Real Estate Tax Questions - Posted by John K Haslach, CPA, MST

Posted by John K Haslach, CPA, MST on March 06, 2004 at 11:21:40:

Include the gain in determining the tax bracket.

John K Haslach, CPA, MST

Real Estate Tax Questions - Posted by John K Haslach, CPA, MST

Posted by John K Haslach, CPA, MST on March 03, 2004 at 04:35:18:

Got a Real Estate Tax question? Drop me an email, and I will answer it for you. No obligation. Responses are of a general nature and should not take the place of advice of a competent tax advisor who is familiar with your entire situation.

John K Haslach, CPA, MST

Re: Real Estate Tax Questions - Posted by Mike

Posted by Mike on March 07, 2004 at 21:35:24:

John,

I created an “s” corp in 2003 for my real estate investing. I mainly do wholesale flips, with very short holding periods.

My question is where do I report the sales of my real estate property on my Form 1120S. Do I report gross sales as income and my purchase price in COGS? OR would that raise dealer flags? Should I report my the profit/loss on Sch K only as RE gains/losses instead?

THxs

Re: Real Estate Tax Questions - Posted by Bob

Posted by Bob on March 03, 2004 at 17:29:42:

John, my question is on a refi on a commercial property. S-Corp owner. Under normal circumstances - is this considered a taxable event with the S-corp owners having tax consequences? Personally, I don’t think so as the funds are the s-corp’s to disburse or invest.

Now add the fact that the s-corp will go from 2 shareholders to 1 very shorty. Partner #2 is buying out partner #1 basically with the proceeds from the refi.

The advising attorney says that he is “pretty sure” that the IRS would disallow this transaction (if ever audited) and he advised to structure it as a sale of stock where just the capital gains tax will apply. I like the refi, distribute and then sell the stock option for no tax. But he says sell the stock, refi, and pay the tax option.

Any ideas, advice ? Thanks in advance.

Re: Real Estate Tax Questions - Posted by USA1-TN

Posted by USA1-TN on March 03, 2004 at 14:14:54:

John are LLCs exempt from State Franchise and Excise Tax? I assumed that “pass through taxiation” implied that the LLC company would be taxed as an individual and not treated as a corporation. The State of TN is requesting information to establish F/E tax for my LLC. How could you possibly handle this if you have seperate LLCs for each property which would result in seperate F/E accounts with the state for each property? How should I respond. Thanks

Re: Real Estate Tax Questions - Posted by Theo (NYC)

Posted by Theo (NYC) on March 03, 2004 at 09:39:00:

What items will lower my taxable profit on the sale of a home? Realtor fee, improvements, etc. And do I need specific invoices/recipts for those items, or would a credit card invoice with $200 - Home Depot work?
TIA

Re: Real Estate Tax Questions - Posted by eric-fl

Posted by eric-fl on March 03, 2004 at 08:44:03:

John, I’m not sure if this falls under the “no advertising” rules, but that’s up to the owners of the board, not me.

Assuming you’re sincere in your intentions, why not just field questions here on the board for the benefit of everyone? Here, I’ll start with a question that’s been nagging me lately:

One thing I’m not straight on, is the implication of capital gains under these new tax cuts. I’ve got some rental properties I think I might like to sell, but it’s my understanding that if I sell them for a profit right now, I’m paying, I think, 15% in cap gains this year, down from 20% a few years ago. Is that correct? Further, I heard, at a REIA meeting, that in a couple years, something like 2006 or 2007, there won’t be ANY cap gains on real estate sales. Is that correct? It’s just something I overheard, so I have no idea if it’s legit or not.

Any info or advice you could give would be appreciated by all!

Re: Real Estate Tax Questions - Posted by John K Haslach, CPA, MST

Posted by John K Haslach, CPA, MST on March 08, 2004 at 03:33:02:

If you are looking to help avoid dealer status, you shoul report the sales as short term capital gains and losses on Sch D, as long as you held the property less than one year. Long term cg if held more than one year.

Hope this helps, let me know if you have additional questions.
Thanks
John K Haslach, CPA, MST

Re: Real Estate Tax Questions - Posted by JOHN K HASLACH, CPA, MST

Posted by JOHN K HASLACH, CPA, MST on March 10, 2004 at 16:40:04:

Let me see if I understand. S Corp, two shareholders. S Corp borrows money to buy out one of the shareholders. In effect, it seems the S Corp is redeeming the stock, treasury stock. The corp has no gain or loss dealing in it’s own stock. The shareholder may have gain if the proceeds are greater than his basis.

