All Forum Posts by: Marcus Welson

If this is happening to anyone else. It may pay to vet the lease details as I posted above. In Florida your attorney can provide the other side with a Florida Statute 57.105 notice of sanctions. If they do not have a valid legal basis and maintain their filing, both the party and their attorney get sanctioned and have to pay. The attorney's portion of the sanction comes out of their own pocket. That's the fastest way to get attorneys who are filing frivolous suits to back off. Again, only if legally unfounded, which depending on your lease terms it may be. 

Sorry. I posted quickly while at work. I own the unit and the buyer's lender had a low appraisal. The Buyer is standing on the appraisal price and asking to go through with the sale but only at the $50k lower than the contracted sale price the appraisal came in at. 

The following is information for consideration and not legal advice. Check with an attorney for legal advice specific to your situation. I would start at the beginning. What does my lease say regarding the notice requirement. Most leases typically have two terms: (1) defining how notice will be given and (2) defining where notice will be given to each contracting party. For example, certified mail to Tenant at 123 street. Did I comply with that? My tenant's attorney is filing a notice with the court which obligates the parties to use that address for court service purposes. It doesn't supersede the written contract, especially if the lease spells out how the notice must be given and how it can be updated. At worst my tenant could argue I had knowledge of a new address (I'll be checking the certificate of service on the notice they filed with the court and make sure it lists me or my attorney). If my attorney was served and didn't notify me, that's a malpractice issue for them and a good point of leverage that they better deal with this at their expense because the only other recourse is against them. Assuming my lease had the right notice language on method and address, I'd be directing my attorney to challenge anything the tenant does in court because the court must enforce the lease as written and it can't be modified without a written modification (I have lease clauses for this and that the lease is an integrated contract so they also can't testify on facts outside the contract terms or that something else was verbally agreed to, etc.). Statute 83.49 requires notice by certified mail to the tenant’s last known mailing address. Was my tenant's court notice filed after I had already sent notice out to the last known address. Also, I might argue that the tenant waived the statutory right and contracted to be notified as spelled out by the lease.  

Currently have a small inherited condo in Southeast Florida. It's a 900sq ft 2/2 unit with 1 parking spot that is approximately 40 yrs. old, ina  100 unit building. No update of common area finishes although clean and well maintained. Only amenity is a common area medium pool with a water view. The building is mostly older seniors and to my knowledge it is in average condition and there are no known major repairs. However, given a lax board and the community's preference to avoid assessments and projects I believe no major repair or replacement work has been done since the building was built in the mid 80's (i.e. roof, plumbing etc.,). This is a concern given the new law in FL requiring an engineering survey by December 2024 and funding of reserves. Building has no reserves for major repairs beyond minor things like painting and lawn care. 

Has new flooring and appliances but kitchen and baths are original but well maintained in above average condition. Dated mica kitchen counters and older color style tyles in baths. Effective age on the appraisal report is 18 yrs versus actual 39-year age of the unit, with a C4 condition rating. 

HOA is about $400 a month and I need to cover 2 years property taxes and back HOA to keep foreclosure at bay while holding or until a sale. Property is paid off otherwise. Current Tenant pays $2200 rent which seems like it's about $300 under current market rate.

Property contracted for $300K and recent appraisal came in about $50k under that based on limited comps in the area. Based on 3 comps, for smaller and older units for $280k (40 yrs old), $280k (50yrs old) and $250K (50yrs old) and Seller's lender says they won't reappraise or reconsider valuation. Seller won't attempt at a second lender or new appraisal. Contract requires diligent effort from buyer but otherwise doesn't specify if they need to try and close the sale or can just throw their hands up at the low appraisal. 

Any advice on sell vs hold or other recommendations to consider are greatly appreciated. Seems like the biggest risk are potential future special assessments, which could be for immediate need vs future projects. 

@Dave Foster thank you for your reply. Quick note, I was wrong to say subchapter s status. I made the mistake of believing a single member LLC would have to elect that status to be treated as a disregarded entity. Since my post, I've learned the IRS default for a single member LLC is to give it disregarded status upon formation. I think the disregarded LLC means no 1031 issues on transfer to/from the LLC either before initial sale or on replacement purchase since it would be to/from me to the disregarded entity. However I would still have the issue of selling the property from the LLC to convert to personal residence. Is that correct?

Hello everyone.

First time poster.

General Background

Newbie investor

No credit available (poor credit and repo due to major health issue).

Multiple tax years of returns due (nominal to no income)

Unplanned ownership from inheritance and Florida Condo Collapse.

Need to do a 1031 exchange and avoid capital gains while trying to invest in my own residential property.

