Ownership Title Versus Mortgage Holder To Avoid 4 Property Rule
I am buying a condo with a friend and to avoid the 4 property rule, we will put the title in both our names but only put the mortgage in his name. Does anyone know how this impacts me for ownership and income taxes. I will give him a gift to cover my share of the down payment but the title will be held 50/50 in tenancy in common.
No big deal here. You just report your 50% as passive real estate income (you pay taxes of course). He gets all of the depreciation, income, interest (nice writeoff for him). But he does the management and operation, if you manage it, then you increase your income of course.
You get 50% when you sell the condo
good luck
Have you looked into whether the Lending Institution will lend your friend the money if you are taking title TIC. Most Lenders I have dealt with insist that all people on title are also on the mortgage.
Good Luck.
JS.
If you are in fact making the payment on some portion of the new equity loan that is in your co-owners name, you may have a problem if the equity loan is not secured by your home.
According to the IRS, the home mortgage interest deduction can only be taken for interest paid on a loan secured by your primary residence.
Let us know what your tax advisor says.
Thank you for the quick response.
Could the new loan arrangements not be seen as Owner financing of my half of the property by my co-owner?
clutching at straws here perhaps.
cath
I did this w/o a co-owner. I took the full deduction, and then he produced a spreadsheet of the tax benefit he lost, and I paid him.
Might not be 100% right by IRC, but never audited over it.
finniganps is correct, you can no longer get an IRS mortgage interest deduction. Do not even attempt this spread sheet thing, if you arent getting a 1098...forget it.
Any attempts to circumvent that 1098 may flag your return...then they look at the whole thing
Thanks - but my quote comes directly from the IRS - not as clear cut as you make it sound. I will report my findings.
thanks.
Hi NewKid,
Curious if you negotiated the interest paid on your last 1031 exchange funds.
What would be your preferred investment today for your 1031 exchanges?
Since I cannot get loans in todays world, I feel powerless to any movement/change. Are you making progress?
Thank you in advance, Ce
Bill Exiter (1031 facilitator) gave me some advice on this..
VERY! sharp guy..
Some of the structures that were proposed to me can be done, but create an audit risk.
Quote:
On 2009-01-20 20:28, cjmazur wrote:
Bill Exiter (1031 facilitator) gave me some advice on this..
Some of the structures that were proposed to me can be done, but create an audit risk.If the exchange funds are funnelled to your or to an entity that you control, then you have constructive receipt of the exchange funds and your proposed sxchange fails.
I would be curious to know how Bill Exeter avoids constructive receipt with this strategy. When you are told that there is an audit risk, does that mean an auditor could disqualify the exchange if you are audited?
The opinion on the use of a LLC or TIC, was that the facilitator I consulted was being very aggressive and closing the eyes to that bad act being conducted.
Question: if I following a QI advise, am I on the hook for their mistake?
The other thing we discussed was buying one asset, and then selling shortly there after. You have to have an intent to hold but IF you were audit and could justify the sale, that would fly.
He also mentioned the use of a reverse exchange, but that was not discussed.
Not sure why anyone would want to exchange anything now if they plan on selling in the next 10yrs as taxes are undoubtedly going to be considerably more starting in 2010.
why sit in an under performing asset, just to "save" taxes..[ Edited by cjmazur on Date 01/21/2009 ]
Quote:
On 2009-01-21 05:35, cjmazur wrote:
The opinion on the use of a LLC or TIC, was that the facilitator I consulted was being very aggressive and closing the eyes to that bad act being conducted.You say you talked to a consultant, and you mentioned Bill Exeter. Is the consultant you talked with Bill Exeter?
Quote:Question: if I following a QI advise, am I on the hook for their mistake?You are ultimately liable for your tax return. When the IRS disqualifies the exchange because you had constructive receipt of the funds, then your relinquished property sale is recharaterized as a taxable event. Your taxes will be recomputed, back taxes assessed, penalties and interest may apply. I seriously doubt the QI will cover any of this for you if you acted on the advice even though you were told by the QI that the strategy would be troublesome for you in an audit. You will probably also have to sign some release of liability to the absolve the QI.
