All Forum Posts by: Bill P.

As someone who has built a RE investment company across eight states, we have found that the best control we have is by hiring our own PM to be our employee in each city/state. We have someone that is looking after us because we pay him/her a salary (plus a bonus for meeting yearly occupancy metrics) and we also have someone who can do birddogging for other properties in the area to add to our portfolio. Still some kinks in the armor after 6 years of doing it this way, but we are always tweaking things to try to come up with the perfect system.

While we are preparing a number of tax returns for Pinnacle investors, I agree with the above post that information is king. Here is the relevant tax code section for your review. While difficult to understand in some parts (like almost all IRS Code), the information is as follows:

§ 165. Losses

(a) General rule
There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.

(b) Amount of deduction
For purposes of subsection (a), the basis for determining the amount of the deduction for any loss shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.

(c) Limitation on losses of individuals
In the case of an individual, the deduction under subsection (a) shall be limited to—
(1) losses incurred in a trade or business;
(2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and
(3) except as provided in subsection (h), losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft.

(d) Wagering losses
Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.

(e) Theft losses
For purposes of subsection (a), any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss.

(f) Capital losses
Losses from sales or exchanges of capital assets shall be allowed only to the extent allowed in sections 1211 and 1212.

(g) Worthless securities
(1) General rule
If any security which is a capital asset becomes worthless during the taxable year, the loss resulting therefrom shall, for purposes of this subtitle, be treated as a loss from the sale or exchange, on the last day of the taxable year, of a capital asset.

(2) Security defined
For purposes of this subsection, the term “security” means—
(A) a share of stock in a corporation;
(B) a right to subscribe for, or to receive, a share of stock in a corporation; or
(C) a bond, debenture, note, or certificate, or other evidence of indebtedness, issued by a corporation or by a government or political subdivision thereof, with interest coupons or in registered form.

(3) Securities in affiliated corporation
For purposes of paragraph (1), any security in a corporation affiliated with a taxpayer which is a domestic corporation shall not be treated as a capital asset. For purposes of the preceding sentence, a corporation shall be treated as affiliated with the taxpayer only if—
(A) the taxpayer owns directly stock in such corporation meeting the requirements of section 1504 (a)(2), and
(B) more than 90 percent of the aggregate of its gross receipts for all taxable years has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the corporation in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, and gains from sales or exchanges of stocks and securities.
In computing gross receipts for purposes of the preceding sentence, gross receipts from sales or exchanges of stocks and securities shall be taken into account only to the extent of gains therefrom.

(h) Treatment of casualty gains and losses
(1) $100 limitation per casualty
Any loss of an individual described in subsection (c)(3) shall be allowed only to the extent that the amount of the loss to such individual arising from each casualty, or from each theft, exceeds $100.

(2) Net casualty loss allowed only to the extent it exceeds 10 percent of adjusted gross income
(A) In general
If the personal casualty losses for any taxable year exceed the personal casualty gains for such taxable year, such losses shall be allowed for the taxable year only to the extent of the sum of—
(i) the amount of the personal casualty gains for the taxable year, plus
(ii) so much of such excess as exceeds 10 percent of the adjusted gross income of the individual.
(B) Special rule where personal casualty gains exceed personal casualty losses
If the personal casualty gains for any taxable year exceed the personal casualty losses for such taxable year—
(i) all such gains shall be treated as gains from sales or exchanges of capital assets, and
(ii) all such losses shall be treated as losses from sales or exchanges of capital assets.

(3) Definitions of personal casualty gain and personal casualty loss
For purposes of this subsection—
(A) Personal casualty gain
The term “personal casualty gain” means the recognized gain from any involuntary conversion of property which is described in subsection (c)(3) arising from fire, storm, shipwreck, or other casualty, or from theft.
(B) Personal casualty loss
The term “personal casualty loss” means any loss described in subsection (c)(3). For purposes of paragraph (2), the amount of any personal casualty loss shall be determined after the application of paragraph (1).

