All Forum Posts by: Eric Williams

 I think it may be lower, if one is willing to entertain an alternative viewpoint:

(a) Requirement of reporting—(1) In general. Except as provided in paragraph (c) of this section, an information return shall be made by a payor, as defined in paragraph (a)(2) of this section, of amounts of interest and original issue discount paid after December 31, 1982.



(b) Information to be reported
An information return is generally not required if the amount of interest paid to a person aggregates less than $10 or if the payment is made to a person who is an exempt recipient described in paragraph (c)(1)(ii)(A) through Q

I looked through A to Q and didn't see an exception.

Also what is the loan for? Seller financing may require reporting of additional information on Schedule B: 

"Seller-financed mortgages. If you sold your home or other property and
the buyer used the property as a personal residence, list first any interest the buyer
paid you on a mortgage or other form of seller financing. Be sure to show the
buyer’s name, address, and SSN. You must also let the buyer know your SSN.
If you don't show the buyer’s name, address, and SSN, or let the buyer know
your SSN, you may have to pay a $50 penalty. If you or the buyer do not have
an SSN, use the appropriate TIN for the filer or recipient of Form 1098. For
more information"

If this is the case a 1099-INT may need to be replaced with a 1098-MIS, even if not in the lending business.

Not in the lending business.

If you receive mortgage interest of $600 or more in the course of your trade or business, you are subject to the requirement to file Form 1098, even if you are not in the business of lending money. For example, if you are a real estate developer and you provide financing to an individual to buy a home in your subdivision, and that home is security for the financing, you are subject to this reporting requirement. However, if you are a physician not engaged in any other business and you lend money to an individual to buy your home, you are not subject to this reporting requirement because you did not receive the interest in the course of your trade or business as a physician.

You want to consider looking up the factors of a bona fide debt to provide for future write-offs, avoiding a reclass as gift, etc.

Google blank loan agreement.

It wouldn't pass along anything as a C Corporation. It's not a flow-through. On top of that when you dispose of property at the Corporate level, it gets taxed there, and then again when you distribute the amounts in the form of dividends.

I do not recommend this and that is putting it politely.

You also have to consider additional costs of filing and preparing additional forms now that you have an 1120 and 1040, as well as state tax filings (potentially).

I'm not trying to split hairs but an LLC is not a passthrough entity. It's a separate legal entity at the state level, and as such it can elect to be taxed as a partnership or S Corporation, which pass through their items to the owners (pass-throughs), but it can also be a C Corporation which is not a pass-through but a two-tier regime. It could also be disregarded and basically not exist and its amounts get reported on your 1040 (vs a K-1 separately).

They are unrelated to your standard vs itemized and honestly where they get reported can vary, K-1's to Sch E to Sch 1, Sch C to Sch 1, Sch E to Sch 1, Sch E unreimbursed partnership expenses, or maybe not at all because they belong solely to a C Corporation, or maybe they are suspended due to basis limitation or passive limitations.

First off you need to understand that tax laws and other authorities shape whether there is a business. It's possible what one person calls a business loss, the IRS calls a hobby loss and disallows any benefit.

I sent you a message earlier.

Anyways a lot of people use the term trade or business for tax law purposes much looser than the IRS would grant you.

 If you're looking for legit tax strategies look up Taxes and Business Strategy by Myron Scholes.

He was a Nobel Prize economist and he really emphasized the various components to manipulate, a focus on the contractual arrangement, and various example calculations to show impacts on cash flow, and the source of all tax planning (a lack of neutrality in the tax system).

Best tax book I ever read. Opened my eyes to the fallacy of tax planning as lowering your tax liability, which he argues everyone should just quit their job if that was the case. 

A lot of tax planning books in my opinion are trash and really just summarize vs provide alternative transaction structures.

Also Principles of Taxation for Business and Investment Planning is really good as well as by Sally Jones.

Check out eBay you can get good deals there, also Amazon Prime has good free reads if you search.

To be honest most books people recommend are good starting points but after awhile you continue studying and really question whether any of those tax strategies books offer anything of value.

Obviously you can depreciate the building, but what about start-up and organizational fees, how do I get to 179 property eligible, when is it proper to group under 469, what is the safe harbor for 199A, how can I transfer use but delay taxation, gifting a property year by year to avoid a sale, etc. Few mention this stuff.

There are nuances to related party transactions that were you to provide more information we might be able to add more useful information.

For example is the interest rate comparable to market rates of similar debt, or do adjustments for below market rates need to be provided for?

Is it related to seller-financing that might require more information provided on Schedule B?

If you want the deduction for interest expense, is there support for bona fide debt vs possibility for reclass as a gift between family member?

Hit me up if you have any questions.

No copy will be sent to the payor by default. You might be able to request the amount shown on your cleaners 1099-K.

In fact the payor has a different obligation in the form of the 1099-NEC.

Okay I hear ya.

There is an ABV that is accredited by the AICPA.

I have also met CPAs who were accredited with the CVA, and one of them I talked to about how he had to do valuation adjustments for estate purposes. Similar to your situation, sometimes valuations will make reductions for certain interest, such as for effective control, minority interests, lack of marketability, restrictions, etc. This has a similar benefit in that a reduced valuation may reduce estate taxes.