Quote:The other thing we discussed was buying one asset, and then selling shortly there after. You have to have an intent to hold but IF you were audit and could justify the sale, that would fly.So, now you want to do an exchange, then quickly sell the replacement property? You want to pay a QI all the exchange fees, just to sell the replacement property and then have the same tax bill you would have had if the relinquished property transfer had been a taxable event?
Do this if you want to, but I would rather see you save the money you would spent on the exchange because in the end you have not deferred any income tax liability. In fact, you made it higher by taking a long term capital gain and converting it to a short term capital gain.
Quote:
On 2009-01-21 13:01, cjmazur wrote:
why sit in an under performing asset, just to "save" taxes..
<font size=-1>[ Edited by cjmazur on Date 01/21/2009 ]</font>
Thats my point. Taxes will be more later.
Thanks for your feedback and ideas, NewKid.
Sign up for his webinar of the DST structure (for what it stands for)
Quote:
On 2009-01-21 00:53, NewKidInTown3 wrote:
Quote:
On 2009-01-20 20:28, cjmazur wrote:
Bill Exiter (1031 facilitator) gave me some advice on this..
Some of the structures that were proposed to me can be done, but create an audit risk.If the exchange funds are funnelled to your or to an entity that you control, then you have constructive receipt of the exchange funds and your proposed sxchange fails.
I would be curious to know how Bill Exeter avoids constructive receipt with this strategy. When you are told that there is an audit risk, does that mean an auditor could disqualify the exchange if you are audited?
Quote:
One hurdle to overcome is the foreclosure itself. Unless the property is acquired by a deed in lieu of foreclosure, how do you prevent someone else from outbidding your QI at the foreclosure sale?
via proprietary technology that I have trade secret protection on and a patent pending, AND I am going to turn into the "Mazur Method" and make billions!
Really, the thought was ID another property and use the proceeds of the foreclosure sale to close on it.
If the borrower of the defaulted note go into BK, files suit, the 180 days go be shot.
The problem I still have with your original post is that either you or a business entity that you control propose to take the exchange funds to purchase the defaulted note. I still say that if you or an entity you control has possession of the exchange funds, then you have constructive receipt and the sale of your relinquished property becomes a taxable event.
After more research, I have come to the conclusion that the 1st QI I talked to was a bozo.
<font size=-1>[ Edited by NewKidInTown3 on Date 01/23/2009 ]</font>
Yes, i think you can. As long as there is no mortgage involved; your attorney deeds everything to the IRA; and the IRA has enough funds to cover the mortgage and expenses for life.
I dont think you can contribute anything to the IRA, for repairs and such. It all must come from the IRA and rent check must go directly to the IRA.
Seems like a very very bad move to me, but id bet it can be done.
You only get a 1099 from the lender if the debt is forgiven, meaning that the deficiency does not have to be repaid. Bankruptcy does not change the answer although it could affect the taxability of the forgiven debt.
is this site just for opinions or what?. whether you ask or tax question, legal question, etc, the same people seem to answer in the same manner and capacity. Are there no expert/professional attorneys or CPAs here? I mean I appreciate the moderators helping out but ......
Maurich,
These forums are populated by many experienced and knowledgeable investors who do know the answers to many real estate related questions.
On the other hand, the forums are also well represented by other new investors or future investors who are well intentioned but not well informed.
After you have participated in the forums for a while, and maybe apply your own experience, you get to the point where you recognize the difference.
You are right to be skeptical of any opinion you get in an anonymous web forum. Treat the opinions and advice as if presented for educational purposes and not a substitute for professional legal, investment, or tax advice. Always do your own homework before acting on anything suggested in these forums.
