All Forum Posts by: Brandon Hall

@Kyle Cortez The parents can gift the property to the child. No taxes will be incurred as long as the property is less than the parents' remaining lifetime exclusion amount. 

Otherwise, it will be a taxable sale.

There is a third option: student manages the rental and is paid to manage the rental. The payments will be ordinary (self-employment) income which will give the student income history (good for loan quals). If student never takes title and parents pass away, student will received a stepped up basis in the property at the time of death meaning that the student can then liquidate without paying a cent in tax. 

@Carl Fischer clear as mud, right?

@Jay Hinrichs we put together a google doc that highlights each bill's proposed tax changes. BP previously let me post it so I'm assuming it's still okay to do so.

https://docs.google.com/document/d/1wXgWAnxAvPcUVK...

It has not been updated with the Senate's new bill as of this morning. 

@Gabe Medina @Carl Fischer from a tax perspective, not really. Sole props are included in the elusive 25% max “pass through” tax. 

That said, depending on the investments you are making, your prticipation in those invsments, or the type of business you are running, it *could be* more beneficial to do so through an LLC.

I say *could be* because you can tax the LLC as an S or C Corp. depending on how the tax bill shakes out, a Corp may make sense in certain situations.

@Will Foster look up a 72(t) Distribution. 

@Ed Neuhaus at this point, as far as we can tell, the limitation applies to new acquisition debt on primary residences. New second homes or vacation homes will not be able to deduct mortgage interest at all unless they are being rented. Rentals are unaffected.

@Wendy Carpenter P&I and Capex are not included in the CapRate because these are "below the line" deductions.

Your interest expense is based on your ability, not the property's ability, to obtain financing. Thus, this should not be included in the CapRate calculation as this expense is not a reflection of the property's ability to operate. 

Capex is not included in the CapRate calculation because Capex is not an expense. First, it's a reserve account. You don't reduce NOI for putting money into a reserve account. You reduce cashflow, not NOI. Second, when Capex is spent, it's generally spent as a Capital Expenditure (Capex) and is not a current expense item. Instead, it gets capitalized to the basis and depreciated over a period of time.

Based on that, the CapRate should be closer to 8%. That said, your realtor is most likely wrong as well. The only realtors I'd trust running any numbers is @Russell Brazil and a few others here on BP.

@James Piercy thanks for attending! 

You would need to file a Form 1099 and issue that to your mother to report the interest paid (assuming the $50k loan is not collateralized. Y the asset). You would also deduct the interest in Sch A if a primary residence or Sch E if a rental.

The concern I'd have is that your lender may not want to see this $50k classified as a loan. It will increase your DTI, so be cognizant of that.

@James Piercy gifts in excess of $14k annually are not taxed as long as the lifetime gift exclusion ($5,490,000 for 2017) is still available for the taxpayer. The excess over $14k simply reduces the lifetime exclusion amount.

BUT, and this is a big but, what you are describing is a loan, not a gift. A gift is one in which you receive value for no expectation of reciprocating value. How would you explain the payback if questioned by an IRS auditor?

@Dave Van Horn thanks for the tag. I'd take Michael Burry out to lunch in a heart beat.