All Forum Posts by: Robert M.

This is a really helpful suggestion, Sohail. Thank you! :)

Thank you this reply, Bob — I appreciate you :) 

Jeremy — thank you for the advice. Did you read the part where I said I was going to take care of the tax bill?

I know you weren't trying to be snarky, but it also sounds like you've drawn a conclusion here that I wanted mommy and daddy to get me out of tax jail, and that I came to BiggerPockets in the hopes someone would reverse-engineer the ethics of that for me. I don't think that's what happened though — I laid out the story, people helped me reframe the situation in my head, and I'm taking responsibility for something that wasn't clear to me before (a whole lotta depreciation).

Thank you all again for the variety of responses here. You've all helped me understand this from a different angle. Kislay and Michael M. in particular, I really appreciate your professionalism and kindness in weighing in.

It's been especially helpful to understand the role of depreciation in my tax situation, which I had not fully appreciated until now (pun not originally intended 😛). I really wish my accountant had given me the heads-up he was depreciating the property and what that meant when I went to sell — but now it's an expensive lesson, I guess.

Quick note for those who went for the "get a load of this entitled millennial who filed his taxes late one time" jugular — I imagine you're here to help people, and this is your friendly reminder that it doesn't cost anything to assume good intentions and be nice. Back when you were a rookie and you made your first big dumb mistake — was there was somebody who put you on the right path without cutting you down or being flippant? Maybe be inspired by them next time.

As an epilogue to all this, I ended up contacting my parents and telling them that I asked strangers on the internet for advice, and it turns out I really misunderstood depreciation. I told them I'll take care of the bill — ending months of strife — and I think that made them really happy.

Thank you all very much for the range of perspectives you shared above. Just to add some context to my original post:

- The $30k in capital gains is, indeed, mostly depreciation recapture. It was depreciated ~$100k over ~5 years. The rest is from a modest profit at the time of sale. I bought for $600k and sold for $640k — however, I say modest because there was a last-minute seller assist of ~$30k that took quite a bite out of the proceeds.

- To get a little more specific on profits and losses: my parents gave me $150k and I gave them back the net $166k from the sale. Per my records, I had a loss of ~$30k over ~5 years from management costs, repairs, appliances, etc. My loss was somewhat offset by the tax benefit I had from reporting depreciation over 5 years, but it's been difficult for me to quantify exactly how much I benefited. I'm not a CPA and I had other income and expenses that were commingled with the property on my returns.

- It's not lost on me that my parents acted as a lender, and that a lender would never pay someone's taxes. However, can I suggest a different analogy here? Since I returned their principal investment and the profits in full, wouldn't I have been more akin to a investment broker who was acting on their behalf?

- I fully understand that in the eyes of the IRS I'm still the one to pay the tax because the income was in my name. But intuitively — I gave back to my parents everything they gave me, and then some. If you gave a stock broker $150k and they gave you more than that back, the broker wouldn't be the one to pay capital gains. I absolutely, 100% realize that I need to be the one to pay the tax bill. So my question (which could have been clearer) is less about tax burdens and more of an ethical one of: which party should the tax payment originate from? Maybe I posted this in the wrong forum, but appreciate all candid and respectful takes here all the same.

- To the small minority who chimed in with something to the tune of "geez, I'd disown you too, you little Gen-Z brat": maybe take a beat before you judge somebody's character by a low-context post here. The money my parents gave me was a guilt payment for a lot of messed up stuff that happened in my childhood. It's not something I felt entitled to, but they offered it freely and I tried to do something constructive with it. It was a messy deal with a messy outcome. I'm trying to do what I can tie it up equitably, so I appreciate everyone's input here.

In 2016 my parents loaned me the down payment for a rental property ($150k toward a $600k duplex in a midsize East Coast city). There were no formal terms or expectations - it was just "here's the money, don't be dumb". They didn't want to be on the deed, so it was in my name.

I hired a property manager and for the next few years things went smoothly. My cash flow was a little negative, but for the most part I did thing my parents told me to of paying down a mortgage using rental income.

