All Forum Posts by: Michael Plaks

@John Newsom

Welcome to note investing and to BP.

Since you mention that a principal payment was made, I presume we're talking about a performing note. The principal payment will be neither principal repayment nor capital gain. It will be taxed as interest.

Only after you claimed the entire 50% discount as interest, the remaining principal payments will be treated as return of principal. I know this may sound strange, but it is how it works.

If this is a non-performing note, then my answer would be different.

@Jack B.

First, @Account Closed.

@Nik Divakaruni

I hope @Brian Schmelzlen does not mind me jumping in. Your interest income is taxable in full, always. Your interest expense is deductible as investment interest on Schedule A (itemized deductions), as long as it is not higher than the interest you're making.

If you're not itemizing - the likelihood of which is much higher if the tax reform passes - then you're not getting the benefit of the interest you're paying. Taxed on one and cannot deduct the other. Not fair, I know.

This can be prevented if the owner financing is done inside a business entity.

Also, your calculation of the capital loss produces the correct answer, but it is based on the wrong calculation. You do not add depreciation recapture to the purchase price. You subtract depreciation from the tax basis. Same result, but different numbers.

No, @Delin W., it has to be actual lodging expenses. Per diem lodging applies only for employer-reimbursed plans. It could be structured in your case, but is probably not worth the trouble for the per diem lodging only.

@Bryan Petrinec

You lost me on your reasons to try this. Nothing stops your father from renting out his house if he goes into a facility, there's no need to run it thru an LLC. If you're thinking about Medicaid eligibility, then him being a partner in the LCC is already a problem.

If there are valid reasons to go this route, then you have another issue. An LLC should own business/investment property. It's OK to rent it to a family member, including an LLC partner, as long as it is rented at the current market value - as opposed to PITI. If PITI is less than the fair market rent value - then it is a non-deductible personal property, opening a large can of worms.

Finally, if it is to be an LLC property, you will be a part-owner, with various implications for estate planning and family dynamics.

I can think of some other issues, too.

@Bob Smith

Mistakes happen to everyone in any business. What matters, in my opinion, is:

a. Is there a pattern of making mistakes regularly, as opposed to once in awhile?

b. What is your CPA's reaction - i.e. do they own up to their mistake(s)?

c. Are you confident that they have processes in place to prevent future mistakes? (Example: in my firm, we have two pairs of eyes on every substantial number before the return is released)

@Jacob

You can build your practice either way - face-to-face or virtual. There's market for both. Ultimately, it's what works for you - and then it attracts clients who like your business model. Can't please everyone.

I would not say "comprehensive representation" as it implies overpriced (in investors' view, at least) monthly retainer. If you notice, investors love to request an "investor-friendly" provider. Translation is: competent but cheap.

I think the most common "ideal" attorney is someone who is

• competent in everything RE-related
• available 24/7, directly and not via staff
• provides inexpensive as-needed services
• provides free advice in between engagements
• delivers all commitments on time, including last-minute emergency requests

This is not my personal list - it is an observation of what my clients seem to want.

@Marcus Auerbach

I'd rather not at this point. The whole thing is up in the air, so it's a moving target.

Here is one half-decent article that comments on the preliminary proposals.

@Adriana Torres-rendon

I'm not an attorney, so I cannot give you legal advice. However, based on what I heard from several of my real estate attorney friends, there're no benefits of Nevada corporations over a Texas LLC, in most cases. The only time it might be useful is when your business has no legal presence in Texas. 

You should check with a Texas attorney, of course.

@Danielle Lueck

Very strange for the normally extra-thorough @Ashish Acharya, but he did not mention that you might be able to avoid capital gains on this sale under "partial exclusion" rules. That is assuming that the condo was your residence prior to marriage and the marriage was the reason you moved out.

Also, as @Brian Schmelzlen pointed out, I'm not sure whether $100k represents your taxable gain. But it is irrelevant if you can qualify for the partial exclusion.