If the S borrows and distributes out to the shareholders, they may have gain if the distribution is greater than their basis.

Hope this helps.
John K Haslach, CPA, MST

Re: Real Estate Tax Questions - Posted by JOHN K HASLACH, CPA, MST

Posted by JOHN K HASLACH, CPA, MST on March 03, 2004 at 14:46:47:

Hi. It is up to the states how they treat LLC’s. They are creations of the state and if you want to do business in their state, you have to follow their rules. I am not familiar with TN’s rules.

John K Haslach, CPA, MST

Re: Real Estate Tax Questions - Posted by JOHN K HASLACH, CPA, MST

Posted by JOHN K HASLACH, CPA, MST on March 03, 2004 at 10:32:13:

The first $250,000 of gain on your personal residence is tax free is you live in it for 2 years as a principal residence and you file single. Is your gain more than this?

Re: Real Estate Tax Questions - Posted by Scott (FL)

Posted by Scott (FL) on March 03, 2004 at 15:38:02:

Eric,

I know it’s a little off subject here, but have you considered doing a 1031 exchange. You didn’t mention why you were selling the properties so I thought it might be an option. Good investing!

Re: Real Estate Tax Questions - Posted by JOHN K HASLACH, CPA, MST

Posted by JOHN K HASLACH, CPA, MST on March 03, 2004 at 10:29:11:

I don’t really see where it is advertising at all. I am not trying to sell anything. I believe I am fielding questions from the board for everyone to benefit. If I am doing it incorrectly, please let me know. I am not trying to cause any problems.

I began doing it because I read some misinformation. Most questions only take a minute or two to answer.

Capital Gains on real estate sales are taxed at 15% if held long term. However, the depreciation that you take is taxed at 25%. If there is personal property involved in the sale, the depreciation is recaptured as ordinary income. There could be alternative minimim tax implications, so you should consult a tax advisor who is familiar with your particular situation.

As far as cg tax for the future, they are supposed to stay at the 15% (5% if you are in the 10% or 15%) bracket until 2008. But who knows what future tax laws will bring.

John K Haslach, CPA, MST

Re: Real Estate Tax Questions - Posted by E.Eka

Posted by E.Eka on March 03, 2004 at 09:45:46:

Whether or not there will be Capital Gains in the future will depend on whether these existing tax cuts are made permanent. Not trying to get political, but if Kerry takes office, he’ll try to raise taxes across the board. You are right, the cap gains rate is 15% down from 20% last year.

If you have rental property that you want to sell, you should try to incorporate other factors into your decision as well. To be entirely honest with you, I doubt that the cap gains tax on “investment” real estate sales will ever be eliminated. That may just be political rhetoric to get votes. There is too much tax revenue for the IRS to give up there. But that’s just me.

Re: Real Estate Tax Questions - Posted by TT

Posted by TT on March 08, 2004 at 03:55:53:

And max long term tax cap. gain rate is 15%, no?

Re: Real Estate Tax Questions - Posted by Theo (NYC)

Posted by Theo (NYC) on March 03, 2004 at 11:59:19:

dear lord no, I WISH!
However, I thought that was a once in a lifetime waiver - and if so, shouldn’t I do it on a residence where I’m going to profit somewhere near that?
also, I owned it for 18 months, but had to sell because I was laid off - will that qualify for a “hardship” pro-rated reduction in the tax owed?
Thanks a lot in advance!

Re: Real Estate Tax Questions - Posted by RJB(MA)

Posted by RJB(MA) on March 03, 2004 at 16:41:41:

“5% if you are in the 10% or 15%” bracket…do you figure your bracket including the gain or before the capital gain? Thanks.

Re: Real Estate Tax Questions - Posted by John K Haslach, CPA, MST

Posted by John K Haslach, CPA, MST on March 08, 2004 at 04:34:58:

Yes. There can be more complicated rules, depending on your specific situation, so you should consult a tax advisor about your situation.

John K Haslach, CPA, MST

Re: Real Estate Tax Questions - Posted by JOHN K HASLACH, CPA, MST

Posted by JOHN K HASLACH, CPA, MST on March 03, 2004 at 12:32:22:

You should be able to take a prorata exemption amount, 18/24 X 250,000.

Hope that answers your question.

John K Haslach, CPA, MST