All Forum Posts by: Dominick Austria

@Jay Truong Generally you will be taxed on capital gains, which is your selling price less your adjusted basis. In the first scenario if you are the only member of the LLC your company will not be taxed. The LLC will be treated as a disregarded entity and you will report the income on your personal return. In the second scenario, it is rarely advisable to put appreciable property into a corporation. If you transfer the property to the Corp and give 50% to your brother you will not be in control of the Corp and may trigger gain on the transfer of property on your personal return. You should consult your CPA for a more detailed explanation.

@Daniel Hoffmann This is very interesting. Thank you for sharing. Generally, personal interest is not deductible. However, under the code qualified residence interest is deductible. This is the same code section that allows PMI to be treated as qualified residence interest. You are correct this deduction expired at the end of this year. Interesting enough, the answer to this question before stated to deduct on Sch E, Line 9. Line 9 is insurance not interest. I believe you should reach out to your CPA for a complete analysis.

@Leardini Alex @Alina Trigub Alina is correct. You will need to obtain an ITIN to invest in the US. You will be obligated to file US taxes each year on the rental property or the K-1 you receive. When the property sales you may be subject to FIRPTA withholding which can be up to 15%. You should find a good CPA that deals with foreign investors.

@Account Closed that is incorrect. The 20% you are referring to is called FIRPTA withholding. This is only a prepayment of tax on the gross sale of the property. At the price range you are talking about then the withholding amount might be able to come down to 10%. When the investor files their tax return for the year they will see most of this money come back as a refund. The gain on the sale of the property is calculated by taking the sales prices less adjusted basis less selling expenses. 

@Jay Hinrichs I understand that zero percent financing is very real. But there is still a risk associated with it. I was implying that when you have zero percent financing that you pay a higher price to make up for the “zero interest”. I’ve never done a zero percent financing deal so please correct me if I am wrong. I always believe that while something may say zero or free that isn’t always true when you delve deeper!

@Matt Heider I understand now. Sorry I thought your post said it was the sellers primary. In that case I would agree with backing into the finances price. I don’t believe there is such a thing as zero percent financing. If you have zero percent financing you always end up paying more of a sticker price anyways. I’m not sure if the seller will have to issue the buyer a 1098 for the mortgage interest each year either. I would assume yes but need to look more into it. Also depending on my tax bracket I would not want to reclassify part of my capital gains to ordinary income as interest. Did you consider this? The AFR is around 3% right now.

Yes lance is correct. You will need to get an ITIN with a CPA who understands FIRPTA. Also your best bet is to find a real estate investment fund with foreign investors. They aren’t uncommon in Las Vegas. 

Hi Matt

Looks to me that it states that sales of personal residence is an exception to IRC 1274. 

I don't believe you'd have to amend your 2016 taxes to recapture the depreciation. If you want to rent it out again, I would continue the old depreciation on the property. This may not be the case if the FMV is less than your previous basis. Also the irs requires you to allocate between qualified and non qualified use period for cap gains. You will have depreciation recapture when you sale your house. Your situation has a lot of moving part. Hope you are able to accomplish your goals!

There are two gains that receive beneficial treatment with Qualified Opportunity Funds. First, there is the gain that you are deferring into the exchange. Depending on how long you hold the second property, this gain can be deferred up to 10 years and 15% of the gain will be excluded from your income. The second gain is the gain on the currently property you are holding. This gain is eligible to be 100% excludable from your income after 10 years. 

There are a lot more requirements for qualified opportunity funds then mentioned already. One of the biggest requirements is that the property you invest in that is inside of a Qualified Opportunity Zone must be of original use. This means that simply buying a rental house will not work. There is 1 way around the original use requirement. You must substantially improve the property purchased. This means if you buy a $150k home in a zone you must put $150k of improvements into the home for your property to qualify. 

I have not looked into the ins and outs of the interplay with 1031 exchanges. My clients have not had that question yet. I know that some is addressed in the regulations, though.