All Forum Posts by: Account Closed

Karen, I think you should call Brandon Hall and talk to him.  He is very honest, knowledgeable, and helpful.

Michael Lantrip

Karen, I would bet that the capital improvements are going to raise the fair market value of the property by as much as, and probably more than, they are going to increase the basis.  So the difference between the two, your capital gains, will still be the same, or more, and your tax liability at least as much, and maybe more.

If you are looking to avoid paying tax on your capital gain, you can think about selling the property on an installment sale over, maybe 20 years, and you only pay one-twentieth of your tax liability each year, as you receive the profit, or you can think about using all of your net sales proceeds to purchase another investment property, and thereby defer the capital gains tax on the sale.

Michael Lantrip

If we are talking about a business entity, you will probably be receiving something like a K-1, which will show your income, the type of income, and any pass-throughs and adjustments.  And if it is a business entity, there is probably a bookkeeper/accountant or someone with that knowledge keeping the books.  That person can tell you the situation.

Sendhil Krishnan:

Jay Hinrichs is correct.  What you need to do is look back at the time you acquired the property.  Was it purchased by a legal entity such as a corporation or partnership, or was it purchased by a group of individuals.  With a project like this, a business entity is usually formed.  This determines "who" the taxpayer is when the property is sold.  That determines which types of tax forms will be filled out to report the profit on the transaction.  And that will determine whether you will be paying SE tax or not.  It will be on the form.  But it is pretty certain that this will be ordinary income of some type instead of capital gains.

Congratulations.

You'll have to find someone who understands tax accounting, a bookkeeper/accountant/tax attorney, and just sit down and run through the numbers.  As you do, take notes, and I suggest that before you do another investment, have a plan for dealing with the taxation.

In every deal I have ever done, taxation was one of the three or four decision factors for buying, selling, holding, etc.  It can represent 30% of your bottom line.  You need to pro forma the tax situation before you even buy.  You can make money without knowing the tax situation.  But you can make a lot more money by understanding the tax aspect.

Good luck!

Sendhil Krishnan:

Unfortunately, you are in a situation which does not lend itself to taking advantage of the deferred tax provisions of Section 1031.  It sound like what you have are parcels of land for sale that were cut out of a larger parcel, similar to a platted subdivision.  If so, you have "inventory that is available for sale to the public" and not "property held for investment in a trade or business" as required by Section 1031.

Michael Lantrip. 

There might be a way to accomplish the same thing without going into the grey area.  Are the General Partner and the other Limited Partners willing to use the Net Sales Proceeds to purchase a Replacement Property, or do they want to walk away from the closing table with money?

Jonathan Norman:

First question:  how are you holding title to the property that you are selling?

Remember, the Replacement Property must go into the same name as the Relinquished Property came out of (some exceptions if LLC involved).

Now is the time to pin that down.

Michael Lantrip.

Could you back up and explain these qualifications for a 1031 that you mentioned, using some numbers?  I'm not seeing the picture there.  Thanks.

Marc Biedenkapp:

Louis Alvarez is correct.  That is exactly what any good Accountant will tell you.  Everything else here is a repeat of incorrect information rife on the forum.  You are not operating a business.  You are buying a capital asset and then selling it.  You don't have an inventory.  You don't have a second job.  You are not a Real Estate Professional (as the IRS defines that term).  Your intent when you bought the properties (if, indeed, you had a clear intent) is completely irrelevant (and also unprovable, by you or the IRS).  You will report the sales on Schedule D and pay Short Term Capital Gains tax or Long Term Capital Gains tax, depending on the time that you held the asset.  You are not subject to Self Employment tax.  Don't let anyone scare you.  Hold your ground.  You're fine.  You cannot unintentionally, unknowingly, or accidentally be a Real Estate Dealer with inventory for sale to the public.