All Forum Posts by: Bill Walston

Originally posted by Jeff L.:

But.. would transferring the titles into a trust provide any kind of liability protection?

Jeff, if the trust is revocable (and most property holding trusts are) there is little to no asset protection. You need to follow Bryan's suggestion of combining the use of the trust with the LLC to get that.

UPDATE: Sorry guys, I just noticed that others answered this..I missed those before responding...

George, I take it that your LLC is single-member and has NOT made a corporate election, right? If so, then you have a disregarded entity and the income will be reported on your personal return. Interest would be reported on line 8a of your Federal 1040.

I agree with your accountant on this one Chris. If an expense is for both rental use and personal use, such as mortgage interest, you must divide the expense between rental use and personal use. Only the personal use portion can be used for itemizing your deductions.

Ralph, FAS 143 and FIN 47 are financial reporting requirements. That is, they apply to a company's financial statements, NOT to its tax returns. Booking the Asset Retirment Obligations will result in a difference between the income tax reported on the financial statements and that reported to good ol' Uncle Sam. The difference is reflected in the "Deferred Taxes" account on the company books. So, "beefing up" the depreciation wouldn't do a thing for you tax wise, which I assume would be your motivation.

Rob - It seems you have several issues going on here :)

Under the proposed regulations issued by the IRS, each cell or series would be treated as a separate legal entity for federal income tax purposes. This would require each series to obtain its own federal employer identification number (EIN) and file its own separate tax return for the appropriate entity tax classification it selected.

Based on that premise, IF you want the cells to be disregarded and have everything "roll up" to the parent you need to have the parent be the single member of all cells and elect the default status. In your situation, the parent would then report all income and expenses and file a single partnership return.

The structure that you have right now will require that TWO partnership returns be filed.

Irrespective of the ownership of the cell if you wish to take advantage of the asset protection of the LLC you MUST treat the cells as separate entities. This means that each cell SHOULD have its own operating agreement designating its own managers and members. Each cell needs to keep separate accounting records, get its own EIN, and have a separate bank account. I think only one bank account could be construed as comingling and will likely cause the liability protection to collapse, especially if the cells are all owned by the "parent."

Hope this helps.

Originally posted by Bienes Raices:

I wanted to have them ready for payments done in the current year (i.e. the future), not for 2011.

Sorry, I misunderstood. The Forms 1099 for 2012 will not be approved by IRS until much later in the year. The forms are subject to change from year to year based on the changes in reporting requirements.

Originally posted by Michael Power:

How are your 1031 exchanges handled? Is this an entity focused restriction, or an activity focused restriction? I see the reasoning on an individual basis, but how many flips does it take before you are considered a dealer?

Mike P.

Mike - If you are doing a rehab, with the intent to sell for a profit ONE property will make you a "dealer." It's not the number, it's the intent: if you hold a property primarily for sale you are a dealer. If you are considered a real estate dealer, you have a trade or business - the income is earned income, you are not eligible for capital gains treatment, and the property is not eligible for a 1031 exchange. Bryan Hancock's suggestion to have one entity for "flips" and another for investing is spot on!

Originally posted by Bienes Raices:

Staples doesn't appear to have the 2012 1099-misc contractor kit available yet--will IRS mind if I just use the 2011 forms?

You should be able to get it from Staples http://www.staples.com/Staples-2011-1099-MISC-Tax-Forms-Software-Kits/product_SS1036656

Jon is correct on all counts. The IRS considers the land contract (AKA contract for deed), wrap, sub2, and just "plain ol' owner financing" to transfer ownership. With that ownership comes the tax benefits.

And his advice to run this by your tax pro is spot on!!

Hi Ed -

What do the lease agreements say about utilities? If the units are individually metered you could have the tenants pay their own utilities unless the lease agreement states otherwise.

What do comps in the area say about the value of the property? A three unit is treated as residential (not commercial) property so the value of the property will be based on an appraisal. Would an appraisal support the asking price?

What due diligence have you done? Have you asked for the financials on the property? Have you examined the lease agreements? What's the historical vacancy rate?

The expenses you show here are a bit "light." What about the Repairs & Maintenance? Who will be responsible, you or the owner?

I've been known to take a "small profit" in the short term, but you need to make sure you know what that profit is before going into the deal. Depending on the true expenses, you may not have much profit here at all.