State Tax And Holding Period On Contract Assignment
We signed contracts to purchase several condos about 2 years ago. These will be completed shortly. When we assign these contracts and receive our $$ at closing, I believe we will have LTCG treatment (and rates) on the gain. Opinions? These condos are in AL, but all the contracts, etc. were executed by me in TN. I will not travel in state for closing. Can AL tax these gains or are they attributable to me here in TN?
Thanks
In my humble opinion, your contract assignments are dealer dispositions -- ordinary income and self-employment income taxes apply regardless of your holding period.
AL will tax your income because the income was derived from sources within AL. TN will tax your income because all income earned by residents of the state is taxable regardless of the source. TN may give you a tax credit for taxes paid to AL on the income earned in AL.
Consult your tax advisor for specific details.
Your CPA is right. Having this in an S Corp or LLC will NOT change the character of the income - it will still be passive and your deductions will be limited because of your income. If you can rent it to produce positive income, you can use the prior year suspended losses against the rental income.
Assuming that this is a rental property, your losses are suspended NOT gone. When you sell the property or get a positive income on teh property you can take the losses at that point.
great, thanks for the info! much appreciated.
Sorry for posting 2 months late .........
Put each investment property into a S corp or LLC. This way each entity may generate the maximum loss of $25000. This way after depreciation etc.....you have a shot at getting the 150 down to 100.....then you may even be looking at a lower tax bracket......if you qualify for spending 30 hours a week or more performing real estate activities (managing your properties....even from afar) you may enjoy an added bonus......[ Edited by ddipaola on Date 07/23/2007 ]
ddipaola,
You need to read the previous posts by edmeyer and finniganps again.
As mentioned before, both an S - Corp and an LLC are pass-through entities. Having rental property in an S Corp or LLC will NOT change the character of the income - it will still be passive and your deductions will be limited because of your income.
Additionally, there are asset protection advantages provided by the LLC that are not provided by the S-Corp. If you want to put rental property in a business entity, the LLC is the way to go.
Sorry again.... crazy week here......I have read all the posts here and I agree with them 1000%.
I have a similar situation as darogo except for the fact that I have one property held in a LLC and one held by me personally but they pay into a S Corp bank account. I also have an accountant who used to work doing auditing for the IRS so he knows exactly what to do and where all the limits are. This past year I sat there and nodded to his questions as we figured out my return. By the way the questions when he asks me if I answer incorrectly he asks again....The same exact question! It took my wife a 1/2 hour to pick up on the this.
Not all accountants are the same even though they have a CPA stamped behind their name. Keep this in mind when going to one. Just like certain contractors are better than others, you pay for their experience. I have a really good relationship with my accountant now after the last 10 years or so....He works real hard for me while I pay good money.....My advice is take your return to someone else and see if they can do better. Obviously work out the fee ahead of time for the consultation. IF he cant do better then it is free kind of thing. They also can suggest how or where a business entity can work for you and possibly break down your last years return as if you had the entities already. Then compare. It takes time and work on their part but....
Here is what I know I did last year.....I took a loss on the s corp and the LLC. I also qualified as a real estate professional since I manage the s corp property and am constantly on the phone with the property manager down south along with looking for more property. All told I grossed a shade above 150 before any of the RE adjustments. Somehow I got back 44+......I will have to find out what exactly he did. The one thing I know he did was move the s corp property to be a vacation home. We didnt show a profit this past year and to make sure I could take the interest deductions off of all 3 property mortgages since we were above the limits where the loopholes are gone. It may sound shady but when he explained it to me why and how it made sense to me......
I am also assuming a lot here. Most people get back tax returns like this, other than darogo, if I am out of place here give me a high sign.....I am just trying to be helpful here and say it is possible. By not way shape or form am I saying to commit any rule breaking or put yourself in the hairs of the IRS...just giving suggestions on how it gets done for me. No one told me any of these things either so I figured I would share my experiences.....maybe I will be in front of the man soon but for the last 8 years I swear by my guy!
Quote:
On 2007-07-26 10:18, ddipaola wrote:
Here is what I know I did last year.....I took a loss on the s corp and the LLC. I also qualified as a real estate professional since I manage the s corp property and am constantly on the phone with the property manager down south along with looking for more property. All told I grossed a shade above 150 before any of the RE adjustments. Somehow I got back 44+......I will have to find out what exactly he did.ddipaola,
Just so everyone is clear. You got a passive loss allowance greater than $25K because you are a real estate professional. Having the S-Corp and the LLC did not affect this at all. As a real estate professional, you would have gotten the same result without the S-corp or the LLC.
Excellent point Newkid....the deduction is based on his real estate pro status.....without that he would have been limited to 0 deduction (suspended loss) since his income exceeds the limit for a passive loss deduction (against ordinary income).