All Forum Posts by: Bill Walston

Originally posted by Chris Colvard:

Bill:

Is there a lien recorded based on this?

Can you tell me what the limits, as far as lump sum received per year by this Medicaid recipient, if applicable, would be?

Chris -

Generally a lien is not recorded.

As to the medicade limits, remember that each state runs its own program. As a result, the rules are somewhat different in every state, although the framework is the same throughout the country. As a general rule, it's not the dollars that matter, but what is called "countable assets." To be eligible for Medicade benefits a nursing home resident may have no more than $2K in countable assets. The sales proceeds of the house would far exceed this amount, and until the funds were exhausted the individual would be ineligible for Medicade payments.

Originally posted by Justin S.:

What document states the proceeds need to go the nursing home?

Sounds like this is a Medicade issue. Since the implementation of the Deficit Reduction Act of 2005 the home is not usually counted as an asset for Medicaid eligibility. That being said, a sale of the property would, in effect, make the owner ineligible for Medicade until the proceeds are exhausted. Accordingly, the proceeds would need to be used to defray the nursing home expense.

Justin's recommendation of a joint venture is excellent. A JV should make your family member happy, but doesn't create the legal entanglements of a partnership. In the JV agreement the rights and responsibilities of all parties can be set out, as well as the percentage share of profits to be received on the sale of the property.

Hi Jason - What do you mean that it is easy to "pierce the anonymity of that legal device in GA"? The trustee is usually a matter of public record, but the beneficiary can be known only to the trustee. Going even an additional layer, you could have an LLC as the beneficiary of the trust. Would this not work in GA?

Originally posted by Ebere Okoye:

This would be considered an installment sale.

I don't think installment sale applies here. David says he bought a note for $72K - he doesn't say anything about selling real estate and taking back paper. I'd agree with Dave T on this one. Even if principal payments are received during the two years before the balloon is due, Dave's reasoning would still be applicable. The principal received would reduce the $72K "basis" and increase the capital gain when the balloon payment is received.

If she has been with you several years and was a good tenant, why begrudge her a couple of days? I would, however, be quite clear what is meant by "a couple." :-)

What you are dealing with, as far as IRS is concerned, is a repossession. It doesn't matter how you get the property back, whether you foreclose or the buyer voluntarily surrenders the property to you. (It is not a repossession if the buyer puts the property up for sale and you repurchase it.)

You will keep essentially the same adjusted basis in the repossessed property you had before the sale. You can recover this entire basis when you resell the property. So this, in effect, cancels out the tax treatment you used on the original sale. Accordingly, ALL the payments that you received under the contract have to be considered income. As part of the gain on repossession you will have to report any amount of the payments you haven't yet included in your income.

When you resell the repossessed property you may have a gain or loss. To figure whether the gain or loss is long-term or short-term, your holding period includes the period you owned the property before the original sale plus the period after the repossession. It does not include the period the buyer owned the property.

Originally posted by Matt J.:

Do you just print copies of the checks you made and keep them as your stubs, and save them come tax time and take them to H&R block, or how exactly do you do it?

Matt, H&R Block is NOT the place to have your wholesale business tax return prepared - or any business return prepared for that matter. Like Will said, it may be appropriate for a "W-2 return" but not for a business. Over the years I have reviewed and amended hundreds of returns prepared at Block, Liberty Tax and similar franchise outlets. You need to be dealing with a tax preparer that is well versed in tax strategies for real estate investors.

Originally posted by Matt J.:

I've read you want to avoid dealer status at all costs, so with that being said, when is the best time to start LLC?

Sorry, Matt, but you can't avoid dealer status as a wholesaler. It is what it is. And "dealer income" is earned income so is subject to self-employment tax. For that reason, if you are doing several wholesale deals I would get your LLC formed asap and elect to be taxed as an S-Corporation. This will let you shield a significant amount of your earnings from the 13.3% (for 2011) self-employment tax.

Originally posted by Steve L.:

You can tie that into the note.

arrgggh! Quite right Steve. I wasn't thinking of that. That's what comes from working on the terms for a new JV for the better part of the week :-)

Originally posted by mesbahul hoda:

As real estate investors, we form business entities to take advantage of liability protection and take advantage in tax savings. I have always read that if you are flipping real estate, you should do it in a S Corp and hold rentals in a LLC.

The part where I am getting confused is LLC is already providing some liability protection and you can elect to be taxed as an S Corp and have to deal with less paperwork than forming an LLC. Would it not be simple forming one LLC for your rentals and another LLC for your flipping business and just choose the appropriate tax election?

May be I am missing something or am misinformed.

Thank for your feedback.

You are neither. This is exactly how I would handle my flips and rentals.