(4) Special rules
(A) Personal casualty losses allowable in computing adjusted gross income to the extent of personal casualty gains
In any case to which paragraph (2)(A) applies, the deduction for personal casualty losses for any taxable year shall be treated as a deduction allowable in computing adjusted gross income to the extent such losses do not exceed the personal casualty gains for the taxable year.
(B) Joint returns
For purposes of this subsection, a husband and wife making a joint return for the taxable year shall be treated as 1 individual.
(C) Determination of adjusted gross income in case of estates and trusts
For purposes of paragraph (2), the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that the deductions for costs paid or incurred in connection with the administration of the estate or trust shall be treated as allowable in arriving at adjusted gross income.
(D) Coordination with estate tax
No loss described in subsection (c)(3) shall be allowed if, at the time of filing the return, such loss has been claimed for estate tax purposes in the estate tax return.
(E) Claim required to be filed in certain cases
Any loss of an individual described in subsection (c)(3) to the extent covered by insurance shall be taken into account under this section only if the individual files a timely insurance claim with respect to such loss.

(i) Disaster losses
(1) Election to take deduction for preceding year
Notwithstanding the provisions of subsection (a), any loss attributable to a disaster occurring in an area subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act may, at the election of the taxpayer, be taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred.
(2) Year of loss
If an election is made under this subsection, the casualty resulting in the loss shall be treated for purposes of this title as having occurred in the taxable year for which the deduction is claimed.
(3) Amount of loss
The amount of the loss taken into account in the preceding taxable year by reason of paragraph (1) shall not exceed the uncompensated amount determined on the basis of the facts existing at the date the taxpayer claims the loss.
(4) Use of disaster loan appraisals to establish amount of loss
Nothing in this title shall be construed to prohibit the Secretary from prescribing regulations or other guidance under which an appraisal for the purpose of obtaining a loan of Federal funds or a loan guarantee from the Federal Government as a result of a Presidentially declared disaster (as defined by section 1033 (h)(3)) may be used to establish the amount of any loss described in paragraph (1) or (2).

(j) Denial of deduction for losses on certain obligations not in registered form
(1) In general
Nothing in subsection (a) or in any other provision of law shall be construed to provide a deduction for any loss sustained on any registration-required obligation unless such obligation is in registered form (or the issuance of such obligation was subject to tax under section 4701).
(2) Definitions
For purposes of this subsection—
(A) Registration-required obligation
The term “registration-required obligation” has the meaning given to such term by section 163 (f)(2) except that clause (iv) of subparagraph (A), and subparagraph (B), of such section shall not apply.
(B) Registered form
The term “registered form” has the same meaning as when used in section 163 (f).
(3) Exceptions
The Secretary may, by regulations, provide that this subsection and section 1287 shall not apply with respect to obligations held by any person if—
(A) such person holds such obligations in connection with a trade or business outside the United States,
(B) such person holds such obligations as a broker dealer (registered under Federal or State law) for sale to customers in the ordinary course of his trade or business,
(C) such person complies with reporting requirements with respect to ownership, transfers, and payments as the Secretary may require, or
(D) such person promptly surrenders the obligation to the issuer for the issuance of a new obligation in registered form,
but only if such obligations are held under arrangements provided in regulations or otherwise which are designed to assure that such obligations are not delivered to any United States person other than a person described in subparagraph (A), (B), or (C).

(k) Treatment as disaster loss where taxpayer ordered to demolish or relocate residence in disaster area because of disaster
In the case of a taxpayer whose residence is located in an area which has been determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, if—
(1) not later than the 120th day after the date of such determination, the taxpayer is ordered, by the government of the State or any political subdivision thereof in which such residence is located, to demolish or relocate such residence, and
(2) the residence has been rendered unsafe for use as a residence by reason of the disaster,
any loss attributable to such disaster shall be treated as a loss which arises from a casualty and which is described in subsection (i).

