All Forum Posts by: Tommy F.

@Lisa Renee You said this will be your first property "ever", so why not house hack? Get a FHA loan with a credit score of 580+, pay 3.5% down payment, honestly state you intend to live in the house for a year (although things can change during a year), live there and in the meantime get more RE education while planning your next real estate investment. IMO, the FHA underwriting for a first-time buyer using the house as collateral may be more suitable than trying to get an unsecured personal loan or hard money loan. Good luck!

@Meredyth M.  Broadly conceived, income from all sources derived is taxable unless the income is otherwise demonstrated to not be subject to tax. If he earns more than $600 per year as a self-employed subcontractor for your business, then you as the payor of that income must issue him a Form 1099-MISC. You should have on file from him a Form W9, report his income to the IRS, and he gets a Form 1099-MISC from you stating the amount you reported. He will be responsible for reporting the income on his personal tax return and pay income taxes if his return dictates it. Otherwise, you could "gift" him up to $14,000 per year without any tax consequence to either of you and just teach him your business.

Kilter L. I use USAA Smart Move

@David Ellis I realize your post is 9 days old and you're probably on your way to completing the transaction, but your post interested me so I'm replying a little late in the game.  

Based on the info provided, it seems to me the only tax to defer is depreciation recapture. You bought original property for $86k ten years ago and sold it for $85.5k, so no capital gains. Using the 80/20 improvement to land ratio estimate on the original $86k, you likely have roughly $25k in depreciation over ten years. The recapture tax is 25%, so you'd owe $6,250 ($25k x .25) in depreciation recapture.

You apparently have a qualified 1031 exchange because the net equity plus debt retired is less than the equity and new debt on the replacement property.

Selling Price $85,500

Less mortgage debt (40,000)

Less selling expense (6,000)

Net Equity $39,000

New Property Purchase $79,000

Less mortgage debt $0

Less expenses $0

Net Equity $79,000

I believe the cost basis of your next property received is its FMV less the deferred tax on the property relinquished. So, $79,000 less the $6,250 depreciation recapture tax is $72,750 basis on the new property.

I'm no expert in this so I'd like to know the outcome on your situation if you're willing to share the results.

@Eric DeVito  Nix the investing talk with family members, they'll only hold you down. You've found a lot of people here at BP who can encourage and motivate you.  

No, you don't need pre-paid legal. Maintain proper insurance coverage and do the "honest and right" things in all that you do, even if it hurts and costs money. Do that and you've covered yourself from potential legal problems.

@Patrick Britton You stated "Seems like the most important factor is building a home that will sell for the desired price quickly." Not really, it's more like building a "desirable" home that will sell quickly for the desired price.  Spec building = "speculative".  Speculative = risky.  Fix & Flip is also risky, but fix & flip is more about finding a pig at a discount and hopefully just putting some lipstick on it, selling it for nice profit, and moving on. Moreover, fix & flip is starting with something to work with rather than a vacant lot. Sure the fix & flip can experience unexpected problems and costs, that's why they find "deals" such that the discounted price hopefully covers risks into the equation. If you're set on the spec building option then who is your target market at the end of the process? Buy & hold investor or owner-occupied? If owner-occupied is your answer, then ask yourself: Can I compete "profitably" with national, regional, or local home builders whose target market buyer is owner-occupied? It can be done, not trying to discourage you, but why get into the ring with a bigger, better, and more experienced competitor?

Brandy Thome Your mortgage underwriter will, if smart, follow the VA guidelines. They will have a third party inspection who, if smart, will flag it as 5 unit not 4. Look for a property that fits the VA criteria.

@Derek G.  Most individual taxpayers are held to the Cash Receipts Method which means property (cash) is included in your gross income during the year of actual or "constructive receipt" regardless if the income was earned in that year. The constructive receipt doctrine says that if income is available, the taxpayer may not postpone the income recognition. For example, consider a perfect annual calendar period 1/1/16 to 12/31/16, $1,000 month rent, and your management company collects rent every month without fail. That rent is income available to you. You cannot postpone the receipt of that rent money to the following calendar year because your agent (property manager) has the funds and those funds are readily available to you. The IRS would require you to recognize that income the year in which it was received by your property manager. The other thing is you're mixing a capital gains income topic (selling property) with a passive income topic (rental income). You can't mix the two income sources for tax saving purposes. Your passive income losses must be offset with passive income generators. Therefore, you can't structure a an arrangement to recognize a gain on stock and attempt to offset that gain with passive activity losses from a rental property.  Caveat, I'm not a CPA. Check with a tax professional.

@Brandon McLean In my opinion, Ditech is a TERRIBLE mortgage servicer.  I have a mortgage that was sold to Ditech and they've been terrible.  They have an online messaging system through your secure account, but they DO NOT respond to online inquiries via their own portal.  I've submitted four requests trying to get an answer on an escrow error that THEY MADE!  Trying to get an answer by phone?  Good luck.