All Forum Posts by: Angel Maldonado

Investment Info:

Single-family residence buy & hold investment in Josephine.

SFH long term rental

Investment Info:

Single-family residence buy & hold investment in Abilene.

Tax lien purchase of a SFH residential lot, removed condemned home and sold lot after redemption period expired.

Hi Chris, I don't have any context regarding the seller's situation so no comment on the land trust. Reporting the proceeds you pay to seller on a 1099 sounds reasonable.

Hi Chris, if I understand the transaction it sounds like you will receive a 1099-S for the full amount. On your tax return you would report the proceeds, subtract costs and proceeds paid to seller, then the remaining profit would be your flat fee. Sounds like this could possibly be a Schedule C activity so keep self employment tax in mind. You should consult a tax professional for an answer based on your unique situation, this is not tax advise just general information.

Hi Mike, sounds like you have a lot going on! Having your legal and tax advisor on the same page is important. In my experience, the attorney generally sets the direction for estate planning and asset protection, then the tax advisor will recommend a suitable tax strategy to mitigate the tax burden and keep your entities tax compliant. 

However, the order that you reach out to them isn't too important. The important thing is that you communicate your current situation and what you are trying to accomplish so they can help you find the most efficient path from a legal and tax perspective. It might be a good idea to have legal and tax in a meeting/call to discuss the plan and make sure there are no gaps or contradictory strategies. 

Best,

Hi Richard, generally, from  a tax perspective buy & flip activity is taxed as ordinary income and not capital gains. There are a number of factors to consider, including the volume/frequency of flips, but the IRS generally considers this to be an ordinary business (not investment) and subject to self employment tax (roughly 15% in addition to income tax). 

In light of this, you might consider consulting with a tax professional to see if it makes sense to open a new LLC for your flipping activity and possibly make an S-Corp election to run your own payroll rather than pay self employment tax on all your buy & flip profit.

Keep in mind this is general information, not tax advice, make sure to consult a tax professional for your specific situation. Good luck!

Hi Alejandro, generally you cannot deduct the cost if it was never placed in service. However, when you sell the property you would count the cost of the ADU as part of the property's cost basis, effectively lowering the taxable gain. Keep in mind this is general information and not tax advice, make sure to reach out to a qualified tax professional to make sure you understand your specific situation.

Hi Eric, generally, owner finance is reported as an installment sale and interest is imputed. If seller does qualify for the primary residence exemption she will not pay tax on the capital gain portion of the sale but the interest would be taxed as ordinary income. The interest portion might also be subject to the net investment income tax depending on her personal situation. 

Installment sales are reported on Form 6252 of the seller's tax return and there is a line item specifically to report the primary home exclusion on capital gains. Based on the reporting tax forms, installment sale and imputed interest is most likely the way to go.

Keep in mind this is general information and not tax advice for your specific transaction, you/seller might want to schedule a formal consultation with a tax professional to get a specific answer.

Hi Corinne, Bigger Pockets has a directory of real estate tax professionals. Here is the link, it is also posted on the main page of the tax forum. https://www.biggerpockets.com/blog/tax-partners

Hi Jonah, generally Ohio levies a business income tax for LLCs based on gross receipts. If your LLC is below the no tax due threshold, you are likely still required to file a zero balance due return to keep your LLC in good standing. Furthermore, Ohio is a state that permits local/municipal tax authorities to levy their own taxes, so depending on the locality where you do business and where the LLC members reside, you may also be required to file local tax returns for each jurisdiction. Ohio is a state that allows the pass-through entity tax election on the state return, this may be beneficial to the LLC members so that is something you would want to look into.

Keep in mind that this is just general information and not tax advice, there are not enough details to give you specific steps for your situation so make sure to consult a tax professional if you are unsure of your tax requirements.

Best,