All Forum Posts by: Louis Alvarez

Certified Public Accountant

Marc, I'm not sure what a "tax agent" is or what type of qualifications they have, but it sounds like you need to find a CPA with some real estate experience.  Unfortunately there is no bright line test in the tax code that says X number and you are an investor and Y number you have a business.  The determination is based on your particular facts and circumstances and even then court cases in different areas have made what would seem to be differing conclusions with similar circumstances. To over generalize, if someone had a full time job during the week and rehabbed a couple of houses, I would argue that the would be investing.  On the other hand if someone's only source of income was flipping the same two houses the facts would lean towards a business subject to the SE tax. 

You need to sit down with a CPA and go over your specific facts.  As helpful as many BP members want to be I see too many responses to tax and legal questions that are 75% correct and that can cost you in the long run.  

Tricia, you are probably referring to the concept of a self directed IRA. There are numerous individuals here on BP that set these types of stuctures up. Do some research and talk to your CPA before you jump in. There are very specific rules ( do's and don't) the you need to be aware of. If not done properly you will not only be subject to the penalty but you will also be taxed on the money as if you took it out of your retirement plan. I'm sure you will get some additional comments from the promoters of these SDIRAs shortly.

Alec,  ROBS definitely have a lot of hair on them.  While 100% legal, the IRS DOES NOT like them and will scrutinize the structure much more than most other structures.  Sooo, make sure every i is dotted and every t is crossed. From some of the prior posts it seems as though there are some members that can certainly help in setting one up. I would highly suggest that you get a good attorney and CPA that are familiar with the stucture, but are not associated with the person that is implementing it for you. Even if the structure is implemented/structured properly, if you don't follow the rules in maintaining the structure you risk having the IRS collapse the structure and taxing your retirement funds as if they were distributed to you (with penalties added for good measure.).  I've seen this stucture implemented in the context of purchasing an operating business (i.e. Someone wants to buy the local sub franchise) but not to start a RE investment company. Not saying it can't be done, just that I haven't seen it. It sounds like some of the other members have assisted in this type of implementation. This is one of those situations where you need to know ALL of potential pitfalls before you risk half of your retirement. 

Mike,  as a general rule, the Government ALWAYS gets their money.

A lot of county property appraisers are online these days.  Here in the Tampa Bay area you simply go to the county appraiser website, search for the property based on the property street address and the owner is listed in the records. I would assume it is the same up where you are.

I would suggest that you have your CPA run some different projection scenarios for you to estimate your true tax tax effect of selling $X in stock. Presumably you included the stocks you acquired in income when you exercised the options. If that is the case you have basis in the stock. What that means is that if you need to sell $100k in stock for RE investing you're not going to pay 40% tax on $100k, you are going to pay 15% (i.e. The cap gain rate) on the gain.  Just to pull a number out of the air, if your basis  in the stock is $75K then your tax will be 15% of $25K.  That's a big difference. Dan Dietz is correct. You don't want the tail (tax) to wag the dog. While I hate for my clients to pay any more tax than they have to, sometimes paying the tax is the best answer.

No one has a crystal ball, but running options is the only way to see the big picture.  Who even knows what will happen with the tax code.  Maybe one day the cap gain rate goes up ( or goes away entirely.)  Then paying 15% is no longer an option.  

William,

Generally speaking you don't need to create a new entity for each state.  A Florida entity can do business in any state.  However, you typically would need to "register" the FL entity with the Secretary of State in the other state(s) where you plan on doing business.  By registering you are basically telling that state that you are going to be doing business there.  As others have indicated there are legal reasons you want to (and are required to) register.  Having said that there are legal reasons and/or tax reasons that you may WANT to set up separate entities (be they FL entities or some other state) to do different projects.

My advice is to hire a qualified CPA and/or attorney, lay out the facts and your plans and then have them assist you in setting up the correct structure.  As helpful as forum members may want to be, everyone's facts and circumstances are different and a little good knowledge, applied incorrectly could cost you. 

Regards,

Louis

Jason,

A single member LLC (SMLLC) is disregarded for tax purposes so there should be no difference in the income tax to you whether you do or don't contribute the property. You need to engage a competent CPA who can go over "your" specific fact pattern with you and advise you accordingly. As they say, "the devil is in the details." All to often I have clients give me what they believe to be all the "facts" based on their understanding and then invariably something is different that changes everything.

You also need to check with a local attorney.  Although your "income" tax should not be different you need to make sure there isn't some type of transfer tax (document recording, etc.) that would be incurred by contributing the property.