All Forum Posts by: Basit Siddiqi

Hello everyone, 

I need help understanding the issue I have infront of me so I can reach out to the correct people to fix the issue.

I just visited my tenant over the weekend and she described to me the following issue.

There is a crack in the pavement outside of the the house on the floor.
The crack is currently being covered up so rain does not pour in.

However, it appears that water got through the crack in the past and flooring in the house is slightly raised. I know this because they are having a tough time closing and opening the backdoor. The raised floor in the back prevents it from opening and closing smoothly.

Is this a foundation issue?
if it is not a foundation issue - what kind of issue is it?
has anyone experienced this issue?
Should I be worried?

Thank you in advance for any and all answers.

Basit

@Gregory Truesdell

Corporations are normally subject to income tax upon distribution of an appreciated property.
However, in this case it appears that the distribution is being made to a person who is not a shareholder of the corporation. It also does not appear that you are giving consideration for the property. 
It would be interesting to see what the tax outcome is.

The one thing about holding real estate in a C-corp is that the value of the real estate is not stepped up upon passing. However, the value of the stock is stepped up upon passing.

@Dolores Gonzalez
Creating a partnership will require you and your fellow members to prepare a partnership return(form 1065).

The partnership will provide each member with a "Form K-1" that will then reported on each member's respective individual tax return.

If the intent of the partnership is to "Flip" the property. Each active partner will be allocated income(based on partnership agreement) and the income will also be subject to self employment tax.

Self-employment tax is 15.3(1/2 paid by the employer, 1/2 paid by the employee where 6.2% is for social security and 1.45 is for medicare).

in 2017; the social security wage base was $127,200. If you were employed and paid W-2 wages in excess of $127,200; you may be able to avoid paying the employees portion of social security.

There is an opportunity to save on self-employment taxes with the set up of an entity taxed as an S-corp.

@Charles France - Sorry for the delay. I didn't notice you responded.

Flipping in the eyes of the IRS is that you are a dealer of real estate where real estate is your inventory.
This is considered ordinary income and is subject to self-employment tax.

Self-employment tax is 15.3%(6.2% for social security and 1.45 for medicare; employer pays 1/2 and employee pays 1/2. Since you are both empoyer and employee; you would have to pay both). There is room for saving on self-employment tax if you operate through an S-corp.

@Neil Hohmann

Have you looked into investing in notes through a retirement account?
Investing in notes generates interest income which is not offered any preferential tax rates.

If you decide to invest in notes personally - you may subject you to state taxation in the state that you invest in and an additional state tax return.

Let me know if you have any other questions.

@Randy Walters

The most recent tax returns filed should have a "depreciation schedule" that lists what the adjusted basis of the property is.

approximate sale price less adjusted basis will equal approximate gain on sale of commercial property.
The amount previously deducted as depreciation will be subject to depreciation recapture which is capped at 25% tax rate.
The remaining gain is taxed at capital gains tax rate(0%, 15% or 20%)

Please also factor in State income taxes into your calculation as well. Georgia's income tax ranges from 1%-6%.

@Daniel Remin

An expense has to be "ordinary" and "necessary" for an expense to be deductible.

The HOA would put a lien on the house if you decided to stop paying the HOA fees.

HOA fees in my book are entitled to be deducted on your return.

@John S Lewis

The tax benefits include that the seller may not have to take the full tax hit in the year of sale. Gain related to depreciation recapture is reported in full in year of sale.

Public 537 has all the information you need to know about taxation of installment sales.

https://www.irs.gov/pub/irs-pdf/p537.pdf

You can also point to the seller that you would be giving them interest payments for the life of the seller financing term. This will provide the seller another steam of income that can be entirely passive to them.

@Dave Garlick

how do you account for and pay common expenses that can't be attributed to one property or another?

You have a couple options for this

Option 1)  if the expense is 50% related to duplex A and 50% related to duplex B - If the vendor will allow it - ask them if you can cut 2 checks for the payments coming from Checking Account A/Checking Account B.

Option 2) Pay for the full expense using your personal account and have Checking Account A/Checking Account B reimburse your personal account. Also note the transaction for record keeping in case of an audit.

Option 3)create a third checking account for activities like this. Then remember to give your CPA the expenses related to this newly created bank account so your CPA deducts it on the return.

@Account Closed
I would factor in the $6,000 into the cost of the purchase price when you continue to analyze the property.

Also - $300 to "repair" the roof seems like an awfully low amount...considering the company needs to pay for labor and supplies...are they just puting scotch tape over the roof?

Personally - I would go ahead and spend the $6000 over the $300. Tenants know when their landlords go the scotch tape fix up route over a full fix up.