All Forum Posts by: John Woodrich

@James Hamling I agree with you that people shouldn't worry about making too much money.  I also agree that investors should spend their time focussed on making money and not spend a lot of time on tax.  However, there are some areas which act more like tax traps which can catch people when they aren't paying attention and selling on a CD is one of these areas.

My whole disagreement was based on how they are trying to make money by structuring a CD as rent.  This could lead to a large tax liability and no cash to pay it.  Reverse tax planning for most people.  I am just cautioning others that this could be a VERY BAD idea from a tax perspective. But circumstances and tax attributes are very different for everyone - maybe someone has a large NOL they want to burn up or maybe they need to report income to get a loan.  In general most people will not want to accelerate income especially if they may not receive the cash to pay the tax.

I like your creative ideas.  As regulations continually change it can feel like we get boxed into certain decisions but it is good to think outside of the box.  I disagree with your CD idea as a workaround for many investors but do agree that there may be workarounds for some of this as we learn more.  STP seems willing to make changes for new development so it is clear that they rushed this a bit.  If Mpls jumps on board they will hopefully learn from STP.

I like your creativity - 

You make me laugh every time I read your post on this thread :)  Thanks for bringing joy to my evening.

"The only way around paying taxes is to not have income" - Misleading.  Income is not the same as cash flow.  Many people have cash flow that they can live off of and they don't necessarily pay tax on it.  As a realtor with a high powered attorney I suspect you are aware of depreciation and cost segregation but maybe you need to spend another 1 minute and 392 seconds with him next time to discuss these.  May also want to talk to him about your phantom income related to depreciation recapture on your CDs but hey - you were able to get the extra $111.52 in rent to get back to market price.  Just may take a while to pay back the tax liability but he can set you up with an installment agreement so you don't have to pay the tax now.  You can borrow it.

You seem to have everything figured out here and YOUR CAPS, bold, and name calling good job emphasizing your professionalism in this industry.  I learned a while back that it doesn't make sense to argue with someone when they are drinking.  

Drink some water before bed and have a goodnight!!

Commented on your FB post.  In addition - try to find land that will allow for your expected use and talk to the city.  I would be surprised if you found that amount of land in either of those cities.  May have better luck on the WI side of the lake.

@Ben S. I just replied to your FB message.

You like paying tax? Well your example works perfectly then. You will owe tax on depreciation recapture and you can pay that money out of your own pocket because you will not receive the cash to make the payment. Brilliant!!!! Then you can use your hybrid sale/rental/CD agreement to charge FMV rents, because we all know a tenant will not pay more. You can let us know how good your ROI is on the extra tax payment then.

If you haven't noticed - I work in tax.

I respect your creativity but have to disagree when you are promoting ideas on here that will negatively affect other investors.

You won't find a good answer on this as there are too many outside variables at play.  Just because your current house will cash flow doesn't mean it is a good investment.  You may be better off putting your money into another house and you won't have to move.  

If you have lived there for 15 years the cash flow is largely based on equity and to me it sounds like the realtor is looking to make a sale.  I would try to connect with an investor in your area and they can help you come to a decision on whether it is a good long-term rental.

You made my night - we must live in different worlds. In the meantime we will continue operating our business matters without trying to con tenants and creating unintended taxable event.

It is nice to think about hypothetical solutions to work around an issue but when someone gives you a legitimate roadblock (having to pay tax on depreciation recapture) I would recommend trying to pivot to a new idea instead of ignoring that your idea holds no practical usefulness.  

I just hope you aren't advising your clients on these matters and signing the same stories as their leasing rep.

It is good to be creative but it is a bad idea to offer "solutions" which are not practical or may lead to unintended consequences.  Both of your ideas presume that the landlord has all control in a leasing relationship and that a tenant is in such a need - they will bend over backwards to make this deal work out (for the landlord).  Nobody in the right mind would sign a lease way over market value or take on the burdens of ownership (under a CD) to pay market value rent...  NOOOOOOBBBBBBBBOOOOOOOOODDDDDDDDDDYYYYYYYYYY!!!!!!  They have no reason to do any of this if they are simply paying what they would be paying to rent the house next door.

Also talk to your tax person about the unintended consequences of "selling on CD" to disguise a rent payment and ask how much tax you will owe on depreciation recapture.  And no - there isn't a refund once they leave, you just decided to prepay your taxes while you move on to the next "buyer".

Wait a minute @Michael Plaks - My syndicator said I would be able to save taxes by investing in their deal.  Are they wrong????

In practice I have found that most syndicators don't know the tax side of how this work, especially for LP members, and they mis-represent this information.  There are scenarios where this can save tax for someone with other passive income or under certain fact sets but for most people they should not be investing into a syndication for tax savings purposes.

Welcome to BiggerPockets.

First thing first - you are requesting a "solid answer" to a legal question.  Only way to get that is to pay an attorney for advice.  Coming here for legal answers you plan to rely on could get you in trouble.

If the tenant had already given notice to vacate and you were told after the fact that the tenant may be putting in their notice it sounds like misrepresentation/fraud/deceit but it could be a miscommunication between the agent and the owner.  The conversation between the agent and the owner could have happened before notice was given.

From your post it sounds like the damage deposit is enough to cover the repairs.  If that is the case most of us wouldn't call the unit "destroyed", that is just part of doing business sometimes.  If I were in your shoes I would probably schedule a walkthrough after the tenant leaves and before you close to see what you will have to deal with.  If it is the normal stuff I would let it be and plan for the needed repairs to get it occupied.  You can try to negotiate for part of the deposit but fighting over $1,000 isn't going to make or break this deal for you.