By 2020 I had moved to a different state and a pandemic happened. I was relying on the manager for everything and it was getting expensive. Separately — and this is a more minor gripe — it was complicating my tax situation to pay state and local income taxes in a place I didn't live anymore.

I pitched to my parents that I would sell the place and roll it over into a comparable property closer to where I live. They gave a firm 'no' — for whatever reason, they were really attached to this duplex they had hardly even seen before. We couldn't reach a compromise, so finally I made the difficult decision to sell the place and give them 100% of the proceeds back. Lesson learned on going into business without exit plans, I guess...

For reasons out of scope here, I just filed my 2021 taxes and the IRS hit me with a $30k capital gains bill (not including interest or penalties). Which brings us to...

Ever since the bill came, we've been fighting over who's responsibility it is to pay it. Because I paid late I would obviously cover interest and penalties, but they're livid with me about the capital gains. They've said I need to learn to be more responsible, and that I'm endangering their financial wellbeing. (I will let you draw your own conclusions about my parents' finances given that they gave me a $150k down payment without much of a conversation about it.)

At the end of the day, I lost money on the property from owning and operating it, and my parents made a modest profit from the sale. I feel like the taxes should be paid from the proceeds, not from me as the go-between. I would really appreciate any opinions on this from an ethical standpoint. My parents are close to disowning me, and I want to do the right thing.

Thanks @Ryan Smith, these are great points to consider. This place is definitely on the lower end cash-flow wise. I would guess the NOI is $12-13k/yr. I like the idea of using the cash as 20% down on several other places, especially if prices go down in the near future. Will keep this in mind and keep thinking on uses for the cash, as you suggested!

I own a one-bedroom condo in a desirable part of Philadelphia (Fairmount/Art Museum). I paid $265k for it in 2015 and am lucky enough to own it free and clear. I moved away from Philly last fall and listed it for $275k. There was a lot of interest but only a few bites; the feedback was that it was priced too high. I put it up for rent and thought I'll see what happens market-wise. For the last six months it's been leased to a young couple for $1,600/mo.

Last week I got a call from the tenants' agent saying they love the unit and want to make an offer for the previous asking price of $275k. From an investment standpoint, I'm wondering what makes more sense given the times we're in right now. This is what I'm weighing:

1) Just sell it. It feels like the market is as about high as it's going to get for a while, with COVID and all the fallout being talked about. I've had several people tell me to just sell it and hang on to the cash for now. Prices will fall probably sooner or later, and there could be opportunities to reinvest for more growth.

2) Keep it. My parents (who made have a stake in the property) feel strongly that I should hold on to it. They say that if we enter a deeper recession/depression, inflation will be a concern and that real estate is a good hedge against that. (I should note they have a few other rental properties, so there'd still be some buffer either way.) They also believe that selling the property because of COVID feels like a "panic move".

Finally, I'll just note that I don't have any plans to live in Philly again, so there's no personal motivation to keep the property.

Obviously a crystal ball would be great here, but short of that I'm wondering what other folks would do with this offer sitting in their lap. It's essentially a break-even situation, but I see it as a good chance to get out before prices start to slide. I'm also wondering if rental incomes could slip as the economy worsens. This is more out there, but I also think about behavioral factors like—as millennials age and have this recent memory of a pandemic that battered East Coast cities, will living smack dab in Philly be as desirable as, say, a suburban SFH? A repeat of the 60s-80s, in a way?

Looking forward hearing what others think about this!

Thanks everyone, I appreciate all the pointers. It sounds like a credit union or smaller bank is the way to go. I'd like to cut out the third party if I can.

@Irfan Raza this is in Dickinson Narrows, South Philly.

@Patrick Liska I haven't tried that yet but that's a good idea - I'll try to track down a good local bank.

@Gino Barbaro I believe the "success fee" is the broker's fee. Seems a little steep on top of the lender's fee. Thanks for the suggestions, I'll ask how they came up with the rates.