All Forum Posts by: Theodore Smith

Quote from @Glen Wiley:

Our local building and zoning folks are really easy to talk to - I have been surprised at how helpful they have been with weird questions like this. Just reach out to them and get the facts.

Yeah, I have usually found the same when visiting our local authorities, but it's just got me slightly worried and the zoning administrator is just not there much.  But I'll be reaching out again on Thursday.

thanks

So, I've got a slightly interesting deal happening and just found out some new information after reading through the township zoning ordinance.

Here are some facts:

-We have a signed buy sell contract dated 12/23

-Or contingency period ended 1/04

-Still waiting on a county septic inspection (separate from other contingencies)

-Cash sale

I will add a photo to help with the explanation, but basically…seller owns three separate lots B, D & E that all share a property line. There is only one primary structure, and it spans lots D & E. Lot B is vacant. Lot B is also a non-conforming lot according to zoning, <25,000 sqft. Our contract is to buy lots D & E. On the contract under the legal description it mentions lots D & E, but no mention of B.

According to the zoning ordinances I was reading it states under the chapter concerning nonconforming lots, structures and uses that…

“Two or more contiguous parcels of property owned by the same person shall be considered as being one parcel if one or more are nonconforming in size and the resulting parcel does not contain two principal buildings.”

This leads me to believe that the property owner can NOT sell ONLY lots D & E, basically because this would then “create” a new nonconforming lot.

I called our realtor and pointed this out and she more or less brushed it off saying it is probably only referring to a single lot for tax purposes. But, the properties are taxed separately. She also thought it would be a good idea for ME to contact the zoning board. While I was planning on doing that, unfortunately they have very limited office hours and are only there 3 hrs on two separate days a week. I won’t be able to contact them by phone until at least Thursday.

So, my questions are

-Am I correct in thinking the seller can’t sell only the 2 lots?

-What become of our current contract if the seller can’t sell only the two lots?

-Since the zoning ordinance requires the lots the viewed as a single lot, does that mean lot B is ALREADY part of the sale?

-Can the zoning administrator “stop” the sale of our current contract?

-If we close on the current contract, can in the future we be fined or loose the property because it was an invalid sale?

There all questions I can’t seem to find answers to and I do plan on possibly contacting a lawyer after speaking with the zoning department.

Thanks for any insight!

I had posted a few months back about a possible sale of our property and we are now looking for a tax professional as we have closed on the sale. We live in rural Montana and while there are some agents / firms in the area, we really wanted to reach out a bit further to find the right fit. I have looked through the Bigger Pockets referral page and contacted a couple of the agents, but wondering if anyone might have some other suggestions or referrals. A few particulars

-We live in MT

-Married filing jointly

-Filed QJV since start of business

-Owned property since 07/2019

-The property was bought with 2 homes, we added a 3rd and a workshop

-All three homes were STR during summer months

-We lived on the property all months of the year (Summer in workshop / other times in one of the homes) and the entire time we owned it

-Sale date 06/30

-Approximate estimated capital gains of $590,000

We have filed taxes ourselves since purchasing the property and with the sale trying to figure out the capital gains exclusion along with the business use, personal use and recapturing depreciation…it’s all just a bit too much for us. Or really way too much for us.

Appreciate all the help

Pretty sure I need some local Real Estate CPA tax advice, but thought I would post real quick to get any thoughts. Planning on reaching out to some CPA's next week.

Some Facts-

Purchased Property 07/26/2019

Price - $425,000

Current Basis - ~$515,000

Est Sale Price - 1,300,000

When we purchased property there were 2 houses on property. We added an additional home along with a large barn. So, there are now 3 houses and a large barn. From Jun through Sep, we STR the 3 houses and we live in the barn. Oct through May we live in one of the houses. This is our primary residence as we do not own any other property.

We have filed taxes in in 2019-2021 as a Qualified Joint Venture since we are a husband and wife general partnership. So, in essence, we treat the income & expenses as 3 separate units and we split the income & expenses 50/50 for the QJV and file the according Sch E's. No Sch C.  Basically a sole proprietor.

My question really comes down to what our, if any, long term capital gain exemption on a home sale will be? I understand there is a max of $500,000 for married filing jointly. I just can't get my head around if we qualify. We have lived on the property as a primary residence for over 2 of the last 5 years. But obviously we have only lived in one of the homes on the property for the required 2+ years not each of the homes. We have not used this exemption in the past. But we have also used this property as STR income.

Do we get the entire $500k exemption because this is our primary residence and we've lived on it for 2+ years?

Or do we not since it's used as a STR income investment?

Or, my guess more likely, it's some combination of the two? Just have a feeling it's a ridiculously complicated formula to try and figure out what that might be.

Thanks.

Quote from @Ashish Acharya:

You cannot file Sch C the way you described your activity. The overhead costs should be allocated to the properties. 

