All Forum Posts by: Teresia Sayler

If I have 3 properties on the schedule E, is each one considered separately for the Qbid 20% passthrough on profit, or the result of all combined?  Some may have profit, some not, but let's say all combined it's a net loss?  

Never mind, just read in example 18 of the link that all must be aggregated.

The entire scenario is just that, a sample scenario, as I have yet to do my first one of these.  I tend to do as much research as possible before I try something new, so I know what I'm getting into.  I do not currently have Sched C income, so I need to have that prepped for, as I would now have SE tax to worry about as well.

I need a certain cash flow for me to be comfortable with going forward.  I want all costs I can think of considered, tax, holding, expenses, mtg, hoa dues, whatever.

I really appreciate the dialogue here!

Great discussion!  I'll have to read the IRS info a few times in order to absorb, lol.  I plan on meeting with a local investor soon to ask these questions as well.  

I also would like to hear any of our attorney investor friends chime in.

This will be good to hear from some "experts" out there!  I would imagine that you would have a separate lease agreement for your renter and an option agreement set up to where it wouldn't commence until you were the owner and the option fee was remitted.  

My understanding is that if you exercise the option and buy, then you may have to season the property under your ownership anyway before you could execute the new lease option contract.

I'm sure there will be the "local law applies" disclaimers.

You would work to get another one in there so you don't lose your $10k.  You could always extend your initial personal option, or just go ahead and exercise it and get another renter in there and work out the best timing you can.  I would go in with the exit strategies in mind, in advance.  If it didn't work for me to exercise and hold, I wouldn't do it to begin with.

Thanks Michael!

Sorry to be a bit confusing.  Let's consider this scenario:

I approach a "tired" landlord and he says "sure I'll go into a lease option with you!  I also understand that you will be subletting it as a lease option as well".  I'll keep the number simple.

Phase 1:

Agreed exercise price $100K with option expiring in year 5

$10k option fee to the seller/owner of property

I pay $1000/mo to the seller/owner of property (credit towards purchase of $25 each month)

Phase 2:

Find a "buyer" who wants to lease option

$125k price with expire in 3 yrs

$15K option fee

$1500/mo rent (no credit towards purchase price)

Income stream (how is each treated):

$15k option fee (?)

$1500 monthly rent (Schedule E or...?)

 is my monthly payment to property owner deductible as an expense, as well as any utilities/maint/repairs?  If so, would it be the $1000, or the $975 monthly payment (payment less credit towards purchase price)?  Would depreciation be available as a deductible expense?

I presume the difference between the purchase price and the 2nd sales price ($25000) would be capital gains?

Thanks!

What is the tax treatment for the different income streams from Lease Options?  Is the Option fee self employment income (business income) when rec'd by a "future potential buyer"?  Can the monthly income be "rental income" reportable on schedule E, even if you don't own the property yet,  as in a sublet situation (you yourself are in a lease option arrangement on the same property)?  If so, you'd be able to deduct the rental payment you make to the seller if you yourself are subletting, until you exercise the option, as well as any other normal landlord type expenses?

Good stuff!  I spent some time today researching the "process" in Whatcom county, as I have a mobile to sell as part of an estate, in a park.

Here in Whatcom:

1.  Real Estate Excise Tax Affidavit - filled out, pay excise (if in a park) and take the receipt to DOL, where you will present the Bill of Sale, & Title certificate.  You can send the new buyer with the paperwork, but they will have to submit all fees.  DOL transfer depends on <>$5K selling price.  Regardless, it will be <$200.

2.  Sales tax is only collected if they move it.

3.  I will likely go with the buyer, so I ensure the paperwork goes through just fine!

 I'd like to find a simple purchase agreement to use, but I'm on the hunt now.  I suspect I could put the buyer on the hook to bring the offer paperwork in!  I don't think a formal purchase and sale is required, just the Bill of Sale.  But if the buyer wants some sort of contingency or inspection window...

I just closed on my HELOC. I see the differing of opinion between CPA's but I'd rather be a little on the aggressive side for deducting interest. I have an accounting degree but I'm not technically a CPA. I have a full-time job with a major company here in Washington and I handle are capital assets, so I'm fairly conservative and want to back up whatever I do.

I saw a post recently by a CPA that stated if you withdraw proceeds from the HELOC and put them immediately into the new bank account for the new property acquiring, that this is a clean way to show the flow of cash therefore the ability to deduct the interest on your schedule e versus your schedule a. That approach sounds reasonable and there could be presidence around it. That's the ticket in my opinion!

I also need to talk to any lenders but I might get involved with the new property and see how they feel about using a HELOC. It may need to be in place for a specific amount of time to be seasoned, per se. They are all about being confident that you're under control financially. A while back I asked about it and one lender told me but it may need to be in place for a couple of months. Each lender may be a bit different so I want to check out again before I make any offers.

The trade-off is the cash flow won't be as high.  This goes against my conservative approach as you could work it put nearly zero down.  Just have to be very realistic on what the rents would bring in so everything is covered including maintenance, reserves Etc.

I don't have a lot of properties but I've been very lucky on what I have for cash flow and timing of purchases.  I want to have a cash flow to replace my day job so this is taking a lot of thought on my part to make it work and not set me behind due to high Leverage.

How are things going for you?

My reference has nothing to do with corporate taxation.  It has to do with the primary attraction of a 401k being funded with pre-tax dollars.  Once eligible for retirement you will withdraw the money and pay the resulting tax due based on your bracket at the time.  

My comment had the assumption built-in that the real estate investor would also be employed at a company that offers a 401k program.

When when you pay back a 401k loan as an employee, you are using after-tax dollars. Therefore, this would be the first round of Taxation on the money.  When you withdraw in retirement,  it is the second round of Taxation that would be due.

if you still do not agree, I would love to hear your rationale behind it thank you.