All Forum Posts by: Paul Allen

Thank you @Dave Foster and @Bill Exeter

Once I knew the key words, finding what I was looking for got a lot easier!

I am a financial adviser and some clients asked me this last night and I don't know the answer. Hoping y'all can help.

Clients own a home (SFR) in South Carolina. The mortgage is paid and it has been a rental property since 1994. Lots of capital gain and depreciation expense taken.

They are planning to retire to Florida in a few years. They have a SFR in Florida selected for their retirement. They wanted to know if they can do a 1031 exchange of their S.C. property for the Florida property now, use the FL property as a rental for a couple of years, and then retire to FL and live in the FL property.

I guess the real question is what are the tax consequences for converting your 1031 property into a primary residence?  Is there some minimum length of time it has to be a rental before converting to a primary residence can be done without immediate tax consequences?

Also, they live in VA, own a property in SC and want to exchange it for a property in FL. Where should their QI be? (Or does it matter?)

TIA.

@Michael Doll If they went into service on different dates, I would depreciate the two rental units separately (even though they are in the same building).

Any upgrades you make on your personal living space can be capitalized and added to the depreciable basis of the property when you put it in service as a rental property.

Best of Luck!

@Joe J. In the realm of 'strange but true', once you file incorrectly twice, you need permission from the IRS to 'change your accounting method'. You accomplish this by filing a form 3115 and requesting a 481(a) adjustment to correct the depreciation difference. (Approval for you will essentially be automatic, but it's still called 'an application'.)

I recommend having a professional help you with that. It can wait until you file your 2017 tax return.

@David Dachtera, I am not following your logic. Why should a debtor only be allowed to sell the good debt that they own? Why would a debt purchaser only be allowed to buy debt pre-default?

I can buy and sell Detroit municipal bonds the day before they default, but not the day after?

I can't match your passion for this issue, but I would like to understand your concerns.

@David Dachtera or, I loan money to the United States by purchasing a 10-year treasury note. 3 years later I sell that 10-year note to David. Can David collect that debt? - - - Absolutely!

What if McLean Mortgage sells my mortgage to Wells Fargo? Am I not obligated to pay Wells Fargo because I didn't borrow the money from them? (I could have saved my last 40 or so mortgage payments, because that actually happened!)

What if I resell a loan on Lending Tree?

Purchasing/repurchasing debt has been around a long time. Buying defaulted debt for pennies on the dollar and using strong arm tactics to collect on it is somewhat newer. Not a business I would want to be in, but it's still a business. (One that the legislature should regulate!)

Probably a business that helps drive down interest rates, too. The bank is charging me interest enough to cover both my loan and their losses on defaulted debt. If the bank can get a little bit from a third-party debt buyer for their defaulted debt, it could drive down the interest I have to pay. In a perfect world, anyway.

I'm not sure I would describe filing suit against someone who owes you money (and isn't paying) as ruthless and vicious. Seems like due process to me.

I do think this SCOTUS ruling will lead to more aggressive collection practices by third party debt buyers. Threatening phone calls and letters, calls at work, etc will likely be on the rise for while. That's an 'undue process'. :)

But...I also think this will be temporary as legislative bodies (federal and state) will step in and bring the third party debt buyers into the fold. The SCOTUS decision (unanimous, BTW) was that the FDCPA did not cover these debt buyers, and the SCOTUS declined to expand the scope of the law through judicial review. It doesn't carve out a niche for debt buyers. They didn't exist when the law was written, and probably emerged as a response to the FDCPA.

The ball is back in Congress' court. Let's see what they do with it.

 Too bad it doesn't make sense like the IRS rules for claiming a depreciation expense on an appreciating asset and then paying it back when you sell the asset (whether you claimed the expense or not).  ;-O

If your grandparents gift the property they are also gifting the tax burden to the recipients. Your grandparents would probably appreciate that more than the recipients.

Rolling your previous 401Ks into an IRA could complicate future contributions to (or conversions to) a Roth IRA. You are currently below income threshold for this to matter, but if you expect to earn more in the future it might be a consideration.

I would be more concerned with the fund offerings in each employer plan. I would try to consolidate to the employer plan with low fee passive index funds. If the current employer's fund offerings are worse than the previous employer I would leave my money with the previous employer. An extra statement or two each quarter is not that big a deal.

If you expect to earn more in the future I would opt for the Roth 401K now. You can switch to a traditional 401K later in life when your tax bill gets higher and the present-year deduction of a traditional 401K is more valuable.

Most employer plans will put the matching money into a traditional 401K even if you elect to have a Roth 401K. Your employer wants the tax break for his/her contribution. You may want to find out how your employer does it before deciding.

Best of Luck!