All Forum Posts by: Patrick McGarry

Andrew, Thanks!

Also following from what you wrote... so the tax treatment of the lender profit = interest is the same whether the lender pays interest monthly or only one time at the end of the project?

And the lender needs to report that interest to the IRS using the 1098 form, and also the 1096 form?

Thank you very much.

I am wanting to loan $100K to an LLC that buys, remodels, and sells houses. The borrower needs to secure the loan so that it can deduct the interest paid to me on its taxes, right?

If yes, can the borrower secure the loan with a property that is worth less than $100K -- if I am OK with it?

Thank you for your assistance.

Steven,

Thanks for your message. You wrote, "flipping is not a capital gain activity." Is this because the IRS limits capital gains to your primary residence only?

Is there an IRS regulation or other resource that discusses this topic -- to which you can point me?

Following from what you wrote, so it doesn't matter how the lender profit is structured in the promissory note or the length of the loan, lender profit is always treated as interest paid for tax purposes?

Thank you.

I am loaning money to a company that buys, remodels, and sells homes. I am wanting to structure the deals so that my lender profits are capital gains as opposed to interest. Have I been successful?

For example, I loaned $100K. The borrower signed a promissory note and gave me the first mortgage. When the borrower sold the property 15 months later, it returned my principal amount plus a percentage of its net profit. Is my lender profit a long-term capital gain?

In another case, all the facts are the same, except the borrower returned my principal amount plus a percentage of that principal amount -- similar to interest. Is my lender profit a long-term capital gain?

Note: What happened in the second case is that the promissory note said that the borrower had to pay either a percentage of its net profit or a minimum return ( = principal amount x 12% x number of years) -- whichever was greater.

Thank you for your assistance.