All Forum Posts by: Bill Walston

Thanks Steven, for clearing that up. When I read your earlier post it sounded very much like you were implying that the official position of the IRS was a preference for an EA over other tax professionals. I can see how it may very well be the individual preference of some auditors and appeal agents.

I agree 100% with your due diligence recommendation. I have met both good and not so good tax attorneys, CPA's and EA's :)

And an aggressive tax pro is good to have on one's side - good on ya!

Bob

The draws against your construction loan would NOT be income and should not show up on your P&L. The draws should show up as a debit (increase) to your cash account and credit (increase) to a liability (probably "construction loan") account. The costs for subs, materials etc. that are part of your rehabbing costs should also be removed from your P&L. These are items that need to be added to the cost basis of your property. This will reduce the expenses on your P&L.

You're right...these are good questions for your accountant and I'm sure she will review them with you when you meet with her. In her defense, this is likely her busiest time of the year and she probably has clients "lined up" for appointments. This is why I stress that communication with your tax pro should be on-going and not just during the tax season :) That being said, if she is difficult to speak with all during the year, and not just during the tax season, it might just be time to look for a tax pro that is more accessible.

Steven, just wondering on what you base your premise that the IRS prefers EA representation for taxpayers.

Thanks for the clarification Steve. You're correct, I only spoke as to the state amount of the tax and didn't even give consideration to the county. That amount varies from county to county but is at least the 1%, right?

Mitch, if I remember correctly, the PA transfer tax is 1% on the "monetary value of the property." This could be a significant amount on a very simple transfer.

Teri - There are a few ways you could handle the transaction: a) You can exercise your option and close with the seller, and then close with your buyer, b) You can assign your option contract to your buyer, or c) You can release the seller from his option (with a release agreement) and he can sign a new P&S Agreement with the buyer.

If you do a release, you can either be paid before closing or get a release fee at closing that would show on the seller's side of the HUD-1.

The transfer of real property to an LLC will, indeed, trigger the "due on sale" clause of a note. That being said, it is highly unlikely that your lenders would exercise the right to accelerate your loan. This is especially true if you transfer the property to an LLC which is 100% owned by the parties to the note. It's very common for property to be transferred to an LLC or a trust for estate planning purposes.

And Mark is spot on about the loss. Any loss that you cannot take is carried forward as a "prior year unallowed loss." If it cannot be used the next tax year, it will continue to be carried over until the passive activity is disposed of.

Marc: Short answer. Most likely, yes. If he is awarded a judgment that is not covered by your insurance he would have a claim to the equity in the assets of the LLC. The risk can be mitigated by working with your insurance agent and a good real estate attorney.

Excellent Charles, especially about waiting until the end of the year. Investors should be in communication with their tax pro all during the year. You shouldn't expect your tax guy or gal to "fix it" after you've "FUBAR'd" your transaction, if you catch my drift.

Anthony...all good advice so far.

:Consult with your tax pro who is knowledgeable about your tax situation. If he/she is not real estate savvy, find one who is.

:Get those books suggested by David and read them. If nothing else they will help you ask your tax pro the "right" questions.

Finally, just for fun, take a look at Schedule E, Part I. You will see a list of the more common expenses. These include, but are not limited to, advertising, insurance, management fees, mortgage interest, taxes and insurance.

Hope this helps.