All Forum Posts by: Account Closed

If you do get a better offer, and you sell, and you have held the property for less than one year, your profit will be Capital Gains, and it will be short-term Capital Gains, and it will be taxed at whatever your marginal tax rate turns out to be for this year.  And you will not be subject to self-employment tax, assuming you are not in the business of buying and selling real property.

You're just a guy who bought and sold a piece of property within a year.

But if you decide to hold the property until you have held it for a year and a day, and you want to sell it at that time and do a Section 1031 Like Kind Exchange with a Condo as the Replacement Property, you can do that.

"Intent" is totally irrelevant.  It does not matter what was going on in your mind on the day of closing, or even the months afterwards, unless you were publishing your thoughts on your blog.  They certainly aren't of record anywhere else.

What matters is, when you sell, whether you held the property for a year and a day as investment property.  You weren't trying to sell it.  You didn't subdivide it.  You were just holding it.

The only intent requirement is that you must intend to use the Replacement Property, the Condo, as investment real estate, and then you must document this intent by actually doing so for a period of time that should be at least one year, with the income being reported on at least two annual tax returns.  At that point you will have satisfied all of the requirements of your Section 1031.

A Section 1031 requires planning, and understanding the rules.

I hope this helps.

Good Luck.

Michael Lantrip

Flip it?

When you ask questions you will get more valuable answers if you include some information about dates, prices, time periods, etc.

Yes, raw land can be used as the Relinquished Property in a Section 1031 Like Kind Exchange, and a condo can qualify as the Replacement Property.

But you haven't included enough information to determine if your particular situation will qualify.

David:

This is not an option.

The legal entity is not you.  It is totally separate.  You wouldn't have General Electric using your personal bank account.

Start thinking this way right now.  Your legal entity is the same as your cousin.  It is not you.

Everything is separate.  You don't get to decide.  Keep it separate.

It will offer you great protection against personal liability, and great tax advantages, but you have to do it right.

Good Luck.

Michael Lantrip

Jessie Huffey:

I wish you could do what you plan, but I'm afraid that you cannot.

In order to qualify for the Section 121 exclusion on the sale of the property, you must own the property, and you must live in the property as your primary residence for at least two of the prior five years.

Owning the Limited Liability Company that owns the property does not qualify.

You are not the owner, you are a tenant.  A separate legal entity is the owner.

Being a single-member LLC that has chosen to be taxed as a disregarded entity does not change the fact that the LLC owns the property, and Section 121 is only available to individuals who own and live in their primary residence.

Of course, I could be wrong.  If you find some language from the IRS that says otherwise, I would appreciate seeing it.  We are always learning.

Good Luck.

Michael Lantrip

It probably varies from one Taxing District to the next, but usually the "Proposed Assessment" comes out in May or June, and there is a period of time for the property owner to protest the proposed amount.  Then the bills for 2017 are sent out in October.  There might be a discount allowed if paid in November or December, depending on the local rules

The bills are payable in full in January, 2018.

Beginning in February, there is a penalty added for each month not paid.

It has been a while since I live in Austin, so I don't remember the rules there.  They have probably changed anyway.

Michael Lantrip

Attorneys and Accountants are now operating different "business models" than in the recent past.

Traditionally, they would have a regular client who was the source of a regular stream of income, usually yearly, for tax returns, Will updates, business formation, etc.  They would take phone calls from that client and answer questions over the phone, and usually not send out a bill.  A professional relationship existed.  It was good for both parties.

If a professional relationship similar to this did not exist, they were not likely to answer questions over the phone, and maybe not even take the call, due to the liability concern.  You won't see it talked about, but the biggest danger to a professional service provider is from their own clients, or people who claim that they thought they were a client.

Since you are just starting out, you will likely fall into this second category.

Therefore, you will not be able to "create a team."  You will be able to identify professionals that you will go to when you have a deal.  But that's all.

You might consider creating a professional relationship at this point by using a retainer agreement, if you can find an attorney or accountant who is interested.

Say, you pay $1,000 for a yearly retainer.  For this you will receive the right to make 20 phone calls with questions or situations that can be covered in less than 15 minutes and do not require separate research or creating written documents, just information and insight.

This is ideal for you because it provides you with a professional sitting alongside you when you are working on deals.  

And it is ideal for the attorney or accountant because it provides not only easy income, and good brand-building, but it also keeps them in touch with what the real players in the market are doing every day.

Just a thought.

But this vague idea that a new real estate investor should "assemble a team" before starting to invest is ridiculous.

It sounds good, but how does it work?  You have qualified professionals whose services cost a couple hundred dollars an hour who agree to help you learn real estate investing, without being paid?  What am I missing?

I hope this helps.

Good Luck. 

Michael Lantrip

In Texas, the only property taxes paid at closing are delinquent taxes.

Current year taxes are not due until the end of the year, but they are on the books for the owner as of January 1.

The current year tax bills do not come out until October.  They might be the same as the previous year amount, they might not.

So, at closing, current year taxes are prorated, using last year's numbers.

That means that if the property taxes for last year were $4,000 and the closing takes place on June 30, one-half of the anticipated tax liability is taken from the Seller's account and credited to the Buyer's account.

Then, at the end of the year, when the taxes are paid, the new owner pays them, using the $2,000 credit that he received at closing to cover the one-half year that he did not own the property.

Different taxing districts might do things a little different, but this is the general scheme.

I hope this helps.

Good Luck.

Michael Lantrip

When you say it is going to the county in one year, I assume that you know enough about Minnesota law to feel confident that the county will be receiving clear title, which you can then purchase.

But here is what I suspect will happen.

The taxing authority (county?) files suit for unpaid taxes and receives a judgment which is abstracted (filed) and creates a lien on the property.  They then are authorized under law to sell the property, or have another authority sell it, and apply the sales proceeds to the amount of the judgment.

You can purchase the property at the public sale.

But what if the other 19 people were not notified of the lawsuit, or the sale?

In some states, they have 4 years after they learn that they have a cause of action to object to the sale.  I have never seen a Court deny the request if they were not served with notice.

If you buy the interest from the one individual, what do you have?

It's unlikely, but assume there are 20 heirs with equal interest.  You're buying 5% interest.  You will not be able to acquire any more of the interest without  filing a suit for Title By Adverse Possession, or the state equivalent in Minnesota.  You're probably still looking at a period of 5, 10, 15, 20 or 25 years before you actually have marketable title.

But the bid problem is that you have to convince the Court that these other 19 people cannot be found.  That's almost impossible to do today.  And Courts are very reluctant to divest anyone of property rights without that person being notified of the proceedings or being in court.  It's just tough to do.

Again, Minnesota is not one of the state where I am licensed.  I could be totally wrong about this.

Good Luck.

A bit of advice.

You should not be doing your own real estate contracts, especially in Virginia.

Find help and pay for it.

It'll be a bargain.

Sadly, it won't work.

You can pursue it for the experience.  It will be interesting, and you will learn a lot.

But I've done this for over 30 years and I know others who also have.

Bottom line, with "about 20 relatives who could have a claim on title," as long as one of them is paying the property taxes, you will never get this property.

There is only one thing for certain in situations like this: you should ignore everything you are being told by anyone claiming to own an interest in the property.