Anyways sorry if that wasn't any help but if I think of anything I'll try to double back.

I also wanted to add, although you probably were already aware, if the interest has multiple units, perhaps spreading the transfer out over several years could help.

Also don't forget about harvesting losses from other sources like brokerage accounts (make sure to avoid wash sale rules) or even carryforward amounts.

 I got pretty much the same answer from Chat GPT.

Each of these retirement accounts has its unique features and is subject to different rules and regulations:

1. IRA (Individual Retirement Account): A traditional IRA is an account that allows individuals to save for retirement with tax-deferred growth. Contributions may be tax-deductible, and you typically have a wide range of investment options. However, there are annual contribution limits and penalties for early withdrawals before age 59½.
2. SDIRA (Self-Directed Individual Retirement Account): An SDIRA is a variation of the traditional IRA that allows you to invest in a broader range of assets, including real estate, private placements, and more. It offers more investment control but comes with added responsibilities and potential risks.
3. 401(k): A 401(k) is an employer-sponsored retirement plan. Traditional 401(k)s allow employees to contribute a portion of their salary on a pre-tax basis, and employers may match contributions. There are annual contribution limits, and early withdrawals often come with penalties.
4. Solo 401(k): Also known as an Individual 401(k), it's designed for self-employed individuals or business owners with no employees (except possibly a spouse). It combines features of a traditional 401(k) and a profit-sharing plan, allowing for higher contribution limits, making it an attractive choice for high-income self-employed individuals.

For a high-income, self-employed widget manufacturer looking to buy single-family rentals, a Solo 401(k) might be a good option. It offers the potential for substantial contributions, which can help save for retirement while providing a source of funds for real estate investments. However, the choice ultimately depends on individual circumstances and financial goals, so it's advisable to consult with a financial advisor to determine the best retirement account for your specific situation. Keep in mind that rules and regulations surrounding these accounts can change, so staying informed is important.

Quote from @Greg Moran:

Quote from @Account Closed:

When you're dealing with a private money lending deal that has gone into default and you intend to write off the losses on your taxes, it's important to maintain proper documentation and follow IRS guidelines. To prove a loan modification as a loss for tax purposes, you should consider the following steps:

1. Loan Modification Agreement: Document the loan modification in a formal written agreement. This agreement should outline the changes being made to the loan terms, such as a reduction in the principal balance, interest rate, or extension of the loan term. It should be signed and dated by both parties (you as the lender and the borrower).
2. Reason for Modification: In the documentation, explain the reason for the loan modification. If the borrower is facing financial hardship or other circumstances that have led to the default, include this information.
3. Loan Value: Clearly state the original loan amount, the new modified loan amount, and the difference between the two. This will help demonstrate the amount of the loss you are writing off.
4. Interest Rate Changes: If you're modifying the interest rate, specify the original rate and the new rate.
5. Loan Term Changes: If the loan term is extended, provide the details of the extension.
6. Acknowledgment of Default: Include a section where the borrower acknowledges the default and the past-due amounts.
7. Professional Advice: It's a good practice to seek legal or financial advice when structuring the loan modification to ensure it complies with any applicable laws and regulations.
8. Keep Records: Retain copies of all correspondence, emails, and documents related to the loan modification.
9. IRS Reporting: Report the loss on your tax return. For personal loans, the specific form you use will depend on your overall tax situation. You might need to use Schedule D or Form 8949 to report capital losses.
10. Consult a Tax Professional: Consult a tax professional or accountant to ensure that you are properly reporting the loan modification as a loss in accordance with IRS guidelines.

Remember that tax laws and regulations can be complex and subject to change, so it's crucial to consult with a tax professional who is knowledgeable about your specific financial situation and the most current tax rules. They can provide guidance on properly reporting the loss and maximizing the tax benefits associated with it.

I recognized the format of an AI-generated response. Yours is more detailed that this simple Chat-GPT answer though... Thank you!

This is almost like the "Let me Google that for you" service! The equivalent of www.lmgtfy.com but with AI.  B-) I Like it. 

To substantiate a loan modification as a legitimate loss for tax purposes, you should maintain thorough documentation of the modification process. This documentation may include:

1. Loan Modification Agreement: Draft a formal written agreement that outlines the terms of the loan modification, such as changes to interest rates, payment schedules, or principal amounts. This should be signed by both you (the lender) and the borrower.
2. Financial Records: Keep records of the borrower's financial hardship that justifies the need for the loan modification. This could include income statements, bank statements, or any other relevant financial documents.
3. Communication Records: Maintain a record of all correspondence with the borrower regarding the loan modification, including emails, letters, or notes from phone calls.
4. Independent Valuation: If there's a reduction in the principal balance, it might be necessary to obtain an independent appraisal or valuation to determine the fair market value of the loan after modification.
5. Professional Advice: Consult with a tax professional or accountant to ensure that the loan modification complies with tax regulations and to document their advice.
6. Internal Records: Keep internal records that show the accounting treatment of the modification, including any write-offs.

Documentation is crucial to substantiate any losses for tax purposes, so it's advisable to work with a tax professional or accountant to ensure compliance with tax regulations and to maintain accurate and complete records.

Yeah the only people I can think of are called CVAs. They often do estate valuations and adjustments for deemed control and lack of marketability.