All Forum Posts by: Kevin Macdonald

Bill,
I guess I should of seeked professional advice before buying the property because I did not separate the cost of land and cost of structures of the property in the real estate contract. The current state tax records only have the improvemnents listed as 16k dollars (which is way undervalued).

I plan on completing the strucure prior to renting (I have no choice the county wont give me occupancy permit until all work is done).

Bill are you saying if the land is worth 300k and a completed comparable house would cost 200k to build (500k total) then 60% of my purchase price should go towards land and 40% of my purchase price should go toward the unfinished house. So my 27.5 year deduction would be 40% of my purchase price (200k * 40%= 80k), plus what ever my rehab costs will be (about a 100k). Again I plan on seeking professional advice I just wanted some opinions.

Pat I need to think about your plan and let the idea sink in still tryting to figure all this stuff out.

Thanks for the advice.

I am reading a book “every landlords tax deduction guide”, which was recommended to me from this site. I understand that the 27.5 year depreciation is only for the house and not the land value.
I bought a piece of property where the house was constructed but never finished. I am in the process of finishing the property and use it as a rental. These are not my numbers but I will use as an example:
Land tax appraised value from state records 300k not including any structures on land.

Purchase price of land and half constructed home 200k.

Rehab cost to complete project and get it ready for rental 100k.
How would I break up my original 200k purchase into what part is considered towards land and what is considered part of the existing house which was not completed? Do I have to consider the whole 200k towards the land since the land is valued at 300k?

Even though I paid less for land can I still deduct my rehab costs (100k)?

thanks

Steve/Chris,
Thank you so much for your post it is very helpful, I do plan to find proffesional help on this.

Steve a couple questions, excuse my ignorance but what is "EA" is is estate accountant?

you mentioned investment interest goes on form 4952 until it is rented. What form would be used once it is rented? My plan is once it is rented is to get a 30 year mortgage so next years interest will be partially on my HELOC, then the rest will be on the 30 year mortgege when I get it.

last question are you saying I cant write off the closing cost at all?

Thanks
Kevin

Newbee, who needs tax advice. I am building a new house (old house which was never finished) with the intention to rent it out for years. I am funding the project with private money until it is complete. When done will get a standard 30 year mortgage with a cash out to pay back what I have put into the project.
From what I think I understand is the costs to build the house I need to deduct over 27.5 years or something like that. So the costs I have spent so far towards building the house are (blueprints, permit fees, septic/well costs, labor/materials). Can I deduct any of these cost when I do my taxes in a month for 2013 or do I have to wait until the house is done and rented? I bought this house 12/28/2012 so I have had the house for almost a year and I have at least 4 months left before it will be completed/rented.

Second question, how about costs I have spent that don't really have anything to do with building the house (interest paid on private money used to fund project (HELOC on personal home), community just had roads redone so each home owner had to pay $2,000, property taxes (I paid all of 2013 taxes, and had to pay half of 2014 taxes already). Can I deduct these costs on my 2013 taxes?

Third question, When I did my 2012 tax returns I did not consider any of the closing costs I paid when I purchased the property (title search fees, transfer fees, real estate broker fees, etc…). Can I somehow write these off on my 2013 taxes or is it too late?

Final question, I have always done my own taxes because they were pretty simple using turbo tax, but I also never had an investment property. Since I just have this one property going on should I seek a professional CPA, or can this be done simply? If I should get a CPA should I look for one that specializes in real estate?

Thanks

Bill,

I have had the property for more then a year is that considered a fix/flip?

Thanks

Kevin

I am almost finished rehabbing a property. The property is a very nice house I will have tons of equity but due to high tax area I really won’t be making anything on rent. The rental income will basically pay for upkeep/mortgage payment and taxes. All I will be doing is gaining equity at this point on the property.

I am thinking of possibly selling the property and buying multiple lower end rentals where I could actually be making profits each month on rent. My problem is I plan on only buying the rentals I find at auctions, deals and not right off the MLS that I would do minor rehabbing then rent out. If I read the rules right on a 1031 exchange I need to have the money re invested in 45 days from sale of property number one is this correct? I would have had the property for well over a year at this point.

I was thinking as a strategy what if I got a HELOC on the number one property, keep using the HELOC to buy multiple lower end rentals (20% down on each one), then sell the number one property and do a 1031 exchange with the remaining profit from the sale.

If I just sell the number one property then I have to pay taxes on the profit right? I am just thinking of other options. If I use all the equity by buying multiple other properties then sell how do the taxes work on something like this do I have to somehow show that I used the equity and still pay taxes on that as money made?
I know i need to talk with an accountant, and by no means do I want to do anything illegal but just wanted some opions first.

I am new to this and just thinking of all my options.

Thanks for the replys. I dont knbow how long they need for seasoning but by the time the house will have a tenant in it I would of had the house for just a little over a year. Its taken me 9 months dealing with the county/health department/etc with the permits (this is part of the reason I got a good deal). I had to re-perc the lot which had to be done during wet season, etc... That is all done I have all permits in hand, new septic installed, new well, and everything is going smoothly now.

Thanks for the advice, I will a tenant moved in first then start seeking a loan, and I would like to lock in a 30 year low rate since I plan on having the house for a while.

Thanks for the advice I will update when done. And my plan is to keep doing this.

I purchased a investment property which was never completed. Because of this I had to use equity from my primary residence to fund the original purchase plus cost of finishing the project because no bank would give me a loan due to an un completed house.

The project should be completed in about 3 months, and my original plan is to do a cash out 30 year loan to pay back my equity loan and put the property in a LLC. The amaunt on the loan will be about half of what the property will be real estate appraised for (I have done 80% of the work myself, sweat equity, etc...). I would like to use some of this equity to purchase other properties how can I do this? The one bank said they will loan me what I have into the property (if i show reciepts) but nothing else. Can I get an equity line of credit on this loan in a LLC?

If I flipped the house I could get all the money but the property borders my property and I was planning on keeping it for at least 15/20 years and just renting it out.

Thanks

Thanks for the hints. Yes, I am in a unique situation.

Bill, are you saying because the house was never lived in I cant deduct any yearly expenses (annual property taxes, road fees, home owners insurance)? Or were you just refering to the 15 year land improvement depreciation?

The well/septic/drain feilds were installed 25 years ago but the house never got an occupancy permit and was never finished. The county made me replace the well/septic/drain fields to bring them up to todays codes. The previous owner had a small cabin on the property and would stay in it on weekends (he actually had an out house tied to the original septic system (yes I am not kidding :))and it was used and the well was also used for 25 years.

Thanks for the advice

Newbee investor, I purchased my first investment property the first week of January this year. The property was a house which was never completed. I should have the house completed in approximately 4 months. My plan is to have this house for many years (probably 20).

I understand that money I put in the house (materials, labor, etc...) are deducted by depreciation over time, but I was curious how about items that pertain to fees for permits, septic/well work done, yearly insurance/taxes, etc....

This year this is what I have put into this property and I have had zero rental income because the property is not rented yet:

fees that are not improvements to house

1. 12k in loan fees on the mortgage
2. $3200 in property taxes
3. $2000 community road fee (they happen to redo the roads the year I buy this house).
4. Approximately $2k dollars in fees to get permits
5. $1600 insurance on property/structure

Fees to land not house
1. new septic, drain field, well $22k

fees to improve property by the end of this year will total approximately between 30 to 40k dollars.

Just want some ideas of tax stratagies, is it best to get a real estate CPA or could I use tax software to figure out what can and cant be written off.

Any help will be appreciated