All Forum Posts by: Stephen Chittenden

@Alfredo O. I do not tip my contractor.  I don't think it's particularly common to do so.  I don't even know who the subs or labor he uses are, so I couldn't tip them or give "gifts."  Keep in mind that "gifts" are only deductible up to $25 per person per year (26 USC 274(b).). Tips may be deductible, but you would want good records.  

If you mean you have an LLC that elected S-corp status, you would file Form 1120-S.

I thought the handful of you who are paying attention to this project might appreciate some pictures.  

I'm being funny, but we did pass our pressure test and we got it approved by the City, so we can get the gas turned on and get the heat going.  Fortunately, it's been a little more moderate this week, so the crew has been able to do some work.

This was the living room kitchen before we opened it up.  We didn't open it up a lot, because (as you can see) the wall here has electrical and HVAC running through it.  That made it cost prohibitive to open up entirely. 

What we did do, I think helps a lot at a fairly minimal cost.  We expanded the opening into the kitchen leaving sufficient space for the fridge to stay in its current space (right on the other side of the wall) and having to move only a light switch.  You can see a post above the bar which is where overhead cabinets were hanging down about 10" from the ceiling over the bar.  We took those out.  The effect is to really allow a lot of natural light from the French doors in the dining room to flow through the house.  The kitchen is brighter, and this is the view from the front door all the way through to the back deck.  Would it have been better to completely reconfigure the kitchen, move the fridge hookup, and take out the wall?  Yes.  If we were looking to flip it, we may have done so.  For a rental though, we thought this was a cost-effective solution.

Here are the new granite countertops installed on the existing base cabinets.  Again, for a flip, we would have upgraded the cabinetry.  For our market though, these are acceptable in a rental at our price point.  Although it's hard to see, the countertops include both browns similar to the honey oak cabinets and the darker laminate flooring that we are installing.  (Keep in mind that our original plan was to repair the existing laminate, but ultimately decided it was beyond saving.)  Above the countertops, we will be installing a tile mosaic backsplash below the upper cabinets.

Still a fair amount of time to go.  The blizzard, cold, and gas line issues have delayed us, so we're now looking at early-to-mid March for completion.

I'm going to take a slightly different approach. I don't think we would do a deal that provides no positive cash flow. However, we are willing to accept a much lower amount of cash flow than others have stated. The reason being is that we are not trying to produce current income. We are planning for 20 years down the road. Our investing is part of our retirement plan. The four members of my LLC all have good incomes and steady jobs. We make sure that we have planned adequately for maintenance, cap ex, vacancy, etc. Once we have covered those expenses, we like to see a little positive cash flow. We don't need to see $300. In our market, we don't think that's particularly feasible without investing more cash in each property. That would limit our long-term growth in a way that frustrates our long-term goal. I hope this is helpful.

Originally posted by @James Bowerman:

Happy to say that my first flip is wrapping up and will hit the market tomorrow! I'll come back and post the final numbers once it's sold, but for now, here's some eye candy. Let me know what you think.

 Nice work.  I'm not sure I'm crazy about the layout of the laundry room, but it looks like you made the most out of the space available.  Kitchen looks nice.  Is the closet in the master bathroom?  Is it open without any doors or were the doors just open?  Great first project.  I look forward to seeing the numbers.

Actually, it's 10% or $500, whichever is greater, for both the copy sent to the contractor and the copy filed with the IRS. That's potentially 20% of the amount that should have been reported. That penalty only applies if you intentionally disregard your obligation. If you didn't know you were supposed to, the standard penalty is more likely to apply. The standard penalty is just a flat $250 for each copy, $500 total. However, if you fix it before certain deadlines reduced penalties apply. One note is that while I agree you shouldn't have to tell people you're going to report the payment as the law requires you to do, you really do need their TIN (SSN or EIN) before you make the payment. I'd recommend either a signed and dated W-9 or getting electronically in a way that shows when you received it. Making a reportable payment without a TIN in hand subjects you to a 28% liability for backup withholding even if you get the TIN later and report the payment. Most of us aren't going to get audited, but it's a good practice to follow just in case.

Originally posted by @Steven Hamilton II:

Send a 1098. The other individual is not in the business of providing loans.

 Why would a borrower send anyone a 1098?

The short answer is maybe.

There are exceptions to the 1098 and 1099 requirements that may apply.

If the loan is not secured by the property, it is not a mortgage and does not have to be reported on Form 1098.  (Treas. Reg. 1.6050H-1(b)(2).)  Even if the loan is secured by the property (and is thus a mortgage), the family member may not be engaged in a trade or business, and will thus not be required to issue a Form 1098. (Treas. Reg. 1.6050H-1(c)(1).)  Alternatively, if the principal borrower on the loan is your business and not you individually, the loan is not a qualified mortgage (even if it is a mortgage) and reporting on Form 1098 is not required. (Treas. Reg. 1.6050H-1(b)(1).)

If the seller is a natural person and that is who you pay interest to, you may not be required to issue a Form 1099-INT. (Treas. Reg. 1.6049-5(b)(1).)

The rules are technical, and you should consult a tax professional to determine how they apply to your facts.

I strongly recommend that whether you issue 1099s or not, you require an EIN or SSN from every vendor you pay (and that includes a property manager who withholds a fee from rent collections) before making any payment to them. There is a very large potential liability related to not having a TIN before making a payment. The penalty for failing to report is much smaller and defensible. If the IRS successfully argued that you are operating a trade or business, you aren't going to be wiped out by the penalties. Being liable for 28% of every payment you make could really hurt. (There's no liability for not having the TIN if you don't have to report, so in either case, both risks are dependent upon the IRS arguing you are engaged in a trade or business.)

Originally posted by @Eric Schrader:

So general question??  

How does this information not get picked up during a title search?

 I assume you're talking about the position of the house on the lot? I determined there was a problem by looking at the legal description and comparing it to Google Maps. The title is clear, probably because no one has done a survey recently.