All Forum Posts by: Tim Hoffman

Are Grants for Rent, created by the Cares Act, considered taxable income?

My gut is they are taxable to me as a landlord.  

With that said, here in IL, the State published a FAQ section on applying for the grant and it actually says the grant is not taxable to the tenant or the landlord.  

Thanks for the input.

I posted this for a CPA originally but thought I would open up to the rest of the BP family. 

My background; I have been a landlord/investor in Illinois for about 21 years. I currently have 2 LLC's the oldest of which was established in 2001 and the other in 2005. All said and done we (my wife and I are each 50% owners) own 78 SFH that we rent - split fairly equally between the 2 companies. I have maintained both LLC's thru my attorney, filed the required informational tax returns for each (every year) and let the income flow thru the K-1 onto my wife and my personal tax returns.

Because of some local legal issues and expenses I am seriously considering dissolving both LLC's and transferring all assets into our personal name and continuing to do what I do only as a DBA. I know all the pro/con of an LLC vs DBA and still think I want to do this and use some of the cost savings to increase insurance coverage to offset the perceived increase in liability

My question(s) are as follows: 1) Are there any tax consequences to transferring the LLC assets into our name (again we are the owners of the LLCs) ? 2) Are there any specific forms we need to give the IRS or just check the box "this is the final return" ? 3) If there are tax consequences is there a way to minimize them? 4) Does it matter if we transfer into both our names or if we transfer into only one of us? (again we are happily married for over 30 yrs). 4) Anything I am overlooking? I assume my basis in the properties will continue as the basis in my/our name. Thank you for any guidance you can provide.

Nicholas, I really appreciate your initiative to give back. I am part of a local REIA that gives back to help newbies (and experienced) make the most of their RE investment.

My background; I have been a landlord/investor in Illinois for about 21 years. I currently have 2 LLC's the oldest of which was established in 2001 and the other in 2005. All said and done we (my wife and I are each 50% owners) own 78 SFH that we rent - split fairly equally between the 2 companies. I have maintained both LLC's thru my attorney, filed the required informational tax returns for each (every year) and let the income flow thru the K-1 onto my wife and my personal tax returns.

Because of some local legal issues and expenses I am seriously considering dissolving both LLC's and transferring all assets into our personal name and continuing to do what I do only as a DBA. I know all the pro/con of an LLC vs DBA and still think I want to do this.

My question(s) are as follows: 1) Are there any tax consequences to transferring the LLC assets into our name (again we are the owners of the LLCs) ? 2) Are there any specific forms we need to give the IRS or just check the box "this is the final return" ? 3) If there are tax consequences is there a way to minimize them? 4) Does it matter if we transfer into both our names or if we transfer into only one of us? (again we are happily married for over 30 yrs). 4) Anything I am overlooking? I assume my basis in the properties will continue as the basis in my/our name. Thank you for any guidance you can provide.

I re-read your post and the DOS clause is standard in almost all mortgages since the 80's. I am not saying it is nothing to worry about but I have never personally heard of a bank calling a performing loan using this clause (even though they are well within their rights to do so). Going back to my original post, if he had plans to sell but still took out a loan he may have financial issues that required the cash immediately. IF he fails to make a payment and the bank gets wind of the agreement for deed or other sales contract, they would be more likely to call the loan. Just a few more thoughts. In the meantime, if he truly wants to sell and lists the home, there is not much you can do. You did not say how long you have lived there and that information could emphasize my points or be a non-issue. The longer you have been there, the more likely it is he has a financial issue, (assuming you pay on time and dont require lots of maint).

Sorry for the delay, I was pretty busy this past weekend.

My Gut tells me something is wrong.  If he is looking to sell, why would he get a mortgage on a paid off house?  This tells me either he does not truly want to sell, he thinks you will not actually buy or his terms are such that it is unlikely you will be able to complete the sale.  It could also indicate he has an urgent need for cash and that could lead to several issues (unpaid taxes, unpaid mortgage/foreclosure, deferred maint and so on).  What if you put down a size-able downpayment,  make payments on an agreement for deed for a year or three, then you find out he owes more than the payoff amount and he does not have the cash to pay it off so you can take ownership?  My suggestion is keep saving for a down payment, keep working on your credit (if that is an issue), and keep looking for a house that you want to call yours.  This might be it but only if you are able to purchase outside of owner financing i fear.  In the meantime, enjoy the house you have called Home for a while and hope for the best.

