All Forum Posts by: Bill Walston

Originally posted by Chris Clothier:

Hey Bill -

It was 2008 and I found the information in talking to JP Moses of REITips.com. Here is the link he posted on the topic.

* Remember, you and I (JP as well) are talking about the same thing. What you found is located on the Hot Line for licensed realtors. The assumption made in the quote you posted is that the person is an agent and that "your buyer" may be able to assign the contract. You are acting as an agent with a license. The TN Commission - and this is the same problem that Dennis Marshall is running up against - says that assigning a contract when you are not a licensed agent is practicing real estate (brokering the deal) without a license.

As I said, the world illegal was too strong. It is against the Real Estate code to practice real estate without a license and they believe that assigning a contract or connecting a seller and a buyer is the same as practicing real estate so you need to have a license to do it.

http://www.youtube.com/watch?v=ZMdEoRVAA5U

This is JP's video post on the topic.

Hey Chris-

You're right, what I found is located on the Hot Line for licensed realtors. I think the confusion comes when we start playing "who's on first." You are assuming that I am acting as an agent without a license. However in this scenario I am not the agent - I am the buyer who has "the right to assign." I have a signed contract (Purchase and Sales Agreement). Accordingly, as "the buyer," I am well within my rights to assign that contract.

Thanks too, for the link to jp's video. I recall seeing that back when jp put it up on YouTube. I also recall disagreeing with his premise as strongly then as I do now. Notice that he says that the commission considers this a gray area. Notice too, that he says if a complaint was filed the commission would probably find that the assignor acted as a licensed agent. This is the kind of "coulda, shoulda, woulda" that I find too vague to be a definitive ruling. I have extensively read TN Code 65-13 and cannot find where the assignment of a contract constitutes the unlicensed practice of real estate.

Further, not being a licensed agent means that I do not fall under the authority of the Tennessee Real Estate Commission. They may or may not determine that I am practicing real estate without a license. That would be only their interpretation. A definitive ruling would have to come from a court of law - at least that is the opinion of my real estate attorney.

Anyway, that is my story and I'm sticking to it - at least until someone shows me a statute, rule, regulation or court case that proves otherwise. :-)

Originally posted by Chris Clothier:

. . I will have the actual code from the Tennessee Real Estate Commission tomorrow. Their take on this was, that if you enter into a contract and then remove yourself from the contract by assigning your interest in the property, you are in essence acting as a broker.

Hey Chris - How recent is this law or statute (or interpretation) by the TRC? I find this opinion quite interesting, especially in light of this quote from the TAR (TN Association of Realtors) Digest website:

Originally posted by Matt James:

Thanks Al, my attorney drew me up a clause to get my money back incase the deal don't go through. The 100$ is to be paid directly to the title company correct? Or do I pay for it up front with the seller? Also once that money is submitted do you get it back or does it just go towards purchase you made once the deal closes completely?

Matt, I would not give a deposit directly to the seller unless absolutely necessary. If a realtor is involved have the agency hold the deposit. Or the title company that will be doing your closing. The deposit is not returned if you close on the deal. It's applied to the purchase.

Originally posted by Josh Luebbert:

I own a house in Colorado under a LLC, since then bought a 4plex in AK and would like to incorporate the two properties under the same LLC.

Probably NOT a good idea. As Uwe said, you would have to file as a foreign entity in AK, so why not just form a resident LLC to hold the property? My experience for "buy and holds" has been that it is always best to have the holding entity formed in the state where the property is located.

Hi Chuck -

I get my signs at:

http://www.signwarehouse.com/

(Not an affiliate link :D)

Originally posted by Serge S.:

I too claimed the RE professional designation in 2009 with an amended return to take the benefits. My wife became a real estate agent in 2010 and spent the "required" time managing our 5 properties in 2009 and 10 in 2010. Can I expect an audit here or is the stay at home wife bulletproof?

The designation of real estate professional will not in and of itself trigger an audit. That being said, claiming losses in excess of $25k may very well trigger an audit, particularly since you filed an amended return to claim the benefits. That's one of the things IRS is taking a hard look at. And no, the stay at home wife is NOT bulletproof. If your wife is the individual claiming RE professional status, she will have to have written documentation to show that she meets the requirements for the designation. And just so you know, most auditors will NOT count her hours as a real estate agent as work in your real estate business. The code specifies "brokerage activities" not "selling real estate."

Originally posted by Roy Williams:

Thanks for sharing that story. Does not sound like fun. Luckily my losses in total are approx $40k, only about $15k over the normal $25k allowance. Hopefully they will find that $15k isn't worth the time and money to make this a landmark audit.

One of the first things the auditor is likely to do is ask you for written documentation of hours you worked in your real estate business. If you can document 2081 hours of work in your real estate business you MAY have a fighting chance. If not, you fail the over 50% of time test, and you do not qualify as a real estate professional. The auditor will limit your deductible losses to the $25K. Point of fact, the IRS considers this a very easy audit, as most taxpayers don't have sufficient documentation to support the requisite number of hours to meet the test. If you haven't already met with your tax pro, I recommend that you schedule an appointment ASAP!

Originally posted by Pat Bahn:

it lists some $57M as customers accounts, but there is no offsetting liability for custumer obligations.

i can email the sheet to anyone who is interested

Hi Pat - I would have to look at the balance sheet to be sure, but I'm guessing the listing of "customer accounts" IS the liability. The actual deposits would have been in a Cash account. The transaction would be a debit to cash and a credit to "customer accounts." If you send me a copy of the balance sheet (REMOVED)I might be able to tell if my guess is correct :-)

Originally posted by J Scott:

Originally posted by J Scott:

Originally posted by Bill Walston:

Yes, if you are paying contractors over $600 per year, you need to issue them 1099s at the end of the year. This is regardless of how many properties you own, unfortunately...

NOT if you are reporting your rental income and expenses on Schedule E.

Are you sure about this Bill?

Quite sure. HR 4, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 was signed into law by the President on April 14, 2011. Section 3 of said Act is entitled REPEAL OF EXPANSION OF INFORMATION REPORTING REQUIREMENTS FOR RENTAL PROPERTY EXPENSE PAYMENTS. (You can read HR 4 at http://www.govtrack.us/congressbilltext.xpd?bill=h112-4)

The misinformation in the IRS instructions to which you link is in no doubt due to the fact that those instructions were printed long before the repeal of the requirement. The 2011 instructions are actually for 2010 Forms 1099, which should have been prepared and delivered to the recipients on or before January 31, 2011. The repeal was not signed until April 14, 2011, three and half months later. Even though HR 4 was retroactive most folks would have already filed the forms for 2011. I'm certain the instructions for 2012 will be corrected to reflect that the receipt of rental income is NOT considered a trade or business.

Hope this helps :-)

Originally posted by J Scott:

Originally posted by djotham:

To clarify, as a small time real estate investor (3 rental homes) do I have to collect W9s and issue 1099s to the handymen I use to do over $600 a year in repairs.

Yes, if you are paying contractors over $600 per year, you need to issue them 1099s at the end of the year. This is regardless of how many properties you own, unfortunately...

NOT if you are reporting your rental income and expenses on Schedule E. This reporting requirement would be true if the portion of the Small Business Jobs Act of 2010 requiring persons receiving rental income from real estate be treated as engaged in a trade or business had not been repealed. But it was, so no 1099 reporting for Schedule E filers.

If, however, you report your rental income and expenses on Schedule C you will fall under the Form 1099 reporting requirements of any other trade or business.