Can I Be The Single Owner Of An LLC And Still Have Taxes Taken Out Of My Check?
Can I be the single owner of an LLC and still have taxes taken out of my check every week? I have had problems with borrowing money in the past because of the self-employed issue. The last lender charged my 1point on my mortgage because I was self-employed.
>> Can I be the single owner of an LLC and still have taxes taken out of my check every week?
What check?
Paycheck? >> if so, from whom?
LLC? >> are you a disregarded entity? or have you chosen for the LLC to be taxed as a corporation?
Basically ... we need more information. Please give specifics so that someone can answer your question properly.
Your lots are going to be classified as "inventory" in your land development business. The exception is the 4 lots used for duplex rentals. You will be taxed at ordinary income rates on the net gain from the sale of the 46 lots and they will not qualify for a 1031 exchange. If you were to keep all of them as rentals you could do a 1031 exchange very soon. The 1031 does not require a holding period, however, I have been told by 1031 qualified intermediaries that trading the replacement properties (under another 1031) soon after may be questioned.
I was looking to do a 1031 a few years ago on a property I just acquired and was going to lease to the sellers when they failed to pay and I did not want to rent to anyone else. My intermediary gave me the go ahead since the intent was to rent the property even though I held it for a very short time. I did not exchange immediately, but did so later.
Paul,
Your attorney needs to be aligned with you on this one before going forward. If a single entity, (i.e. an LLC )owns the property, I have doubts that one of you could claim a 1031 and the other not. The person who could definitively answer this is Bill Exeter who has an exchange company in San Diego and is a TCI member. My guess is that this may be possible as Tenants In Common.
You might want to contact a Qualified Intermediary and put your attorney on the phone so that the two of you are singing two part harmony on this.
Regards,
Ed
What you could do to extend the income over a period of time is seller-finance the land to the builder. Builders love this and you can spread your gains over multiple tax years. The down fall is that you do not have the cash to purchase more land. But take this scenario:
You sell the lots for $1,000,000 and receive 20% down at closing. You receive $10,000 a month for interest payments. Then you purchase another parcel of land, say $1,000,000. Purchase with 20% down (the same amount you received from your sale) and then you pay $10,000 (hopefully you can pay less and cashflow). You then only have to claim the 20% and the remaining balance can be paid over a time period, say 3 years, thus spreading your gains over multiple years.
Check what I am saying with professionals and other investors as I have only been in the REI market for over a year now. This is JMO and thought process.
estateXchange,
Installment sale tax treatment is not available when the sale is a dealer disposition.
Not so for dealer dispositions. All profit on the deal is taxable in the year the property is sold, even if the seller does not receive the money in that year.
EdMeyer is right on the money regarding the LLC and LLC members going separate directions.
The property is owned by the LLC. The LLC is a multi-member LLC and is therefore NOT a disregarded entity for income tax purposes. This means the IRS will treat the LLC as a separate legal taxpayer.
The LLC may be able to sell the property and buy like-kind replacement property and structure the transaction as a 1031 exchange, but the underlying members or investors merely own membership interests in the LLC and do not own real estate interests. If you think that each member may wish to go their separate ways then you will need to address this issue early on (like now). You can transfer (convey) the property out of the LLC (after seeking advice of tax counsel) and into each members name as individuals held as tenants-in-common. This way each individual member or investor does own an individual interest in real estate (not an interest in the LLC) and can each go their separate ways. This issue can be very complex, so please feel free to contact me through my profile for my contact information and I would be happy to discuss with you.
[addsig]
The inventory issue here is a little fuzzy. The biggest issue is your INTENT. In order to qualify for tax-deferred exchange treatment, an investor must have the INTENT to HOLD the property for rental, investment or use in a business. Property held with the INTENT to sell would be classified as inventory and would not qualify for a 1031 exchange transaction. You would have to make sure that under an audit you are in a position to argue that you had the INTENT to HOLD for investment purposes. It may be possible to structure a transaction where the land is acquired with the INTENT to HOLD for investment purposes and that certain permits or approvals are obtained to "maximize the property value" and then sell uisng a tax-deferred exchange. There are all sorts of shades of grey here and it often boils down to how aggressive or conservative the investor wishes to be.
[addsig]
Since you owned and occupied the property as your principal residence from April 2000 through July 2003, you already satisfy the two year rules for the capital gains exclusion.
Applying the two of the five years prior to the sale criteria, you can keep your property as a rental up to a sale date in Jul 2006 and still qualify for the capital gains exclusion.
I agree with the others who suggest that you get a new CPA. Yours apparently is not too well versed in the most basic and most common of the real estate tax treatments.
Your CPA is wrong.
There is a simple test and explanation. It is a 60 month "look back". You "look back" 60 months prior to the date that your property closed (was transfered to the buyer) and if you have owned and lived in the property as your primary residence for at least 24 months out of the last 60 months (does not have to be consecutive) you will qualify for the $250/$500K capital gain exclusion. It is not based on tax year, but based on actualy months.
[addsig]
The contract for deed is an installment sale on the date you enter the contract.
in your strategy, you do not have a qualified use for the replacement property. A 1031 exchange would not be allowed.
NewKidd is right on the money. You actually have the INTENT to SELL and not HOLD for investment purposes, so you will not qualify for tax-deferred exchange treatment.
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