Best Plan For Capital Gains On Sale Of Farm Land?
My husband died in 1992, leaving me sole owner of our farm. The land had a fair market value of $1,000 per acre then. I have been offered $12,000 and acre now. Buyer will pay in lump sum or in installment payments ... whatever I prefer. What is the best way to minimize the amount I have to pay in taxes going forward? (I am 78 and have 4 grown children.) Thank you. WS
Great words by New Kid - might also want to make sure your property is on your Schedule E for filing purposes.
Cheers,
Ron
Please note, that I have reservations about the tax treatment on your property. It does appear that you may be operating an active income business rather than a passive income rental activity. If your average tenant stay is seven days or less, then you ARE operating a business.
If so, then you report everything on Schedule C and Schedule SE.
Consult a licensed tax advisor for specific details as they may apply to your situation.
The question of income may be moot. With a 40% management fee, I suspect there will not be any cash flow.
The primary concern is the tax treatment, whether done through an S-Corp or done as a sole propietor, the income and expenses still end up on Schedule C.[ Edited by NewKidInTown3 on Date 01/20/2006 ]
Hoober,
You are correct, some lenders do have programs for "future home". I, as a mortgage broker for the past 20 years have to agree with the previous poss which discourage making false statements on the loan application. In my opinion this should be done as an investment loan. Yes the rate will probably around 1/2% higher, but it is a small price to pay in comparison of facing the potential consequences of committing loan fraud.
I am aware of several situations where people have tried to make the argument suggested in a prior post that it was the intention at the time they filled out the loan app. to occupy as primary or second home, and after random lender audits determined that is was an investment property had the loan called. I do not believe that it is your intention to mis represent the facts or you would not have posted the question. I think Kid is right on track regarding taxes. You can not have it both ways. Wanting the tax benefits of an investment property, and the rates of a second home.
Good Luck.
What exactly is the difference between the tax treatments of a business verses a rental property? I believe the depreciation rates are different and they are reported on different forms...but what is the real difference? If it was a business and shows a paper loss, I believe the whole loss would off-set W2 income, correct? Whereas, if it were a renal unit (and you actively manage it), only up to 25K may be offset against W2 income, correct? What other pros and cons are there?
I am in the same situation. I have a lake property that I am offering for both short and long term rental. If I report it as a business, and I am able to use the loss to reduce by AGI, I would be very happy.
No email on your profile.
[ Edited by hoober on Date 03/06/2006 ]
Great - just sent you en email.
Great - just sent you en email.
I second the comments made by NewKidd regarding Bubbapoof. It absolutely amazes me that people can actually justify or rationalize their way to committing fraud. This is a federal offense, so borrower beware.
[addsig]
Bubba,
If an investor can not afford the beach rental property, without the rental income to make it work, then how will he magically be able to afford the same property purchased as a second home with the same mortgage payment because he only put 10% down and also has to pay PMI?
Sorry Bubbapoof,
I completely and unconditionally agree with NewKidd. You can rationalize this anyway you want, but it is loan fraud. There is absolutely no gray area here.
[addsig]
I think NewKidd has made the point very well and very clearly, so we are going to have to agree to disagree.
[addsig]
Subdivide in 2007 ???
One thing to be aware of ... if you are subdividing land, your SD-IRA may be subject to UBIT. [ Edited by fbprop on Date 03/10/2006 ]
Thanks for the reply. It appears I’ll be okay and not be using all my IRA account. I was able to get all the zoning/ density info before making the offer. I made a lower cash offer with no contingencies and they accepted it. I now need to determine if I should subdivide or simply hold it and sell to a developer because water/sewer is 4 years away. I do need to brush up on my knowledge of UBIT, there is a lot of grey area in the self-directed IRAs and often my accountant isn’t certain.