All Forum Posts by: Account Closed

thank you both for the quick response!   When it comes time to negotiate, the buyer will have his/her opinion on the matter so I’ll be somewhat dependent there, but it’s good to know the tax “mechanics” won’t be an issue and have a few reasonable options.

Quote from @Michael Plaks:

@Matthew Heffernan

Tax question first, because it's very easy. No problem whatsoever. This is called "costs of selling" and is added to your basis, reducing your capital gain. As long as you can later prove that this money did come out of your pocket, no issue.

As far as your logistics question, let's flip it and consider it from the buyer's side. If I am buying from you, and you plan to do some work on my purchase AFTER the closing, I will not mind, as long as you're going to do it well. If I have doubts, I will want to either strike a deal with your contractor myself (or assume your deal) - or use my own contractor. I will not want to be at your mercy or at the mercy of your contractor after I buy from you or deal with title's bureaucracy.

I'm under contract to purchase an apartment building in Ohio. I have the option to purchase the real estate or to form an LLC, transfer the property into it and purchase the newly formed LLC that owns the real estate. The primary motivations for purchasing an LLC that owns the real estate is to avoid the potential of a significant property tax increase and to eliminate conveyance fees. My question is whether this will this cause issues with setting up the purchase price as the cost basis and depreciating the property accordingly? I've seen some stuff online that suggests I might assume the previous owners depreciation schedule (which would be bad because they've owned it a long time). I also came across a 754 election which is one process for adjusting the cost basis to the purchase price. Any advice on this issue is greatly appreciated! Thanks!

I'd make the Activity be a dropdown... control the narrative. The material participation column would be read-only and change depending on the dropdown. Next, I would add a comments column. Seems a little wide too... perhaps some tighter formatting.

Good idea!

Zachary,

Thank you for the detailed response.  I will use some round numbers to resummarize what I am hearing.  The property is roughly valued at $1M based on the realtors estimate.

2022 transfer to LE deed.  My dad retained a life estate share of the property with both sons having equally divided remaindership.  Roughly the following:

LE share (dad) at 40% and each son having 30% each.  The LE deed calculations stated property tax value at roughly $300,000 total (all shares).  My dad essentially had $120,000 and each son had $90,000.  No appraisal was performed.  The values here were state required calculations included by the attorney to show an example of value share split.

2024 events:

Dad has aged so his LE value is close to 30% and each son had 35%.  I will assume the total cost basis for the property is $500,000.  He built his own home, so there is no ‘sale’ value here.  When it was purchased in 1995, it was raw land.  Numerous improvements have made over the years.

Dad wants sell the property this year, so I will assume it sells for $1M.

Dad’s LE share would be $300,000.  He can use cost basis here - 30% of $500,000 would be $150,000 cost basis.  Capital gains would be 0 because he has not hit the threshold for gains on a primary home sale.

Dad’s remaindership share (portion that was my brothers) is 35% and carries a $0 cost basis.  There was no financial transaction from brother’s ownership to my dad.  My dad would be responsible for capital gains on the full amount.  Additionally, my brother would responsible for claiming gift tax on the $350,000.

My remaindership share is 35% and I will need to claim capital gains on the difference of carryover cost basis.  Is my cost basis same as my dad’s ($500,000) or would it be based on the value in 2022?  Since there is no appraisal, I assume it’s development costs and same as my dad.

Some additional questions….

Does my dad have to claim gift tax for any portions of this transaction?  Like the gift he made to me for remaindership share.

I also assume there are some unknowns with state, county, or city taxes for transfers or sales.  I have not dug into that yet.

With the figures used here, would gift tax apply to this transaction for my brother?

Thanks again for your time answering these questions.  It has been super helpful understanding my assumptions.  I will seek some professional help in Tennessee.  Hopefully I can someone in this community who specializes in real estate transactions.

Quote from @Account Closed:

Quote from @Dan H.:

Rent ready, non value add, mls purchases in San Diego are large negative cash flow if financed at current rate with a high LTV loan. When prices compared to rent were more affordable, I thought the 50% rule was conservative in San Diego but I no longer believe this to be the case. 50% rule is fairly close easy predictor.

San Diego has always appreciated over the long term but in the short term anything is possible. From 2012 until COVID, I was confident of short term appreciation.   I am not confident of short term appreciation.  I can see a case for near term price decreases.  

This is my market.  I buy regularly but have not purchased since Dec 2021 due to the numbers not meeting my but criteria.  This is in spite of getting numerous off market properties sent to my email.  

Good luck

 Living in San Diego im shocked what some deals go for. Sadly the market can stay irrational longer then you can stay solvent! 

I do not know how you define irrational.   The affordability was worse in the 1980s.  Just a couple of years ago (2021 and early 2022) that affordability was better that a majority of the last 40 years.  So if you define them market as irrational implying affordability, then it has been irrational over 40 years.  

it is my view that the market is efficient.   It is costly to live in one of the finest climates in the world (assuming you were not lucky enough to get the small number of lower income units - like winning the lottery).  

note the San Diego cash flow is bad now, but it has been poor for many years.  My first purchase over 30 years ago the piti equaled the market rent which implies it was cash flow negative when including all expenses.  2012 to 2021 was the good times for RE investing in San Diego, but most people could not see it.  

good luck

Hi Everyone.  I just recently closed on a Condo in Denver and am looking for an Investor Friendly CPA.  I've heard stories from colleagues who have CPA's that don't keep them abreast of tax advantages and am wondering if any of you have someone you would highly recommend.

Thank you!

Kris

Hey BP Fam, 

I am a current wholesaler that came across a property with a $120,000 tax lien on it. The property has 100% equity on the property but I don't really see to much profit margin for the seller, me, and the buyer. It's a single family with an arv of $214,000. Is there any way around the tax lien being paid upfront when selling a property? Is there a creative exit strategy I am missing? 

Hello, I have searched the forum but have been unable to find a sample "time log" for material participation purposes.  I have seen a few apps mentioned, but I prefer to use excel and log everything that way.  Does anyone have suggestions for retroactively estimating your time?  I did not know of this time log requirement for STRs, so as a newbie I am going back through emails, texts, phone logs, invoices, etc. to determine how much time I spent on everything.  

Wow!  This is fascinating stuff, but I'm having a very hard time understanding.  I (obvious) don't have a background in accounting or taxes.

The history of my coming to be the sole shareholder of this s-corp is complex, long and, I have no doubt, filled with tax-planning blunders.

In case anyone is still interested, and inclined the help, here it is in as abbreviated form as possible:

1967:  5 families bought this property as a summer vacation for them to use collectively
1980:  1 of the families sold their share (20% of the property and what is effectively a lifelong lease to one of the 5 cottages).  I was a kid at the time.
1983:  1 of the cottages got hit by lighting and burned down.  A "reorganization took place, one of the families left the group in exchange for the insurance proceeds and the property then had 4 owners (and 4 cottages)
2000:  I bought ($42,000) my parent's share.
2000-2010:  I bought the other shareholder's shares (total $300,000), leaving just me as the sole shareholder
2017:  Elected to file as S corp.

None of these transactions were properly recorded.

2022 1120S tax return (2023 is on extension) shows:

$0 income
$15,000 Land (sched L, line 12)
$122k Loans from me

($189K) Retained earning

$93K cap stock

($46k) Sched m-2

I have no idea how we got to these amounts.

Does any of this make things easier to understand and easier to get me out of this capital gains problem (or does it just muddy things even more)?

Thank you.