All Forum Posts by: Stephen Chittenden

@Tariq B. Given that Lowe's is still selling e-gift cards on their website, and the FAQ says gift cards can be used at any Lowe's store, I would go back and raise holy hell until they took it.

You would still have $3,000 tied up in the property. When you got the portfolio loan for $82k, you would pay off the $64k first mortgage that you bought it with. You would then have $18k left, which means of the $21k you spent $3k would be "trapped" in the property. In reality, it would be more than that because of transaction costs on both sides.

You need an accountant.  You cannot split the 1099 as you propose, but there are ways to deal with this.  A good accountant can help you. I can't recommend that you try to do this on your own, as the way you have started your business have made this more complicated than you can probably handle on your own.

Originally posted by @Jason Shim:

2)  I heard the max exclusion is $500K per house.  if this is true, I plan to sell the house to my brother now and let them sell the house again in 2-3 years.

I have a loss carry forward of $200K from my previous business dealings.  if I sell my house in 2016 and gain $500K, will I have to apply the $200K loss carry forward to offset the $500K first, meaning I will not enjoy the full $500K exclusion?  or can I exclude the $500K first, then apply any further gain/my income towards the loss carry forward?

Thank for the advice

 One more thing... you should look at CCA 201428008.  I don't think it answers your question though, because it focuses on a slightly different question.

@Jason Shim Also, you should look into this case, which is binding precedent in California.

http://cdn.ca9.uscourts.gov/datastore/opinions/2015/08/07/12-73257.pdf

I'm not sure of the answer, but it seems to me that the IRS would challenge this on economic substance. Also, would your brother be getting half the gain?

I will admit that I do not send 1099s on the properties that my wife and I own directly. For the properties we own with others through an LLC, I think I do too much work to argue that the LLC is not engaged in a business. So, we issue 1099s for that. We don't pay anyone but the property manager directly on the personally owned homes, and I have their TINs, so the risk is limited.

In addition, you are going to have trouble finding lenders willing to finance individual properties at that price point.

There is an argument that passive investors do not have to issue Forms 1099-MISC because they are not engaged in a business. If you are actively managing your properties, you are most likely engaged in a business and issue a 1099. Even if you aren't going to issue a 1099, I STRONGLY encourage you to get TINs (EINs) for your vendors and document the corporate status of any corporations that you pay. If you pay a non-corporate entity or individual for services and do not have the TIN before making payment, you are liable for 28% of the amount of the payment. The only way to get out of that is to get the payee to sign an affidavit (Form 4669) under penalties of perjury attesting to have reported the income on their tax return. That is not easy to get. Collecting a TIN after the payment will not alleviate your liability to the IRS for this. The penalty for not reporting is $260 for the copy to be provided to the payee and $260 for the copy to be provided to the IRS. The penalty if you intentionally disregard your obligation to file is $520 for each copy, or 10% of the amount required to be reported (20% total).

We pay our property manager 1% for buying and selling (if we're paying his fee). He gets his 3% if the seller pays when we're buying. We're doing buy-and-hold (but he has listed for us when we wanted to off load one). He manages our rentals, so he doesn't mind getting 1% knowing he's going to get the month's rent for finding a tenant at 8% per month.