If you are a dealer to real estate, then virtually all the money you spend to acquire the property, to rehab the property, to maintain the property, to hold the property (such as property taxes, insurance and utilities), and to sell the property are included in the cost of goods sold.
Even mortgage interest if you finance the purchse is included in your holding costs and becomes part of the cost of goods sold.
Quote:...then sold the property to themselves on a wrap around mortgage (deed does not transfer until wrap is fully paid for, and you could always walk away if you were sued personally).One big flaw, deed does transfer on a wrap. You are right back to square one after expending time, effort and money to get there.
In your current post as well as your former posts, you’ve mentioned that you use a multi-member, multi- level LLC asset protection structure. However since your (Top-Level LLC’s) own your (Mid-Level LLC’s), who in turn own your (Low-Level LLC’s) where the property is held, how is it possible to effectively equity strip?
Being that your (Mid-Level LLC’s) provide the credit lines for your (Low-Level LLC’s) and record liens against the properties, it seems to me that all you’ve accomplished is a merger of title.
Since your (Top-Level LLC’s) own your (Mid-Level LLC’s) which in turn own your (Low-Level LLC’s) who subsequently own your properties and in applying the “Doctrine of Substance over Form”, it is my contention that your (Top-Level LLC’s) own the properties and the liens against them.
That being so, the recorded liens against the properties lack consideration, which means they are merely clouds in the chain of title and offer no asset protection.
[ Edited by Darryle-CA on Date 02/26/2006 ]
If your entity owns the property you occupy as your primary residence and title does not get put in your name until you satisfy your contract, then how do you propose to sell the property yet still meet the two year OWNERSHIP and OCCUPANCY rules for the capital gains exclusion without keeping the property for another two years?
Quote:
On 2006-02-26 16:47, NewKidInTown3 wrote:
If your entity owns the property you occupy as your primary residence and title does not get put in your name until you satisfy your contract, then how do you propose to sell the property yet still meet the two year OWNERSHIP and OCCUPANCY rules for the capital gains exclusion without keeping the property for another two years?
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NewkidinTown3
If your entity is a properly structured, legally recognized, tax paying entity such as a c-corp., then it seems to me that the 250k exemption would not be allowed until two years after the contract is satisfied and title is passed.
If your entity is a properly structured, legally recognized non-tax paying pass-thru entity such as a trust, then it seems to me that the contract for deed satisfied or not would not effect a change of ownership. It would merely change the manner in which title is being held and the 250k exclusion would be allowable.
I agree, but the operating premise is that the primary residence is owned by a business entity that provides asset protection and title stays vested in the entity until the property is sold.
Since the Section 121 capital gains exclusion only applies to individuals, holding in your own name or in your own living trust seems to be the only way to preserve the capital gains exclusion.
Quote:
On 2006-02-27 02:28, NewKidInTown3 wrote:
I agree, but the operating premise is that the primary residence is owned by a business entity that provides asset protection and title stays vested in the entity until the property is sold.
Since the Section 121 capital gains exclusion only applies to individuals, holding in your own name or in your own living trust seems to be the only way to preserve the capital gains exclusion.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
I believe that any properly structured, legally recognized non-tax paying pass-thru entity, (i.e. trust, partnership, s-corp etc.) whereby the grantors and the grantees per the contract are comprised of the same parties, who continue to hold the same proportionate interest in the property, is not and will not effect a change of www.ownership.It is merely a change in the manner in which title is being held and said parties should qualify for the section 121 exclusion.
If you as one of the owners of the top level multi-member LLC loans money to the low level multi-member LLC, whereby you are also a member, does the recording of your lien encumber your member interest in the low level LLC ?
I have a clear understanding of your example. However it seems to me that since LLC "Mid2" owns 25% of LLC "Low1", his lien against the property owned by LLC "Low1" would not encumber his 25% interest in said property. It would only encumber the 75% interest owned by LLC "Mid1", and leave 25% of the property’s equity exposed.
Are you selling as an investor or as a dealer?
Give us more context about the structure of your deal so we can give you an accurate response.
Sorry for being so general.
If I were a dealer.
There is no particular deal, but was just wondering for accounting purposes.
[addsig]
If you are a dealer to real estate, then virtually all the money you spend to acquire the property, to rehab the property, to maintain the property, to hold the property (such as property taxes, insurance and utilities), and to sell the property are included in the cost of goods sold.
