All Forum Posts by: Michael Plaks

@Dalton Osmanski

I'd stay away from @Christopher Smith's suggestion. The legal concept he is talking about nullifies the sale. It is a very risky proposition, business-wise, unless the buyer is someone really close. The buyer can simply walk away - and no tax savings are worth it.

Reversing it and then immediately re-doing it can be considered fraudulent by the IRS.

Also, the IRS requires that the original sale and its reversal happen in the same tax year.

If you do want to swim in these dangerous waters, get an experienced attorney first.

@Dalton Osmanski

They lost the 1031 game. And not because they partially spent the money. They lost it earlier - when they received the money. You cannot touch the money if you want a 1031 exchange.

Suggestion for installment sale is also too late - they already sold it and received the money.

Nothing helps tax-wise at this point. Maybe selling something that has built-in losses, to offset this gain - but only if selling makes financial sense, not merely for taxes.

@Daniel J.

It's like comparing shoes v. socks. You put both on your feet, but for completely different purposes, and often together.

LLCs are legal protection devices. If you're sued, and you set them up correctly - they're supposed to protect you.

Land trusts are devices for hiding and transferring ownership, primarily. No legal protection.

You can combine them to achieve the benefits of both. Details are up to attorneys (I'm not one), and they notoriously disagree on the best structures. 

You just missed an excellent meetup on land trusts, but we have tons of networking here in Houston, so there will be more. Contact me privately via my website if you need information on local REI scene.

Correct. Check out this thread.

@Susan Oram

Not that fast with Mom borrowing against 401k. She cannot borrow more than $50k. She will also have to repay within 5 years, which means either selling the property in 5 years or repay with some other moneys. 

Here is an article which just happens to be written by @Dmitriy Fomichenko

@Susan Oram

Your mother's retirement account cannot lend money to you. It is specifically prohibited by the IRS. Her account can purchase real estate, but you cannot have any financial involvement. 

Talk to a 401k expert, like @Dmitriy Fomichenko.

@Larry Flanagan

The advice above looks contradicting, so let me try to sort it out for you.

1. Required? Probably not. You're only required to issue 1098s if you're in a trade or business, and it would be hard for the IRS to argue that your IRA is in that position. Also, see #5 below.

2. Penalties? No, since filing is not required.

3. Can your borrower deduct interest without a 1098 from you? Absolutely yes. Just has to be careful to report it as "other" interest and not "mortgage" interest.

4. I recommend that all my NON-IRA private lender clients file 1098s. It helps borrowers and strengthens the relationship. Filing is extremely simple, can be done online via various 3rd party providers (not the IRS itself) and sometimes even for free.

5. I do NOT recommend it for IRA lenders, however. This is why. If you issue them - you're indirectly acknowledging that your IRA is engaged in a trade or business - which can potentially expose your IRA to UBIT tax. Do you agree, @George Blower and @Brian Eastman?

@Aaron Millis

The rules differ from county to county, not to mention from state to state. Some places allow homestead exemptions forward only, and some allow limited retroactive adjustments. Your county's deadline is December 31 of the year of purchase. It is not obvious what the procedure is in your case - so call them on Tuesday and ask:

https://www.leecountyrevenuecommissioner.com/#/property

@Darshan Patel

This is hard to get used to, but financing does not matter for taxes. Well, almost does not.

Let's say you spent $100k to buy a house, $20k to fix it, and $5k in holding costs - all cash. So, you have $125k "in." Today, you sell it for $160k. Your profit is $35k.

Now - the same deal, except you financed the purchase. Whatever you borrowed - be it $100k, $80k or $50k - will eventually have to be returned when you sell. So, it does not change any calculation.

The only extra expenses out of your pocket are costs of getting the loan (appraisal, origination fee, etc.) and interest. Those two will reduce your profit. Maybe it would end up being $25k instead of $35k.

Refinancing and renting would make my example more complicated, but they would not change the end result, which is: financing or refinancing itself does not matter, only costs of obtaining the loan(s) and interest become an extra deduction.

So, if you sell now, you may very well show a loss. But it would not be because of financing (except the interest and fees). It would be because your purchase price plus cost of rehab ended up higher than what you could sell the finished property for.

In case you need a 3rd opinion - @Basit Siddiqi nailed it