costs considered capital improvements? Like, if I replaced the water heater or fixed a leaky roof, does that count? Or only major renovations?

That sounds like it could trigger some red flags. Wouldn't the IRS consider that arrangement suspicious if the only client of your handyman business is your other business?

You're right that if the handyman LLC only did work for your primary business, it could definitely look suspicious. The arrangement works better if you're legitimately doing handyman work for other clients too. You'd need to charge market rates to all clients including your own business, keep separate books, maintain proper insurance, and fulfill all requirements of a legitimate business. It's definitely not a simple workaround and probably not worth it just for occasional home repairs.

Yes, if you're using the simplified method ($5 per sq ft), then you cannot deduct any actual expenses related to your home, including repairs. The simplified deduction is meant to replace ALL home-related expenses including mortgage interest, utilities, repairs, etc.

Do you think it's worth hiring a CPA who specializes in real estate for the first year at least? I'm concerned I'll mess this up, and it seems like getting it right from the start would be easier than fixing it later.

Absolutely worth hiring a real estate specialized CPA at least for the first year. They'll set up your depreciation schedules correctly from the beginning, which makes future years much easier. The upfront cost of a good CPA is nothing compared to the potential headache of incorrectly calculated depreciation that might need to be fixed through amended returns. Plus, a real estate CPA will know about deductions and strategies you might miss on your own. My biggest regret was trying to DIY my rental taxes for the first few years - I missed several legitimate deductions and had to go back and amend returns once I finally got professional help.

Yes, what you're referring to is a cost segregation study, which is essentially a more detailed version of what we're discussing. A professional cost segregation study identifies many building components that can be depreciated over 5, 7, or 15 years instead of 27.5 years. This might include electrical systems, plumbing, specialized flooring, cabinetry, and many other components. The benefit is accelerated depreciation deductions, meaning larger tax savings in the early years. However, a formal cost segregation study typically makes financial sense only for properties valued at $500,000+ because of the cost to have it professionally done. For smaller properties, you can still segregate obvious components (like appliances and land improvements) without a formal study, but you won't be able to get as detailed with building components.

Do you know if common property rules still apply if you're legally married but have a prenup? Our agreement specifically states our incomes remain separate, but I'm not sure if the IRS cares about that for Form 8958 purposes.

Yes, the IRS does actually recognize prenups for tax purposes in community property states, but the rules are very specific. Your prenup needs to explicitly outline how income and assets should be treated (not just a general "our incomes are separate" statement). You'll still need to fill out Form 8958, but you would allocate income according to your prenup rather than the standard 50/50 split. However, make sure your prenup complies with your state's requirements for it to be valid - some states have very specific rules about prenups overriding community property laws.

Generally, if you bought it before marriage, the original investment stays your separate property. However, any appreciation during marriage is typically considered community property in most community property states. So you'd need to establish the value at the time of marriage and then split the gains from that point forward.