The forum rules reinforce this caution. Here is an exerpt from the rules
You use this Forum at your own risk. You should retain the appropriate professionals and conduct your due diligence before you make any contract or investment. The information in this Forum is not a substitute for the assistance or expertise of attorneys, title insurance companies, tax advisers, accountants or other experts and professionals.
Debt forgiveness doe not apply to rental properties/Income property. You need to look up the new laws recently passed by congress amending the IRS codes. You owe the IRS taxes on the dificiancy because it was an investment property! BK does not protect you from the IRS! You can adjust the gross income fof the 1099 based on expenses and depreciation. But again you need a good CPA. Give this information to your CPA and they will advise accordingly. You might be okay if the CPA runs the numbers! GET EXPERT ADVISE, CALL A CPA! Good Luck! All the best!
from
http://www.irs.gov/individuals/article/0,,id=179414,00.html
Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.
Soulds like if the renal was purchased w/ a purchase money mortgage and was 1-4 units, this would apply.
The issue as I understand is:
Purchase money mortgage non-recourse
non-purchase money mortgage dificency judgment if they seek judicial foreclosure
Then there is the new on short www.sales.law.
cj,
You are correct that a purchase money loan is without recourse. However, a purchase money loan is narrowly defined
If you check your CA statutes, a third-party purchase money loan is defined as a loan for an owner-occupied residential property that has no more than four units.
Or, more specifically, a third-party purchase money loan is
made by a lender to the buyer,
used by the buyer to pay for all or part of the purchase of the property,
stated in a promissory note secured by deed of trust recorded against the property, and
concerns a property that has four or less residential units, one of which the buyer occupies as his residence.)
As I read it, loans to purchase investment property are not shielded from a deficiency judgment.
Loans to refinance your primery residence are not shielded from a deficiency judgment.
HELOC loans are not shielded from a deficiency judgment.[ Edited by NewKidInTown3 on Date 01/26/2009 ]
The owner occupant requirement is right there.
CCP 580(b)
No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the
purchaser.
I guess we have a different definition of a HELOC. A HELOC is a Home Equity Line of Credit. When you get a HELOC, you create a line of credit using the home your already own as collateral.
In my view, since a HELOC is obtained on a property you already own, by default, it is not a purchase money instrument.
The 80/20 (or 80/10/10) piggyback loans you refer to are a first and second mortgage, and meet the criteria of purchase money loans. The 10% or 20% second is a closed end loan and not a line of credit, and therefore not a HELOC.
Just how I see it.
many 80/10/10 where issued as helocs not he loans.
Per has a my lineral reading..
dwelling occupied, entirely OR IN PART by the purchaser.
I still have crap in the garage.. LOL.
If your 10 in the 80/10 is a HELOC, then did you execute a deed of trust for the HELOC or just a mortgage?
I have only ever gotten a HELOC two times in the past. In each instance, I never executed a deed of trust even though I am in a deed of trust state.
In CA your state law prohibits the lender from seeking a deficiency judgment when the foreclosure is a power of sale under a deed of trust . A mortgage, however, requires a judicial foreclosure, which allows the lender to seek a deficiency judgment. I believe this is true even in CA
Yes, a note, and deed of trust was execute.
Even w/ judicial foreclosure, it has to a non-purchase money mortgage to seek a deficiency.
What the hell are u talking about? You present this as some confusing situation, but you are treated just the same as everyone else.
You will get to write of $3000/yr period.
You will get $250,000 profit free and clear when you sell this property.
Unless you did some Major Major renovation, you will only get the purchase price + documentable improvements as your cost basis....just like everyone else.
Seems like you are complicating a simple matter. Just tell me your original purchase price and what you spent on improvements (documentable). Then subtract whatever the home is worth. If its less than $250k, you are wasting your time, you dont need to pay any taxes when you sell.
Sorry my friend. You probably know nothing about the topic. Your answer is way way off and completely wrong.