All Forum Posts by: Dan Schwartz

Wait, so buyers with poor credit aren't going to get 1.75% knocked off their interest rate like I've seen all over Twitter?? /sarc

Solid post.  I did a double-take when I saw it was from 3 months ago.  Good work.

Sound plan, @Michael Cooprider.  S corp for buy and hold real estate is universally panned around here, and for good measure.  

Cool. Sometimes these situations are so complex that it's difficult to present every facet upfront, even in a long, detailed post like you made. 

I agree with the CPAs that have chimed in. This isn't a good set up for you. You didn't ask for it, you don't quite understand it yet, and it appears to be more of a fee-generating setup than a tax-saving setup, and while it may wind up being a wash in the end, you'll forever be dealing with a lot of unnecessary complexity.

I disagree with the recommendation to work with Anderson Advisors. Nothing against them personally, but this seems to be the type of complex arrangement they excel in setting up...and it's pretty clear you don't need that.

You have a simple tax situation: W-2 job with W-2 deductions (IRA, etc), investments, and profitable real estate holdings. The only quirk is that you are holding the real estate in an LLC (nothing wrong with that), which requires that you file an 1165 at an additional cost. Either accept or minimize the cost of the 1165, but don't add all of this complexity. Not with this new CPA, and not with anyone else. Good luck!

I never heard of "Sting" tax, so I looked it up. Are you in Massachusetts? If so, holding the properties in an entity disqualifies you from the simple Qualified Joint Venture filing because MA is not a community property state. You have to file your LLC's taxes as a partnership, and CPAs and tax preparers charge a lot to complete those returns. You could see whether $1,800 is fair market price for an 1165 by talking to other CPAs or tax preparers solely about their costs to file 1165s. Sounds like you shopped around a bit and wound up with someone very happy to set up a complex structure for you. If this new CPA/Attorney would do your 1165 partnership return and 1120S corporation return for $2000, what would he or she have charged just to do the 1165 without all of these extra complexity?

What was your rationale for starting down this path?  There are legitimate reasons to structure this way, but every dollar you pay yourself as property manager is subject to 15.3% self-employment tax  if you are turning around and reducing your S Corp income so that you minimize SE taxes, you should have just left it as passive income to begin with   What was your goal here?

1) Have you looked at a 10/1 ARM for scenario 1? I haven't, but if you have a specific timeline, see what the cost (savings) is to match that time line.

2) Have you calculated the DTI you'll need to qualify for the rental property while keeping your primary? 15 year mortgages are DTI-killers, which can turn into unexpected deal-killers.

Good luck!

@Kate Jones buy a good deal when it comes up.  You’ve established elsewhere that even if you are married you will need to be a partnership with your fiancé/husband.  Set up a partnership agreement.  One party brings the asset and the debt.  The two parties share the profits 50/50.  The partner who contributed the property and the debt has the right to buy out the other partner’s share of the income for x (you guys agree on what x is). The non-contributory partner can buy out the other partner by buying the property outright at current market value (as determined by some pre-determined method) plus the same x.  X is probably some multiple of the annual income.  Keep it simple.  Doesn’t matter if you’re married or not.  

@Aaron Porter how does a land trust create a barrier to lawsuits?  Can a land trust not be sued?

Yes it will be a partnership. No it will not be double taxed.