All Forum Posts by: Ebere Okoye

Draws on the rehab actually belong on the balance sheet as a liability item since its hard money that needs to be paid back. When expenses are incurred, they are actually inventory not expenses on the balance sheet as well. Your expenses on rehabs are not expenses until the property is sold. They should be added to the cost basis and therefore belongs on the balance sheet. If you do this. then your p&l should look clean.

On another note, I don't think any investor should have to wait that long to get their important questions answered by their accountant. please look out for what to look for in your cpa here: http://thewealthbuildingcpa.com/index.php/home/167-how-to-put-together-your-wealth-building-team

It is a small business. Passive income and Material participation rules only apply to rental properties which is not what you have in this case. Here is the official IRS position: Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Interest received on loans is business income if you are in the business of lending money. Please see http://www.irs.gov/publications/p334/ch05.html

Yes and it also depends on how you are treating the income, if you are treating the interest as active income, then you would do a direct offset but if you are treating the interest as passive income, then those expenses would be considered investment expenses taken on your Itemized deduction Schedule A.

From what I know, there are not UDFI and UBIT on loans associated with a solo401k. Only loans associated with SDIRA's.

Yes, you will need to allocate the rebate/rewards based on the percentage that relates to the business property.

Yes you may. Partial interests qualify for exchanging within the scope of Section 1031 of the Internal Revenue Code. However, if your interest is not in the property but an interest in the partnership which owns the property, your exchange would not qualify. This is because partnership interests are excluded from Section 1031. But don't be confused! If the entire partnership desired to stay together and exchange their property for a replacement, that would qualify.

Another caveat, those individuals or groups owning partnership interests who desire to complete an exchange, and have for tax purposes, made an election under IRC Section 761(a) can qualify for deferred gain treatment under Section 1031. This can be a tricky issue!

It depends on what you get at the end. In your case, because they are redeemed, then all you have is interest income which is passive income. If the properties are not redeemed and you foreclose, then it depends on your investment intent at that time. If you hold the properties, then it's passive but if your intent is to flip, then it is active subject to Self Employment Taxes.

It really depends on which year would be more favorable from a tax rate standpoint. Do you have other expenses this year that can offset the flip income? I usually advice my clients that these scenarios are best dealt with through a year end tax planning analysis. And there are Do it yourself kits out there as well as professional that can do this analysis for you to determine which one is better.

It depends on what you investment intent is. If your intent was to buy, hold, then sell, then yes, you can deduct the eviction costs in 2011. If your intent, was to buy, fix, and sell then those costs are added to the cost basis of the house.

To the first question regarding profits, it is regarded as Business income subject to self employment taxes.
To the second question on short term capital gains - Yes, if the business is a pass through entity, then it follows the same rules as our individual tax return rules.