All Forum Posts by: Account Closed

You have to believe that your Accountant is doing what should be done with the situation you presented.

But you might consider changing the way you do things.

I'm not saying I have done this, but I know people who have.

If I have a 500-foot fence that could stand to be replaced, at $10/ft that's $5,000 and I have to depreciate it and recover the benefit of my cash outlay over a number of years.

But if I "repaired" a hundred foot of it each tax year, I have a $1,000 deductible repair.  I could even do 250 foot in December and the rest in January.

Repairs and capital improvements look a lot alike.

Something to think about.

You have two questions.

First - Can new carpet be written off as a repair instead of being treated as a capital asset and depreciated?

The answer: Yes, it can.  The IRS is not picky about these things.

Second - Are there any negatives to depreciating the asset instead of expensing it?

The answer: Yes, there is one.  When you sell the property you will be faced with paying tax on your Capital Gains, unless you decide to engage in a Section 1031 Exchange.  And part of your capital gains will be the depreciation you have claimed over the years.  You will be taxed at 25% on this Depreciation Recapture.

I hope this helps.

Michael Lantrip

Congratulations, looks like a good deal.

You do not qualify for a Section 1031 Exchange because the property is not "held for productive use in a trade or business or for investment."

Your profit will be treated as Capital Gains.

But it will be Short Term Capital Gains instead of Long Term Capital Gains because you owned the property for less than one year and a day.

You will report the transaction on Schedule D, Capital Gains and Losses, and not on Schedule C, Business Income, because buying and selling one house does not make you a dealer.

That means that you will not be subject to Self Employment taxes.

The tax rate that you will pay on Short Term Capital Gains will be the same as your ordinary income tax rate.

I hope this helps.

Good Luck.

Michael Lantrip

Do you have a separate written agreement regarding the security deposit, or is that agreement part of the rental agreement?  The separate agreement, or the paragraph in the rental agreement regarding the security deposit must specify exactly what can be withheld from it before it is refunded.

Also, if you have a separate security deposit agreement, it is still in effect even though the rental agreement has ended and she is converted to a month-to-month tenant, and you can continue to charge the late fee.

But if your rental agreement has ended, there is a question about whether the month-to-month terms are the same as the rental agreement terms, including the late fee.

I hope this helps.

I think we're missing the point of having an LLC.

If created correctly, and used in the proper circumstances, the LLC will AVOID the lawsuit altogether.

If the ultimate judgement cannot be collected due to low or no assets, the lawyer will not file the suit.

That's the objective.

With an insurance policy, not only is there no deterrent to filing the suit, there is actually an incentive.

An insurance policy says, "Hey, here's a million dollars you can take a shot at.  In fact, if you become enough of a nuisance or expense for me, I'll probably just give you $25,000 to $50,000 just to drop the suit, even though you had no grounds for filing it in the first place."

When an insurance company gets a claim the first thing they do is determine the cost of defending the suit.  (Well, second, actually.  The first thing they do is deny the claim).

The first thing a lawyer checks on when deciding whether to file a suit is whether there is insurance coverage, even before he researches whether the alleged event is actionable.

That doesn't make him a bad guy.  It's just the nature of business.

The question is "Can you do your own taxes?"

If you know how, then you should.

If you do not know how, then you should not.

If you decide to "not," don't go to a CPA.  They should be used for much more complicated things than this.

Frankly, you can find a good Bookkeeper to do the Profit and Loss Statement for you, and after that it is just a matter of knowing where to put the numbers.

Unless you have a very unusual situation, you can probable learn how to do this from the Instructions.

But don't rely on software to put everything where it will benefit you the most.  The software was written by programmers, not tax experts.

Good Luck.

Michael Lantrip

Krystal:

I don't want to add to your concerns, but we all have to face this issue sooner or later.

Your Mom might have to go into assisted living at some point, and the government programs that provide payments for that $5,000/month expense will require that she not have any marketable assets over a certain amount in order to qualify.

What I'm saying is: you need to get that house out of her name and into yours.

And once you do, there is still a waiting period of a number of years before she can qualify.  You can't wait and do it at the last minute.

Sorry, but you need to think about this.

The real estate will be owned 1/2 by your LLC and 1/2 by the other party. The JV Agreement contains the terms of that co-ownership. If you want it to say that when the project is completed, it will be rented, then it will be refinanced for enough to return the initial contribution of each venturer, and thereafter it will operated as an income property with the net income divided, then you put that in the Agreement.

Then each of you would use the returned funds to enter into another deal. But if that other deal is not mentioned in this JV Agreement, it would not be covered by the terms. You need a new JV Agreement with new terms. I just like JV Agreements because they don't involve any state agencies, reporting requirements, etc.

But if you are able to determine at this time that you are comfortable in a longterm relationship with this person, it might be better to have him also form his own LLC, and then have the two LLCs enter into a Partnership Agreement instead of a Joint Venture Agreement.

A JV Agreement is useful when you want to limit everything to just one project and then it is ended.

A Partnership Agreement is more useful for permanent or semi-permanent relationships.

You said you wanted to do the deal without forming any more entities, but not give anyone an interest in your LLC, and so I suggested the JV.

Gift Tax does not enter into the consideration.

Here's what you could do.

Mom sells the house to you using what is called a WrapAround.  That means that her financing stays in place.

The price is $120,000.  

Your note payment to her is $1,200 per month.

She uses $600 to make her loan payments, and pays you the other $600 as rent for 1/2 of the house.

This $600 is rental income to you, but you can deduct $180 as depreciation for 1/2 the house, and deduct 1/2 of the utilities, taxes and insurance.

Work out the details with real numbers and then go see a Real Estate Attorney to draw up the documents, Warranty Deed With Vendor's Lien, Deed of Trust, Real Estate Lien Note, and Rental Agreement.

Your only out-of-pocket expenses will be the legal fees and document recording fees.

Your monthly costs should be about $900.

I hope this helps.

Good Luck.

Say Hello to Mom.

Absolutely, provided that the four homes qualify, and you have the required intent to use the new property as investment property.

It might be a bit tricky as far as timing goes.  It would be a good idea to secure the purchase before you start doing the sales.  And it would be even better if you could sell the 4 to the same buyer, to reduce cost and uncertainty.

But, in effect, your Replacement Property for each of the 4 Relinquished Properties would be a  1/4 interest in the new property.

Hope this helps.

Michael Lantrip