(l) Treatment of certain losses in insolvent financial institutions
(1) In general
If—
(A) as of the close of the taxable year, it can reasonably be estimated that there is a loss on a qualified individual’s deposit in a qualified financial institution, and
(B) such loss is on account of the bankruptcy or insolvency of such institution,
then the taxpayer may elect to treat the amount so estimated as a loss described in subsection (c)(3) incurred during the taxable year.
(2) Qualified individual defined
For purposes of this subsection, the term “qualified individual” means any individual, except an individual—
(A) who owns at least 1 percent in value of the outstanding stock of the qualified financial institution,
(B) who is an officer of the qualified financial institution,
(C) who is a sibling (whether by the whole or half blood), spouse, aunt, uncle, nephew, niece, ancestor, or lineal descendant of an individual described in subparagraph (A) or (B), or
(D) who otherwise is a related person (as defined in section 267 (b)) with respect to an individual described in subparagraph (A) or (B).
(3) Qualified financial institution
For purposes of this subsection, the term “qualified financial institution” means—
(A) any bank (as defined in section 581),
(B) any institution described in section 591,
(C) any credit union the deposits or accounts in which are insured under Federal or State law or are protected or guaranteed under State law, or
(D) any similar institution chartered and supervised under Federal or State law.
(4) Deposit
For purposes of this subsection, the term “deposit” means any deposit, withdrawable account, or withdrawable or repurchasable share.
(5) Election to treat as ordinary loss
(A) In general
In lieu of any election under paragraph (1), the taxpayer may elect to treat the amount referred to in paragraph (1) for the taxable year as an ordinary loss described in subsection (c)(2) incurred during the taxable year.
(B) Limitations
(i) Deposit may not be federally insured No election may be made under subparagraph (A) with respect to any loss on a deposit in a qualified financial institution if part or all of such deposit is insured under Federal law.
(ii) Dollar limitation With respect to each financial institution, the aggregate amount of losses attributable to deposits in such financial institution to which an election under subparagraph (A) may be made by the taxpayer for any taxable year shall not exceed $20,000 ($10,000 in the case of a separate return by a married individual). The limitation of the preceding sentence shall be reduced by the amount of any insurance proceeds under any State law which can reasonably be expected to be received with respect to losses on deposits in such institution.
(6) Election
Any election by the taxpayer under this subsection for any taxable year—
(A) shall apply to all losses for such taxable year of the taxpayer on deposits in the institution with respect to which such election was made, and
(B) may be revoked only with the consent of the Secretary.
(7) Coordination with section 166
Section 166 shall not apply to any loss to which an election under this subsection applies.

(m) Cross references
(1) For special rule for banks with respect to worthless securities, see section 582.
(2) For disallowance of deduction for worthlessness of securities to which subsection (g)(2)(C) applies, if issued by a political party or similar organization, see section 271.
(3) For special rule for losses on stock in a small business investment company, see section 1242.
(4) For special rule for losses of a small business investment company, see section 1243.
(5) For special rule for losses on small business stock, see section 1244.

The correct website address is: http://www.winningedgesoftware.com/default.asp

The first one listed above on 3/22 is a gambling site.

I use CL to search and market our property throughout the country in our different areas we operate but it isn't as wonderful as it once was. It appears that a lot of Realtors flood the boards with property and make it very hard for the FSBO deals to stand out since only 100 listings show per page. It use to be the Realtors stayed within their MLS arena, but with so many of them going hungry, they are marketing everywhere (CL, FSBO.com, Owners.com, eBay, etc.) We use the following CL areas: Wash DC (all 3 zones), Orlando, Jacksonville, Daytona Beach, Lakeland, Cincinnati, Columbus, Asheville and Atlanta.

I just placed this answer in another forum, but thought I would do it as well since you are in my backyard. Feel free to PM me.

