All Forum Posts by: David Segal

I have a new build project that I am in the middle of building with the intent to sell once finished. I am about to refinance from one hard money lender to another. It is just rate and terms refi, so we can increase the construction loan amount which will be taken on draws. The property is currently in an LLC that is a disregarded entity that flows to another LLC taxed as S-Corp. The initial lender allowed my JV partner to co-sign the initial loan and not have to be part of the LLC currently holding title the property. The new lender is requiring the JV partner to be a member of the LLC that will hold title. I dont want to add my JV partner to my current LLC for a variety of reasons. I would rather create a new LLC to take title in and have it be taxed as a partnership between my current LLC and the JV partner. That way my proceeds once the property is sold, will flow to my LLC taxed as S-Corp. The property is in Arizona and we don't have a property transfer tax in Arizona. I am trying to figure out if there are any other tax implications I need to be aware of by transferring the property from one llc to another when I refinance with the new lender?

@Michael Hacker no.... it’s a tax that is applied up to 24 months after the sale of the property. Seems to only be a focus on new construction or when you pull permits to add sqft.

They call it a speculative builder tax/ transaction privilege tax for doing business in the city. Every city has this and tax rates vary. In Phx its a 2.3% on 65% of the sale price. So if you sell a property as an investor that you enhanced for resale purposes with in 24 months, it would look something like this example:

Sale price: 1,000,000

- 35% deduction: $350,000

= $650,000 * 2.3% tax = $14,950 owed

The city basically sends you a bill in the mail up to 24 months later saying you owe this tax. One would think when you pull permits for new construction and adding sqft they would make you aware of this, instead of after the fact. Also it makes no sense why they do it on the sale price and don’t take into account the acquisition cost. The automatic 35% deduction they allow is for materials.

@Wes Blackwell thanks for the reply. I pulled this same info up online. I was looking to see if anyone has gone through the process and if there is a way around it.

Recently I have been hearing rumblings from other Phoenix area investors, that are pulling permits to add sqft or tearing down old properties and build new, about a Speculative Builder Sales Tax in many metro-Phoenix cities.

Has anyone dealt with this? I would like to know how you handled it. Any suggestions?

Recently I have been hearing rumblings from other Phoenix area investors that have been adding sqft or tearing down old properties and build new, about a Speculative Builder Sales Tax in many metro-Phoenix cities.

It seems as though the city is coming after the investor/owner in some cases 24 months after the home has sold looking for sales tax on the sales price of the improved real property. Has anyone dealt with this? I am curious to hear more.

thanks guys.... appreciate your comments.

When putting together the list of people I need to do a 1099 Misc for, do I send one to the escrow company? If so am I only sending in the amount of their company fees or does the amount include down payment + lender fees + purchase/sell price amount, realtor fees paid, etc?? Or are the non escrow company fees separated for each company?

If non escrow company fees are separated out, do I send to lender in the amount of the monthly payments only or monthly payments plus loan fees + purchase loan?

J Scott..... Well said.

i appreciate the comments, thank you. I have been going back and forth on what to do. I had remodelled the property but left the gas hvac units as is becuase they work, regardless of old age. I just dont feel a seller should fix capital items that arent broken, especially when i had a licensed hvac specialist confirm in writing the units are operating correctly, and seller is providing a home warrantee for the buyer already. 

I have a house flipp with two fully functioning HVAC systems. They are on the older side (each at 15 years), but they both work perfectly fine. The potential buyer that i have under contract is asking me to replace them for new units Because the inspectoe said they are older. At what point do you replace them?