All Forum Posts by: Nathaniel Busch

Without listening to the podcast and giving Mr. Cardone the benefit of the doubt that there's more context to this than what you've listened, I would consider much of this "advice" to be fraudulent.

Hopefully he's not actually preaching the practice of claiming exemptions for nonexistent dependents or claiming office deductions for nonexistent offices. I'm sure for his sake (and the sake of his listeners), there's more context to this than just this information.

If there isn't additional context, I suppose I could credit his advice for one thing ---> it's a good way to earn yourself free housing, three square meals a day, and one hour of exercise at a free gym. And a nicely dressed man in a black robe will tell you where you'll be staying!

@Anthony Wright, curious - what year was the building built in? 

@Massimo Salerno

There are several elections that can be made in your first year of filing Form 1040NR with the IRS. Many of which can lock you into more favorable tax brackets, as a nonresident alien. 

When you sell a property, many folks also don't realize that nonresident aliens are often prodded by title companies to withhold a flat tax on the GROSS sales price of the property. This can be especially burdensome for nonresidents, as with the proper initial elections when you buy, your tax should be minimized towards normal capital gains rates on your net (not your gross). 

Bottom line - lots of important steps should be taken by nonresident aliens that are looking to invest in the United States. Many of which need taken in the very first year of investing, and several more along the way. Happy to help if you have any questions. 

Nathaniel Busch, CPA 

@Robert M.

Every CPA firm has their own approach to fees and billing structures. Some firms bill for every bit of time used to service their clients, and some don't. 

Personally, I don't see the necessity in billing clients for every small matter such as responding to the IRS. I've learned by now that having templates on file for boiler plate responses by the IRS (such as a CP 2000) are the best way to handle this sort of issue. Countering a boiler plate notice from the IRS with a boiler plate response from the firm accomplishes two things:

1.) Makes compliance with the IRS more streamlined and instantaneous and,

2.) Allows us to provide courtesy services to our clients without the fear of getting nickle and dime'd for every task we accomplish for them. 

In your case, I don't see the necessity in billing if the task takes less than 15 minutes. With CP 2000's, often a boiler plate response allows the CPA to accomplish the task in less than 15 minutes and as such, would allow them to not bill you.

That's my approach, at least.

Nathaniel Busch, CPA

@Bryan Hancock, @Brian Hayes, thank you for the kind words!

@Mikael Winkler

I'm a CPA in Gahanna, OH that has a specialization in the real estate field. I offer free consultations and can do a thorough review of your situation off of the clock. I think you'll find my rates are very reasonable and our approach is very practical and rooted in an easy to understand, cost/benefit approach. As a result of your initial consult, you'll have an idea of our cost structure as well as a plan specifically tailored to your needs and goals in real estate.

Nathaniel Busch, CPA

@Steven Hamilton II - thank you, sir!

@K. Marie, 

The case law isn't stating that in order to create basis, you must have an obligation to the original lender on the property. You're not required to have the seller assign the mortgage to you to create basis. 

However, in your situation it doesn't matter if you end up selling the property anyways in the same year you acquire it. 

But, if you were to hold on to the property as a rental, then this question gains much greater importance. There are other ways to create obligations on the debt, that makes it result in basis. 

Nathaniel D. Busch, CPA

@K. Marie, 

This is a fascinating scenario you put forward. 

Here is my take on it...

Your basis is initially $250,000. 

Four months later, you incur $170,000 of cancellation of debt income as the amount you are required to pay instantly drops by that amount, to $80,000.

When you sell the property for $165,000 you would have a loss of $85,000. 

The cancellation of debt rules require that you report the income in a matter consistent with the nature of the underlying transaction. So, the COD income would also be reported on Schedule C in addition to the loss of $85,000.

The result is a net Schedule C gain of $85,000.

Interestingly, this is the same exact result had you just ran with basis of $80,000 (the updated debt amount four months following the subject 2). 

I know this seems like additional steps, but it's the technically correct answer.

The root of this answer falls in the tax court case "Denver & Rio Grande Western Railroad Co v. U.S., (1974, Ct Cl)".

Basically, the courts determined that your initial basis at purchase is the total agreed upon amount of mortgage debt to be taken over by the buyer on behalf of the seller. Interestingly, it also states that basis in a property cannot be achieved through an encumbered debt if the payment of that debt is contingent. However, these rules are only important if you plan on renting the property versus selling it in the short term, so I won't tread down that path too much. 

Since the courts state that your initial basis is established in whatever amount you agree to pay for on behalf of the buyer, you need to run with that initial agreed upon amount as your basis. I think it was mentioned above that cancellation of debt income ONLY falls back on the seller because the mortgage is in their name. That is not entirely true. Cancellation of debt income is not limited to just mortgages - it extends to any debts where there is an agreed upon liability between two parties where the obligation or responsibility to pay is altered at the benefit of the responsible party. 

Fortunately, it really makes no difference in your case as the buy and sell of the transaction was completed in the same tax year. 

Had the sale been completed in a second year, that would have created an interesting scenario as well. Fortunately, there are rules that would have permitted you to avoid the tax trap of a large gain in one year, follow by a large loss. Check with a qualified real estate CPA to see what those rules and opportunities would have been to escape taxation. 

On a side note - must you report this on Schedule C and subject it to FICA? There could be opportunity to report on Schedule D even if the property was held under a year. I think these are the crucial questions you should be asking. 

If you need any further help with your transaction, I'm happy to lend a hand.

Yes, Ohio CAT applied to rental income if the sum of all sources of ordinary gross income exceeds $150,000 in a given year. 

As a non resident, be wary of nonresident withholding that will need to be paid in with the Ohio pass-thru return. It will likely benefit you to file a nonresident tax return as the income tax tends to be less than the composite tax (meaning you would receive a refund).

I would advise working with a CPA that is very knowledgable of Ohio pass-thru entity taxation law.

Nathaniel Busch, CPA

Gahanna, OH

614-475-7560