We are a avid fan of using LLCs to hold our property for a number of reasons: 1) The liability issue, so we hold about $5 million (approx 20 to 50 SFHs) per LLC as a way to place a firewall between all of our holdings; 2) We use it as a way to concentrate our holdings for easier tax filings (ie, our FL LLC only holds FL property); 3) Investor ownership to allow each investor to be segregated in what they actually own. (When we raise funds from investors they know what and where they are buying)

Hope this helps

We are a avid fan of using LLCs to hold our property for a number of reasons: 1) The liability issue, so we hold about $5 million (approx 20 to 50 SFHs) per LLC as a way to place a firewall between all of our holdings; 2) We use it as a way to concentrate our holdings for easier tax filings (ie, our FL LLC only holds FL property); 3) Investor ownership to allow each investor to be segregated in what they actually own. (When we raise funds from investors they know what and where they are buying)

Hope this helps

We have received a lot of email today asking about the tax treatment of the PD investment and subsequent loss if it was held inside a traditional IRA. While you should check with your tax advisor, the general rule about any type of loss or gain inside the traditional IRA is that it is not reportable on your personal tax return as a loss or deduction. The reason for this is that you already took the full deduction from your taxes when you funded the IRA. In fact, an answer on the IRS website states:

Can losses in an IRA be deducted on a participant’s income tax return?

No - Neither IRA losses nor IRA gains are taken into account on a participant's tax return while the IRA is on-going.

While this answer doesn't affect everyone, those that purchased their PD investment solely inside an IRA will have no other special forms to file as it is not a taxable event, in our opinion. If this applies to you, while we would certainly like to have you as a client; using your existing tax advisor may be the simpler way to handle your 2006 return(s) as nothing out of the ordinary has occurred regarding your taxes.

Please check with your personal tax advisor on this subject.

Dear Bigman-

From a point of humanity, I am sorry that this ordeal has left you so bitter; so jaded; so cynical. You, and anyone else, are free to abstain in your acceptance of our offer. However, for your information, we don’t feel that we are bottom digging; we feel that we are offering help to a class of people that could use some honest support for a difficult subject. Simple as that.

Now, as to your tone in your post directed at me, Mr. Lawrence; I would suggest that you back it up a notch and obtain a modicum of decency and civility. A forum is most useful when all parties respect the open dialogue of the other members.

I have been watching the consternation on this forum over the tax issue for the last few pages. I have directed my firm to come up with a concept to offer help to anyone who cares to use it. I realize that one hand, this is blatant self promotion; but on the other hand, I have read so many inaccuracies and poor ideas, that I could no longer stand by and watch as some of you are about to compound your problems. You can go to the profile section and get the website link [LINK REMOVED BY ADMINISTRATOR] to ascertain if our offer is for you. I hope this concept is accepted in the spirit in which it is offered. I just felt that I was “damned if I do and damned if I don’t” so I decided to error on the side of offering anyway. I apologize in advance if this offends anyone but hopefully it will be a light for those people who decide we can help. Please feel free to PM as well.

chemar22, JustinD, txrunner: I think each one of you are correct in regards to your opinion. However, this particular forum is read by so many people that had no business investing with Pinnacle and did so only because they saw it in a mainstream publication. There was no understanding by them regarding the risk/reward process of investment. Plenty of people put way too much of their funds into this investment. (And that would have been true even if Pinnacle was on the level). In agreement with JustinD: Because of this, higher risk investments (as touted by txrunner) are probably not suited for this forum due mainly because of reader’s lack of sophistication and/or their non-accredited status.

But for people that can afford to take the risk, chemar22 is correct: these types of successful higher risk/reward investments are abundant throughout the country and we also have participated in them after our due diligence efforts have met. (And as we point out on our website, for our investment offerings: these types of investments have no guarantee, have no federal insurance, may lose value and past performance can not predict the future.

But after reading this forum over the last half year, it is apparent that most investors in Pinnacle were not prepared for the loss of principal. Too many people had all their eggs in this basket. I can only imagine the devastation that it was caused in their family.

In closing, never invest just because other people are doing it; that rarely pays off. Invest only what you are comfortable in doing. Don't try to make up your Pinnacle loss by trying to double your money on something else that seems quick and easy. You could lose that too.