All Forum Posts by: John Woodrich

 Most CPAs partner or refer to 3rd parties for a cost seg study.

 Sent you a direct message for a local guy who can help you.

Your parents can gift you equity or an ownership interest.  They will have to file a gift tax return to report the gift over the annual exclusion and the gift of property.  There are tax basis considerations at play.  As @Tim Swierczek mentioned the loan side will be more difficult than the tax side.  Tim is a local  expert so you can trust what he says in that department.

@Jeff Schemmel

When you buy on CD - the contract should be recorded with the county so although you are not listed as the "owner" on the county site - you have an agreement that you are the owner if you abide by the contract terms.  So although it isn't always public information a CD holder in many instances is treated as the owner of the property.  I have a 5 and 6 unit that I own on CD.

@Robert Dodd Buying on CD doesn't change your ability to claim depreciation.  You can depreciate it.  

Hi Rachel,

I would recommend you start talking to a CPA when you are in contract to purchase your property.  You could reach out to someone beforehand but after you will have more questions to ask them and they can also talk to you about what and how you should start tracking expenses.

In general - the seller won't pay tax until they receive the cash.  So they may defer income but they won't have the cash so that is somewhat expected.  For most people paying tax now or later is somewhat neutral - sure you may be able to avoid 3.8% tax if there is a large gain but the risk of holding a note and losing liquidity is likely a bigger factor.  I wouldn't try to pitch a seller on a CD for tax reasons.  You can't advise them on tax and don't know what they have going on so a suspect is unlikely to believe you anyhow.  Plus - interest rates are losing to inflation right now so locking in on a long-term contract may not be ideal for a seller unless they are in retirement mode and just looking for an annuity. I have 2 properties we bought on CD and both related to retirement income of the seller.

As mentioned - seller will report interest income on the deal likely at the AFR rate.  With that being said - if you structure the purchase at the AFR rate then you would get an interest deduction whereas you otherwise wouldn't...  If you are flipping it wouldn't matter.

Seller has to deal with their own tax consequences.  If they claim 0% they are missing out on income they should be reporting.

Anderson is interesting.  Much of what they say and promote are for legal reasons and they like to pitch ideas that your CPA will not recommend (many c-corps) so it sounds like they are smarter than your current person.  Then they try "setting the hook" for you to join as a tax client.  Their legal structuring and advice is typically good but they say promote tax advice which may be limited in practicality at times.  

On the tax side - the C-corp is a bad idea.  As mentioned double taxation comes into play.  You are correct that you can get rid of it by paying yourself a wage however you are then converting rental income which was not subject to SE taxes to the additional self-employment taxes (15.3%).  And if you don't plan it out right and pay your wage by the end of the year you have other timing issues/problems to deal with as you will be taxed in the C-Corp and the following year you will create a NOL in the c-corp....

I can't advise on the legal side of things but for tax a C-Corp isn't the best approach.  I also don't know much about bankruptcy but if you are dealing in your personal name (not titled in an entity) I don't see how you have any protection...

 I am smelling a load of BS on this one James....  If you did lock in for 13 years - that leads you to significant risk if STRs were shut down and/or is no longer feasible.  But you have an answer for everything.  I suppose you have a unilateral lease where you have found a landlord who will give you the right to operate for 13 years but - you can get out whenever you want...  Hey - a unicorn just flew by my window!

What is more likely in Mpls - where the OP is investing - that they ban LTRs or that they fully restrict STRs? MPLS has been pushing for density and STRs are not helping. That is why they added licensing requirements 2 years ago and now they are only allowing 1 per person. Regulation has been incresing, further restricting STRs. Sure - some cities are making changes but the OP is asking about Mpls and there is no way MPLS is going to get rid of LTRs. Let's look at LTRs in Mpls - the 2040 plan expanded zoning to allow for more rentals so they are encouraging LTRs! So bringing up the idea of the city banning LTRs in Mpls is stupid. And yes - I know the plan is currently on hold due to environmental concerns. Also a HOA/CIC is far more likely to ban STRs than LTRs. Most LTR restrictions on a HOA/CIC are drafted when the association is formed.

@Michael Baum is correct here.  There is inherently more risk in STRs right now as you have outside forces looking to stop you.  The OP would be taking on significant risk getting into an arrangement like this as a short-term investment strategy (1-1.5 years).  The first year profit will hardly cover the startup costs.