All Forum Posts by: Ray Li

Hi I have a couple of tax questions.

1. I sold my primary residence last year, where I've both lived and rented out half the house for the last few years. Let's say my house depreciates by $10000 every year, but since I only rent out half the house, I can only deduct $5000 each year. When I sell my house, does the basis decrease by $10000  or $5000 every year?
2. I had to spend a few months fixing up the house before I sold it. From what I understand, the repair expenses get added back to house basis price. But what about other expenses while I was fixing up the place and not living there nor renting it out? For example HOA, utilities, home insurance. Can I add these to the basis as well, as part of renovation/repair expenses, or do I deduct them somehow?
3. I also bought another property in 2017 with the intent to rent, but I had to fix up the place in 2017. From what I understand, the repair/renovation expenses gets added to the house basis price when I sell the place in the future. What about other expenses? For example mortgage interests, property taxes, utilities, insurance, etc, all of which I can fully deduct from rental income if I was renting the place out. But since I haven't rented out the place in 2017 is there a way to deduct them?

Thanks,

Ray

Out of state investor here. I just sold my primary residence elsewhere and I'm looking to invest some of the funds as a fixed rate private loan in the upcoming few months.

I'm targeting Houston area since there will probably be a lot of opportunities in the wake of Hurricane Harvey. I'm hoping to connect with some local investors in the Houston area who are looking to flip or re-build affected houses, preferably someone who already partners with a few contractors in the area, since contractors will definitely be in high demand.

Let me know if this is the right place to connect.

Thanks,

Ray

Hi, newbie investor here. I just entered into contract for a single family house, where the seller disclosed that they converted the attached two car garage into an in-law unit without applying for the permit.

1) Is there any legal issues with buying a house with a conversion without a permit.

2) Once I buy the house, if I plan to hold it as a rental, would I need to get the permit for the conversion?

3) If I instead decide to flip the house, would I need to get the permit?

4) How easy would it be and how much would it cost to actually apply for the permit? Who would I need to contact for this? A GC or a city inspector?

The house is in Garland, Texas in the Dallas / Fort Worth metroplex area, if that matters.

Thanks,

Ray

(Sorry for the horrible formatting, don't know why bullet lists don't show up.)

I just want to make sure I understand how the mortgages are traced, from what I've read online and from biggerpockets forums. 

1. When I buy a house using conventional financing, the mortgage is simply traced to that house. I can deduct the interest on the mortgage payments against any rental income or gains from flipping the house.
2. When I buy a house using conventional financing, and then do a cashout refinance after a few years to capture some of the equity, is the new mortgage still traced to the house? If so is the interest on the entire mortgage payment tax deductible against the rental income? If not, is only part of the interest deductible?
3. When I buy a house using delayed financing by using all cash first, is the mortgage still traced to the house?
4. When I buy a house using all cash first, and then later do a cash out refi, HELOC, or a private loan secured by the house, the mortgage is not traced to the house anymore from what I understand?
   1. If I leave the money in the bank, I can't deduct the interest payments against the rental income from the first house?
   2. If I use the money to buy another house I can deduct the interest against the rental income or flip gains from the second house right?
   3. If I take out the money, and wait a few months to buy a house, can I still deduct interest payments for the few months the money is sitting in the bank?
   4. If I use the money for other investments can I deduct the interest against the gains on those investments?
      • Interest income from private lending?
      • Stock trading?
      • Tax lein/note investing?
5. If I buy a house using a mortgage from a private lender secured by the house, the mortgage is traced to the house. If I later to a cash-out refi with a conventional bank to pay off the private lender, is the new mortgage still traced to the house and thus deductible against the house's rental income?
6. If I buy a house using a mortgage from a private lender secured by the house, pay off the private lender with my own cash, and then do a cash out refinance with a conventional bank, the new mortgage is not traced to the house anymore?
7. So in conclusion as long as I buy a house using all-cash (or at some point own the house 100%), there's no way for me to get any new loans traced to that house and therefore no way to deduct any interest payments against the rental income on that house?

Sorry if the long list of questions. Just want to make sure I understand how this works.

Thanks,

Ray

@Linda Weygant So just to confirm, as long as I hold the property for at least an year in my SDIRA, neither the rental income and the gains from the sale will be subject to UBIT right?

On other hand, if I buy a property with my regular cash, the rental income will still be taxed as regular income even though it's really a passive income. (IRS really likes to make things complicated.)

Thanks,

Ray

@Linda Weygant Thanks for the clarification. A few more questions.

1) If I flip a house in my SDIRA and the gains get immediately taxed as UBIT, does it still get taxed as regular income when I withdraw at retirement?

2) If I setup a LLC (or some other legal structures) my SDIRA and other partners, where each member split the profits from a house flip, would the gains to my SDIRA still be classified as a business transaction even if I'm just providing the funds as an investment? Never mind saw your comment above that any equity kind of structure would be classified as UBIT immediately. Does that mean if I use my own cash for private lending, the interest payment I receive is taxed as capital gains (long term/short term) since it's passive income? I previously assumed it will be taxed as regular income.

 Thanks,

Ray

@Linda Weygant Sorry I misspoke. I'm not trying to evade taxes illegally. 

Somebody else mentioned above (and I think I saw similar opinions in other threads) that if I flip houses regularly inside my SDIRA, then the gains will LIKELY be taxed as UBIT. I assumed that means that if I only flip once in a while inside my SDIRA, the gains will not be immediately taxed as UBIT and will only be taxed upon withdrawal.

@Dmitriy Fomichenko so gains from flipping houses will get double taxed? When I flip it as UBIT, and again when I withdraw?

Thanks,

Ray

@Dmitriy Fomichenko 

1) If the gains from flipping houses are taxed as UBIT now, that means I won't need to pay taxes on the corresponding gains when I withdraw at retirement right?
2) If I use SDIRA funds for private lending instead, the interest payments received will not get taxed until I withdraw at retirement?

Thanks,

Ray

@Dmitriy Fomichenko So I only need to pay UBIT taxes (with no other penalties) if IRS decides to audit me? If they don't audit me, I have no obligation to pay taxes from flipping with SDIRA funds?

@Ray Lai I've seen quite a few conflicting information on the forums, some people saying you shouldn't flip using SDIRA funds, some people saying that you can as long as it's only a few houses every year.

I know I don't have a lot of experience, that's why I was hoping to partner with somebody who can guide me through the process in exchange for some equity in the deal.

Thanks,

Ray