Real Estate Investor · Malvern, PA · Member since 2011 · 72 posts · 8 votes
I purchased a worthless vacant residential lot over a year ago with the intent to flip or develop it that I now can't get rid of. The property was purchased and remains in my personal name. I was thinking of transferring the property into an LLC, stop paying the taxes on it, let it go to the County tax sale, and then, [hopefully] take a tax loss on it.
My question is, would I be able to count this as a long term capital loss on my federal income taxes? If so, when does my loss for tax purposes become official? When I sell it to an LLC for $1? When it's sold at the County tax sale? I should note that I own the lot clear & free.
Any potential pitfalls with this plan? I've exhausted all other options.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
9y
@Ken Sanders, my nagging instincts tell me that you'd need to be "selling" it to to the LLC for what it owes you, rather than $1.00 (else YOUR losses would be immediately apparent to the IRS and everyone else, right*?) So then, it would be the LLC that would go about the nefarious business you're contemplating! I don't know if you've been reading too many of the exploits of a certain President-elect (who shall remain unnamed) in coming to the conclusion that you can be "guilty as hell"... and still get REWARDED for it, but, such conniving doesn't sit well with me...
* (But I'm not used to thinking about skirting the rules, so I my "instincts" may be wrong).
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
9y
If your LLC is a pass through entity then selling it to the LLC may not generate a loss. Waiting for the tax sale has a risk that it may never sell. You could always take it to absolute auction. A good real estate auctioneer should have customers for empty lots. Heck you might even sell it at a profit.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
9y
@Ken Sanders, my instincts tell me that if you're set on disposing it for market value, just do that.
How have you tried so far? And if market value is less than you paid, as far as I know, the loss you make IS a tax deductible expense (because you bought it as an investment).
Why mention LLC at all? Anyway, any time tax is an issue, see your Tax Agent! Simple. Cheers...
I wanted to put it into an LLC (or another entity that would work for a tax loss) to keep liens and the foreclosure off of my personal credit reports and just generally away from my name, personally.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
9y
@Ken Sanders, my nagging instincts tell me that you'd need to be "selling" it to to the LLC for what it owes you, rather than $1.00 (else YOUR losses would be immediately apparent to the IRS and everyone else, right*?) So then, it would be the LLC that would go about the nefarious business you're contemplating! I don't know if you've been reading too many of the exploits of a certain President-elect (who shall remain unnamed) in coming to the conclusion that you can be "guilty as hell"... and still get REWARDED for it, but, such conniving doesn't sit well with me...
* (But I'm not used to thinking about skirting the rules, so I my "instincts" may be wrong).
@Ken Sanders, my nagging instincts tell me that you'd need to be "selling" it to to the LLC for what it owes you, rather than $1.00 (else YOUR losses would be immediately apparent to the IRS and everyone else, right*?) So then, it would be the LLC that would go about the nefarious business you're contemplating! I don't know if you've been reading too many of the exploits of a certain President-elect (who shall remain unnamed) in coming to the conclusion that you can be "guilty as hell"... and still get REWARDED for it, but, such conniving doesn't sit well with me...
* (But I'm not used to thinking about skirting the rules, so I my "instincts" may be wrong).
I'm not sure what you're talking about here, Brent.
I can keep the land in my name, let it go to tax sale, and take a long term loss. That I know I can do. If I put the land in an LLC (a disregarded entity), I'm fairly certain I could still let it go to tax sale and take a long term loss, but without any liens or negative effects on my personal credit report. If I'm able to do this, why WOULDN'T I?
The "selling it to the LLC for $1" was an idea to see if I could control WHEN I can take the loss. The County Tax Sale could be next year, or it could be three years from now -- I have no control over when. I want to make sure that I take a loss in a year that I have the long term gains to offset.
I apologize if I wasn't clear in my original post, but then again, IRS rules are anything but clear.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
9y
@Ken Sanders I understood the whats and why of what you proposed. The reality is I suspect a tax lien, or even a foreclosure on a a tax lien would show up o your credit report. i do believe selling to the LLC would definitely keep it of your credit. However there will be costs to transfer the property increasing your loss.
You said this was flip property that has not sold, yet. Your flip property is not a capital asset, it is merchandise to your flipping business. As merchandise any gain or loss on the sale of the property is ordinary income/loss. Capital gains/loss tax treatment does not apply to flip property regardless of your holding period.
Consult your CPA for specific details as they may relate to your circumstances.