All Forum Posts by: Derek Peterson

Hi Krista,  I have invested in FL tax liens in the past (it has been years; more of a time thing now than anything else).  I am not an expert but can answer one of your questions.

The face value of the deeds include the amount of past taxes due, interest accrued (higher if there was a previous tax lien sale), and legal expenses incurred by the county.  Then there is the underlying market value of the property involved.  In your example, the $600 bid to $1500 is the auction participants saying that they are willing to pay the $1500 because of the underlying market value along with the other risks and costs that will be involved with acquiring the property.  The $3300 one with a $1500 bid is the participants saying they don't think it is worth what what is owed.  I am not sure about this, but if there is a previously sold underlying tax lien, the $3300 face value deed likely will not be let go for less than the face amount.  If the county holds all the liens, then they could let it go for less.

In addition to BiggerPockets, another place to get more education and resources is: taxsaleresources.com

Hello BP Community,   My name is Derek Peterson and I am a CPA that works heavily with real estate investors.  My Accounting & Advisory firm focuses on Bookkeeping, Accounting, and Advisory.

My wife and I are also real estate investors!

I am looking forward to getting to know many of you!

Best, Derek Peterson, CPA, MBA

BP Business Profile - Atteign LLC

Yes, you would be able to deduct the interest expense.  The main criteria is that whoever deducts the interest is the one (individual/entity) that actually paid it and that it relates to the business activity that you are engaged in.  To make everything cleaner, you would want the financial institution to report the interest under your SSN or entity's EIN (TIN).

There should not be an issue in selling the home with the tax lien on it.  It would be required to be paid off at or before the closing on the sale.  You may avoid delays in closing if it is paid off beforehand.  Be sure to check with the tax office to see what the total amount due is.  There may be penalties and interest that are not included in sources posted online.

A lender that does the standard underwriting would require the tax lien to be paid off before lending the money as well.  Again, this could be done in the closing process.

You should definitely check with your CPA with all the details to get your definitive answer.  However, I will make some assumptions here.  First, it does matter whether you are considered a real estate professional or not, but since this deal seemed to be qualified for a 1031 exchange, I will assume that it was considered a capital investment where you received or intended to receive passive rental income, generally speaking.

So if you fully disposed of the property during the year, under IRC Sec 469(g), you should be able to deduct passive losses that you have carried forward against the capital gains on the sale of the property.

In general, PA is known as a tax deed state.  So when you go to the auction you are actually acquiring the property at the sale.  You certainly want to do your due diligence ahead of time to know what you are actually buying.  Furthermore, PA may have requirements that include assumption of other liens on the property - do your due diligence.  In addition, if you do acquire a property, you may have some additional title work that needs to be done before you could sell/finance it with a completely clean title.

I am not sure what area the properties you referenced are in or what the real estate market is like there, but if the homes were decent or had potential, where I am from (Central TX) the amount would have been bid up significantly from there due to the competition and real estate market conditions.  So based on what you highlighted in your post, several conditions could be present.  1) real estate market is flat, 2) area the properties are located in or the property itself is not desirable, 3) there are other factors that 'drive' up the actual costs on the property, 4) property taxes in PA are really low to begin with, 5) competition is low, 6) other reasons, 7) none of the above and they were in the right place at the right time.   The point is that you need to be sure to do your due diligence.  Sometimes some can see gold where others just see rock and dirt.  Rest assured, there are great opportunities that are available - I myself am a tax sale investor.

Finally you would find out about the tax sales (in most cases) from the county tax office (tax assessor, treasurer, etc...)