Allocating additional funds so as to appear below income limits

Allocating additional funds so as to appear below income limits

New to Real Estate · Des Moines Iowa Area · Member since 2020 · 21 posts · 7 votes

Alright guys so here's a hypothetical (and it is an actual hypothetical right now as I haven't gotten a raise yet); let's say that someone is currently making below the income limits for a housing program and will be for a little bit (most likely), while they are within this limit they are saving up to buy a property. Within the time frame to save for this property, and the time to buy the company gives them a raise pushing them out of eligibility for income limits with their state housing program. Would it be possible for this person to allocate that additional income from the raise to an LLC or other company that they own so as to appear as though they are below the income limits for that state?

Additionally say this person was wanting to take a part time job, could it be arranged for that additional employer to pay a company or LLC set up by this person and have those payments be reflective as income to the company, not the person who owns it, while still having those funds accessible to the person who owns the company?

Something tells me the answer to all of this is a big fat NOPE, but hey, you never know, any thoughts are welcome, thanks gang!

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Investor · Hawaiian Gardens, CA · Member since 2015 · 308 posts · 386 votes
5y

1. Usually those programs are based on AGI (adjusted gross income), so won't be reflected until after you file your taxes

2. If it is based on AGI, you can lower your AGI by contributing more to your 401k or a traditional IRA.

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  • Brad HammondBusiness Member
    Real Estate Agent · Portland, OR · Member since 2016 · 1k+ posts · 605 votes
    5y

    This seems like a lot of work just to be eligible to get a property.  My guess is this program is going to want to see previous taxes and/or pay stubs so you won't be able to channel the money into a different account or business.  I think you are better off living in the property to be eligible for a 3% down payment.

  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    5y
    Originally posted by @Collin Lee Johnson:

    Alright guys so here's a hypothetical (and it is an actual hypothetical right now as I haven't gotten a raise yet); let's say that someone is currently making below the income limits for a housing program and will be for a little bit (most likely), while they are within this limit they are saving up to buy a property. Within the time frame to save for this property, and the time to buy the company gives them a raise pushing them out of eligibility for income limits with their state housing program. Would it be possible for this person to allocate that additional income from the raise to an LLC or other company that they own so as to appear as though they are below the income limits for that state?

    Additionally say this person was wanting to take a part time job, could it be arranged for that additional employer to pay a company or LLC set up by this person and have those payments be reflective as income to the company, not the person who owns it, while still having those funds accessible to the person who owns the company?

    Something tells me the answer to all of this is a big fat NOPE, but hey, you never know, any thoughts are welcome, thanks gang!

    The income you earned is earned. There is no way to decrease it by allocating/contributing it to the LLC or by investing anywhere else.

    You cannot decrease your income by spending it.

    If they are looking at your overall taxable income, then you could generate some losses to offset your overall income if your structure your investment that way. 
     

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  • New to Real Estate · Des Moines Iowa Area · Member since 2020 · 21 posts · 7 votes
    5y

    Yeah I agree that it's a bit convoluted but hey, just seemed like a good thing to get a bit of info on, so thank you for the reply @Brad Hammon, @ Ashish Acharya. I definitely appreicate it. My particular market doesn't seem to cash flow particularly well (from a newb perspective anyway) so anything I can do to get some money in my coffers is welcomed. Anyway, thanks again guys!

  • Investor · Hawaiian Gardens, CA · Member since 2015 · 308 posts · 386 votes
    5y

    1. Usually those programs are based on AGI (adjusted gross income), so won't be reflected until after you file your taxes

    2. If it is based on AGI, you can lower your AGI by contributing more to your 401k or a traditional IRA.

  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    5y

    @Collin Lee Johnson

    You need to know what this program uses for calculating your income. Some of them will ask you to state your current salary. If you got a raise yesterday, you have to disclose it, otherwise it is fraud.

    Most programs, however, look at your last year / last tax return. It does not matter to them what your salary is today. What matters is what income shows on your 2020 tax return. If it's under the threshold, you're in. If it's over, you still have a short window (before May 17th, most likely) to possibly lower it with an IRA contribution. If you were self-employed, you may have other options to lower your 2020 taxes.

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