All Forum Posts by: Ebere Okoye

Jm, please email me if you want to discuss this further. I am familiar with gift and estate tax returns although I have not prepared the foreign gift tax returns before. I have prepared the regular gift tax returns. [EMAIL REMOVED]

HI Brian, Yes, you will be able to offset the cancellation of debt income with the real estate investment loss since this is an investment property. Please email me if you would like to get a report that fully covers this but a quick and dirty calculation here.

Purchase price and closing costs of $234k less sales price minus closing costs (????) = Loss on sale of investment.

Cancellation of debt income $60-70k. As long as the loss on sale of investment exceeds the cancellation of debt/depreciation recapture, then the net result on your taxes will actually reduce your adjusted gross income.

General rule of thumb is that you usually will not have a taxable event after all is said and done if your loss on the investment exceeds your cancellation of debt and depreciation recapture. I hope this helps

Wealth Building CPA

Ram, There are two pages to a Schedule E. The first page is to report rental real estate activity. The second page is to report activity from a partnership or an S corp that is reported on a K1 or and SK1. So it depends on which page you are looking at.

Jack, I think you should do your own due diligence like asking for rent rolls and asking for lease copies and proof of payments. Of the tenants are still there, quick interviews. You should also use market research and comps for the rentals as well. That the property was fully rented in the last three years does not indicate what will happen when you purchase so you need an independent income and expense verification. What if there is deferred maintenance and all that not currently reflected on the Schedule E.

JM, Welcome to the IRS. Anyway, not sure why they would tell you to consider Foreign Gifts laws because this is not a gift. If you did not have a properly executed note, I think you should draft a promissory note signed by both parties and possible notarized. Then when the loan is repaid either through wire transfer, direct deposit, etc, Officially do a note cancellation by writing cancelled accross it and you can get it re-notarized and a copy goes to the debtor. This kind of evidence substantiates and issues that may arise in the face of an IRS audit. Unless you think this was not a loan but a true gift, then you need to think differently. see rules here http://www.irs.gov/businesses/article/0,,id=200722,00.html

Lauren, There is no such thing as an S-corp by itself. It has to be through an election. You use form 2553 for that. You do not need the 8832 form as that to be used when you want a different classification from what the IRS considers your entity structure to be.

In addition, the entity structure that you choose should be based on your real estate strategy. For example, if you buy and hold, then you really do not need an S corp election since your tax exposure will be more with the passive loss rules. On the other hand, if you are a dealer of a flipper, then you need to consider this election since you will be exposed to Self Employment taxes and the S corp election can help reduce that through salary allocations. I hope this helps

Wealthbuilding CPA

When I deal with my client on this issue, the treatment usually starrts with intent. If intent was to hold and can be substantiated, then I would go the Schedule D route. If intent was to flip, then I would go the Sch C route. But depending on if you did it in an LLC, then other factors need to be taken into account. Did you sell the interest in the LLC or did you sell the property. Interest in the LLC will be Schedule D. Long term though, if you are going to continue doing this, you want to work with a CPA who can assist you in an entity structure that will minimize your exposure to Self Employment Tax as a result of being a flipper. Instead of doing this as a sole proprietor, you can register an LLC and file an election to be classified as an "S" corp. This act also could save you thousands of dollars in Self Employment taxes.

Finally, keep in mind, that there are other holding costs such as mileage, etc to consider in coming up with the cost basis.

For the rental, Report on Schedule E with your %ownership. Consider a formal entity structure on this too.

Based on the rules that I am aware of, this is clearly a self dealing transaction. You cannot contribute property that you own in your name into the SDIRA. There are other options here but may involve some cash and contribution limits. It would be better to execute a completely new contract in the name of the IRA and retire the old one This means that you would need to contribute some money into the IRA, then have the IRA execute a new note and pay off the old one. If you do not have enough to contribute or because of the limits, you can partner with your SDIRA and do a split like 50/50, 60/40 etc. This would not be self dealing but just partnering.

So, you would need to separate what's repairs versus improvements. Repairs(keep the property in a rentable condition) can be expensed currently if the property is now available for rent. For Improvements (increases the value of the property or extends its useful life), you would need to depreciation over a number of years. I agree with Charles that you should not lump all into 27.5 years