Scenario

I have a paid off condominium property located in Florida. Approximately 300K value based on current market conditions.

My interests were acquired in 3 steps:

(1) Initial quit claim of 1/3rd interest (single owner to 3 joint tenants with rights of survivorship on title). About 9 years ago.

(2) additional interest gained when first owner passed leaving me and the other joint tenant as 50/50 owners. About 5 years ago.

(3) final interest gained when joint tenant passed leaving me as sole owner. About 9 months ago.

The property was a primary residence of the first owner until shortly before passing, after this it has always been rented out.

No depreciation was ever claimed by any owner at any point.

Tax implications

As I understand it:

A. I will have capital gains at the long-term rate of 15% for my first and second interests acquired, calculated as the present value the condo will sell at, minus the stepped-up value at the time I acquired each interest.

B. I will have capital gains at the short-term rate based on my income tax rate for the third interest I acquired because I will have had the property less than a year at the time of closing. Again, the capital tax rate would be based on the sale price - the stepped-up value of the property when I acquired the third interest. I also believe the income used for purposes of establishing my short terms gain tax rate is calculated as my income + the capital gains amount (also deemed to be income), which will push me up into another tax bracket.

C. I will NOT have any depreciation recapture because no depreciation was ever claimed/deducted.

D. There will be no gift tax due because it was the deceased owner's estate responsibility to file and pay gift tax and I received my interest by right of survivorship?

Tax Questions:

Are my assumptions in A, B and C and D above, correct? If not, please help me identify any errors or anything I missed and need to also account for.

1031 Exchange Implications

E. I currently hold the property interest as an individual. Before I complete a pending sale of the property, I would like to form a Wyoming single member LLC and place the property interest in the new LLC. It is my understanding I can then elect subchapter s taxation and the LLC will be deemed a disregarded entity by the IRS. Based on the disregarded entity status, I can then change the title to the new LLC, complete the sale of the property and 1031 exchange the property to purchase a new investment property under the LLC. All capital gains would be deferred (assuming I comply with all 1031 requirements.) I would be doing this to gain the anonymity of the Wyoming LLC, limiting my liability regarding the property to the LLC and also gaining the creditor protections of Wyoming law, since it only provides for a charging order that does not permit a creditor to force sale, direct distributions or acquire an LLC interest, even for a single member WY LLC. This would put the replacement property interest in the strongest asset and creditor protection scenario.

F. Once the 1031 exchange is completed (again assuming 1031 compliance), I can continue to rent the property indefinitely or at any point after 2 years of rental, use it as a primary residence and thereafter living in the property for at least two years qualify to use the Section 121 Exclusion to eliminate capital gains entirely (gains estimated to be about $70 K, well under the $250,000 single filing limit).

G. Once the 1031 exchange is completed (again assuming 1031 compliance), I am free to leverage the property in any way, without any 1031 restrictions. For example, to get a HELOC, pledge the property as collateral for a loan/mortgage or otherwise.

1031 Exchange Question

Are my assumptions in E, F and G above, correct? If not, please help me identify any errors or anything I missed and need to also account for.

Reinvestment Questions

I have no credit available but may be inheriting additional funds in the next six months (about $80K). These would be Florida homestead proceeds passing outside probate, so I do not believe there are any taxes due given the smaller amount.

I currently pay a sizeable rent in FL and would like to get a new home to convert the rent expense into generating value in a new property that will appreciate. If my assumptions in question G above are correct, I would try to create a structure or scenario where I can maintain the 1031 replacement property as a rental and leverage its value or equity to be able to get a primary residence property. In theory this would hopefully reduce my monthly rent costs and my payments would go to the new 2nd property to build equity. I will have the current rental sold and my 1031 time begin in October, giving me until June to close on a replacement rental property. The rental lease where I am living will expire on Jan 1 but I need to give notice by November or so. Is this reasonable time to complete the 1031 and leverage it to obtain a new residence? I am considering the New England market for my relocation and need to decide whether I should consider a 1031 replacement property in those areas or in another state.

Please provide any advice or suggestions on the above reinvestment scenario and whether it is advisable/doable and any other recommendations you may have. I need help understanding my options to ensure I minimize or avoid capital gains and the different ways I can use that property to support getting a primary residence for myself. I hope to have personal credit and tax issues resolved but I know that will be at minimum 6 to 8 months' time assuming no more medical emergencies or health issues. I don't know much about real estate so I need guidance on whether to look for a single-family home, a town home, something near colleges, etc. given that I will have a very limited budget. Also, any recommendations if there are better ways to structure or approach this versus a 1031 exchange. I estimate my capital gains will probably be $60-70K on $270K in sale proceeds.

All advice and help are greatly appreciated.