Thanks for the advice, a follow up question then. Expenses on Sch E such as repairs & maintenance are only expensed to the extent the property is rented. i.e. rented 100 days, also 100 personal days. This then only allows a 50% deduction of R&M since it was only rented 100 out of the 200 total days used. If I allocate some of the expenses from Sch C, such as cost of sheets used exclusively for the rental, then I would only be able to expense 50% of those sheets? Would I not be able to expense the entire cost of the sheets somehow? Understanding some things I could not receive 100% deduction, such as utility bills, R&M and other “shared” business & personal expenses.

Quote from @Joe Splitrock:

Quote from @Theodore Smith:

Looking for some insight, and I realize this may be a bit complicated for this forum, but as I am not a tax professional it may be an easy answer as well. Some basics…

My wife and I own a property with 3 STR on the property along with a garage. They are all separate structures and are rented out exclusively as STR. We also live on property, in the garage in the summer and between 1 of the others 3 houses in the off season. We file as a Qualified Joint Venture, so sole-proprietor for each of us. All P&L split down the middle as we are both active in the business.

We file all of our STR income on Sch E along with a portion of the expenses that would be attributed to a particular dwelling. We also file a Sch C to expense "business" level expenses such as administrative costs, landscaping costs, utilities that can't directly tied to a particular dwelling…etc. Since the sch C never has income, it always shows a loss. This is where my question comes in. Did I not read somewhere that you can only report a loss on a sch C for X amount of years out of 5 before the IRS no longer recognizes the activity as a business but as a hobby? Or, is the sch C somehow tied to our sch E and therefore not subject to that rule?

Again, not sure if it all makes sense, but would love some insight.

Thanks

I am pretty sure you can't report the STR on Schedule E and on Schedule C. Landscaping, utilities, etc. should either be split or just pick one of the properties to claim them against. Do you have a tax professional handling this?

No tax professional. Although I have been getting some guidance from a family member who had a career in accounting, although not a tax CPA. Most things she is quite knowledgeable, however has not encountered real estate tax situations. So obviously my need for additional guidance is needed.

Maybe it doesn’t matter, but can I actually just allocate an expense to a single property even if it isn’t directly related to that particular property?

Looking for some insight, and I realize this may be a bit complicated for this forum, but as I am not a tax professional it may be an easy answer as well. Some basics…

My wife and I own a property with 3 STR on the property along with a garage. They are all separate structures and are rented out exclusively as STR. We also live on property, in the garage in the summer and between 1 of the others 3 houses in the off season. We file as a Qualified Joint Venture, so sole-proprietor for each of us. All P&L split down the middle as we are both active in the business.

We file all of our STR income on Sch E along with a portion of the expenses that would be attributed to a particular dwelling. We also file a Sch C to expense "business" level expenses such as administrative costs, landscaping costs, utilities that can't directly tied to a particular dwelling…etc. Since the sch C never has income, it always shows a loss. This is where my question comes in. Did I not read somewhere that you can only report a loss on a sch C for X amount of years out of 5 before the IRS no longer recognizes the activity as a business but as a hobby? Or, is the sch C somehow tied to our sch E and therefore not subject to that rule?

Again, not sure if it all makes sense, but would love some insight.

Thanks

Originally posted by @Bill B.:

if it’s more than $500 I’d tell you to listen to the MHP podcast instead. Maybe even invest with them for your first deal. They’ll talk to you for free for the cost of a flight to Tampa bay. 

Well, the bootcamp from my understanding is quite a bit more..something in the line of $2k for 1 ticket or $3k for 2 tickets.  So it is a large expense for sure, but I've heard worth every dollar.  I have begun listening to the MHP podcast and they are great.  You mention "invest with them"?  I didn't realize you could, any chance you could point me in the right direction for more information?

Originally posted by @Chad S.:

 It'll either confirm you've chosen the right niche or it'll let you know early on you need to look at something else. For us, it reinforced our desire to get into the MHP space. 

If I remember correctly you can go to a second bootcamp in the future at a really reduced price...maybe a couple hundred bucks? 

Great points!  You know it didn't really even occur to me that while attending the boot camp it will very quickly help you decide if you've chosen a field you intend to stay in.  Also, I've never heard of the reduced rate for a second course.  I'm sure that offer may be different or change from time to time, but good to know it is something they are aware of as well.

Thanks for the input.

Originally posted by @Joshua D.:

@Theodore Smith

What is your timeline for your first purchase?

Originally I was giving ourselves a 7-10 10 year time frame. That was including time to save money, learn, educate and then purchase. That was about 2.5 years ago. The more I look into the field the more I think we would be ready to make a purchase in the next 1-2 years. I'm thinking our ideal park would be something in the rage of 50 lots with around 40 or more occupied. We could always go smaller and possibly larger if the deal is right. Hoping to be able to accumulate enough capital to cover a 10-20% down payment with a small reserve left over. What types of numbers do you think we might be looking at? My knowledge is quite limited and trying to learn, but was hoping a park of that nature could be had for ~500K?