All Forum Posts by: Ben Gonzalez

Wow thanks for the reply @Michael Plaks I had to read that a couple times to let it sink in.

I think I understand the options you've laid out and #3 seems to be the most reasonable, but is it true that it really doesn't matter how long you hold them, the IRS can still classify you however they see fit?

Follow on to that is, do they classify you dealer/investor on a deal by deal basis? Say I have a Series LLC set up where each cell of the series is it's own entity, will one cell that holds a rental property be classified as an investment property along with all the "investor" benefits, while the next cell could be called a flip or dealer inventory? Or would they just sweep everything into one bucket or the other?

My understanding of Dealer Status is that if you are flipping on terms (in my case: buy on terms, fix -or not-, then sell on terms) then you lose the ability to be taxed as an installment sale where your gain is spread out over the term of your note.  

This really hurts when you have, for example, a $50k gain that is fully taxable on year one, while you only made say $15k on the downpayment.  Now you have $15k owed in taxes, instead of the taxes being spread out over 30 years.

Is this correct?  Are there any ways to still do this strategy and still be taxed per the installment sale code?

I also hold rentals as well, so I have a separate entity for that...in case this factors into any consideration of the above.

Thanks in advance everyone.

Thanks @Rick Pozos

I won't be doing my own taxes.  I have a family CPA that specializes in small business and this discussion came up after discussing creative financing and looking at tax code, etc.  I'm just looking for a second opinion to make sure we're on the right track with how note income is taxed.

Regarding the Series LLC, that is in place for the purpose of originating notes to stay compliant with Dodd Frank / Safe Act law. I'll spare the details of that unless you or others find it relevant to the discussion.

Hi all,

I was hoping I could get some general info about taxes from note income and how everyone here handles it.

I'm getting into creative financing, and plan to originate several notes (yes, I'm aware of Dodd-Frank/SAFE Act) and also possibly buying notes as well. I would assume they are taxed the same way.

Is note income reported as installment sale income via Form 6252?

Is note income taxed as short or long term gains?

I plan to have a Series LLC for originating notes (each one in it's own series) and depending on if it's long or short gains, will potentially affect how the Series LLC is structured.

Just to put some numbers to this, lets say I buy a home (all in) for $175k on terms from the seller. I then wrap that home to an owner finance buyer for $200k at a higher interest rate. How would the taxes work on this scenario? Would that change whether there is a balloon of 5-10 years on each side or not?

Please let me know if any additional info is needed and thanks in advance!

Hi all,

I was hoping I could get some general info about taxes from note income and how it's supposed tp be handled.

I'm getting into creative financing, and plan to originate several notes (yes, I'm aware of Dodd-Frank/SAFE Act) and also possibly buying notes as well. I would assume they are taxed the same way.

Is note income reported as installment sale income via Form 6252?

Is note income taxed as short or long term gains?

I plan to have a Series LLC for originating notes (each one in it's own series) and depending on if it's long or short gains, will potentially affect how the Series LLC is structured.

Just to put some numbers to this, lets say I buy a home (all in) for $175k on terms from the seller. I then wrap that home to an owner finance buyer for $200k at a higher interest rate. How would the taxes work on this scenario? Would that change whether there is a balloon of 5-10 years on each side or not?

Please let me know if any additional info is needed and thanks in advance!