Even mortgage interest if you finance the purchse is included in your holding costs and becomes part of the cost of goods sold.
Thanks.
In this scenario, as a dealer, what would be the tax advantages/disadvantages of forming an LLC or S-corp as opposed to filing as an individual?
With the S-Corp, you have a little more control over the amount of income subject to payroll taxes. Otherwise, the tax treatments are the same.
If your goal is asset protection put it in a trust. Less of a headache seems to me
Quote:...then sold the property to themselves on a wrap around mortgage (deed does not transfer until wrap is fully paid for, and you could always walk away if you were sued personally).One big flaw, deed does transfer on a wrap. You are right back to square one after expending time, effort and money to get there.
Hello Mantis,
In your current post as well as your former posts, you’ve mentioned that you use a multi-member, multi- level LLC asset protection structure. However since your (Top-Level LLC’s) own your (Mid-Level LLC’s), who in turn own your (Low-Level LLC’s) where the property is held, how is it possible to effectively equity strip?
Being that your (Mid-Level LLC’s) provide the credit lines for your (Low-Level LLC’s) and record liens against the properties, it seems to me that all you’ve accomplished is a merger of title.
Since your (Top-Level LLC’s) own your (Mid-Level LLC’s) which in turn own your (Low-Level LLC’s) who subsequently own your properties and in applying the “Doctrine of Substance over Form”, it is my contention that your (Top-Level LLC’s) own the properties and the liens against them.
That being so, the recorded liens against the properties lack consideration, which means they are merely clouds in the chain of title and offer no asset protection.
[ Edited by Darryle-CA on Date 02/26/2006 ]
If your entity owns the property you occupy as your primary residence and title does not get put in your name until you satisfy your contract, then how do you propose to sell the property yet still meet the two year OWNERSHIP and OCCUPANCY rules for the capital gains exclusion without keeping the property for another two years?
Quote:
On 2006-02-26 16:47, NewKidInTown3 wrote:
If your entity owns the property you occupy as your primary residence and title does not get put in your name until you satisfy your contract, then how do you propose to sell the property yet still meet the two year OWNERSHIP and OCCUPANCY rules for the capital gains exclusion without keeping the property for another two years?
~~~~~~~~~~~~~~~~~~~~~~~~~~~
NewkidinTown3
If your entity is a properly structured, legally recognized, tax paying entity such as a c-corp., then it seems to me that the 250k exemption would not be allowed until two years after the contract is satisfied and title is passed.
If your entity is a properly structured, legally recognized non-tax paying pass-thru entity such as a trust, then it seems to me that the contract for deed satisfied or not would not effect a change of ownership. It would merely change the manner in which title is being held and the 250k exclusion would be allowable.
I agree, but the operating premise is that the primary residence is owned by a business entity that provides asset protection and title stays vested in the entity until the property is sold.
Since the Section 121 capital gains exclusion only applies to individuals, holding in your own name or in your own living trust seems to be the only way to preserve the capital gains exclusion.
Quote:
On 2006-02-27 02:28, NewKidInTown3 wrote:
I agree, but the operating premise is that the primary residence is owned by a business entity that provides asset protection and title stays vested in the entity until the property is sold.
Since the Section 121 capital gains exclusion only applies to individuals, holding in your own name or in your own living trust seems to be the only way to preserve the capital gains exclusion.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
I believe that any properly structured, legally recognized non-tax paying pass-thru entity, (i.e. trust, partnership, s-corp etc.) whereby the grantors and the grantees per the contract are comprised of the same parties, who continue to hold the same proportionate interest in the property, is not and will not effect a change of www.ownership.It is merely a change in the manner in which title is being held and said parties should qualify for the section 121 exclusion.
Mantis,
If you as one of the owners of the top level multi-member LLC loans money to the low level multi-member LLC, whereby you are also a member, does the recording of your lien encumber your member interest in the low level LLC ?
Mantis,
I have a clear understanding of your example. However it seems to me that since LLC "Mid2" owns 25% of LLC "Low1", his lien against the property owned by LLC "Low1" would not encumber his 25% interest in said property. It would only encumber the 75% interest owned by LLC "Mid1", and leave 25% of the property’s equity exposed.
Darryle-Ca