Tim

I am looking to loan some money to an investor to flip a SFH and am looking for some of the details regarding documents required in Illinois. Let me say, i am a seasoned investor with about 20 years investing in SFH and currently own about 75 SFH. About a third are paid off and my reserves and bank accounts allow me to loan some money without jeopardizing my business.

I am a leading member of my local REIA and have met with someone from the group who has flipped abut 6-7 houses and is interested in working with me on her next flip. The SFH she is looking at is only 2 blocks from one of my current rentals so I am familiar with the area and really like it. She is looking to borrow about 60% of ARV and the rehab costs are maybe 10% of the ARV, (which she has on hand so only needs to borrow for the original purchase costs). She is looking at a turnover of about 3 months from purchase to sale where she will pay off the original purchase price.

We have discussed the origination costs and monthly interest only payments and I think we are good to go.  

My questions are; Besides a note stating the SFH as collateral, what documents do I need to protect myself should this go south.

This is my first attempt at Hard Money lending and others have inquired of me but I want to get this under my belt first.

Thanks for any and all help you can provide.

Thank you everyone for the advice. I never considered a QCD but that makes a lot of sense. Partial conversions as the year and income dictate and whatever I planned on giving to my Church and other charities can stay in the IRA until the RMD's kick in and then that money goes there. A true Win-Win as I dont have to pay taxes today, the money continues to grow and the charity gets the full benefit. This is the beauty of Bigger Pockets, the knowledge that is so freely shared by everyone. Thank you again, it is very appreciated!

I used to have a "Real" job and contributed to my 401k as much as I could. When I quit and went into RE full time, I rolled over into a self directed IRA, NOT a Roth. (This was done to keep my income low as I continued to contribute as my kids were all going to school and that darn FAFSA.)

Now that my kids are out of school, I am considering doing the Roth conversion.  The lower Trump tax rates, expanded brackets and the bonus 20% pass thru deduction have me thinking this is probably the best time to make the conversion.

My problem / concerns are as follows:  

- I have just over $250k in my IRA (dividend paying stock) so the taxes owed would be HUGE.

- I have approx $1.2M net worth in RE and plan on keeping most of it as I retire so I do not foresee NEEDING the IRA balance to live.

- I am 52yrs old so I have some time to recapture but not that much (comparatively).

- The market is at an all time high so paying taxes now may mean if there is a correction, however slight, I am overpaying the tax

- I could pay the tax from current reserves but that would leave me almost naked on that front.  Perhaps a multi year conversion but that shortens my time to recoup etc etc etc

- I ASSUME the tax rate will only go higher from here as sooner or later there will be a changing of the guard in DC and the current Dem platform is higher taxes, especially for people like me.

- by the time I hit 70.5 and the RMD start kicking in, the balance could be close to or over $1m in the IRA meaning I could have an RMD of $75-$100k yr on top of my RE income, which, by then, will be sans the depreciation deductions, meaning HIGH TAX BILLS.

My questions are this;

- Is there a calculator that you can punch in your data and future assumptions and it gives you a recommendation or break even analysis.

- Do you bite the bullet now or spread out over 2+ years

- Do I just leave it and worry about it in 18 years or let the kids pay the tax when I die

- 1st world problems, I know, but I don't want to pay more tax than I have to and I DO want to leave as much as I can to MY charities and heirs and not the Govt.

Thanks for any suggestions or insight this great group of investors can offer.

Tim

Martine D, I am not the VP anymore. The RAA still exists but I left that organization last year to help start another Rockford REIA. The RAA is good for landlords and the REIA is good for beginners and Investors. A fine line I know. We meet the 2nd Wednesday of each month RAAR building, 6776 East State, 6pm.

Hope to see you there.

Hi Joe,

I generally do my own roofs but when I first got started, I used RCH Roofing.  He is licensed, insured with over 10 years experience.   I still use him once in a while (2 roofs in past 3 years) when I need the extra hands.  He does GREAT work.  He is a bit higher than most investors like to spend (high side of mid-priced roofers) but I would highly recommend him.  I actually used him to rebuild a chimney that was crumbling and leaking about a month ago.  Tell him Tim Hoffman recommended him and you might get a faster reply.  His name is Louis.  The system wont let me post his phone number but you can look him up on google or other search engine.  Good luck