If you roll your rehab cost into a double close-contract to perm, I am assuming that the rehab cost are not deductable because it is not your own money. Is that correct?
Rehab expenses are capital costs- they form a part of your basis, depreciated over 27.5 years or deducted from your sale revenue to calculate your profit.
Although borrowed money is not income, expenses paid with borrowed money are still expenses. Buy and hold rehabbers using borrowed money thus find that expenses and depreciation tend to far exceed income, and so look for ways to reduce depreciation to avoid future recapture. For example, land value is not part of your depreciable basis. The IRS will allow you to use the assessed valuation of the land, or the percentage of the total assessment attributed to the land. Most prefer to use the lower number and thus have more depreciation, but if you rehab and rent using OPM you may well find it beneficial to use the larger number and claim less depreciation.
Thank you. Yes i am not well versed in taxes yet. Although I do have 4 houses and did my taxes this year using 27.5 depreciation and itemized appliances on a shoter life. Looks like next year I will going to a CPA or a tax class. thanks again.
Quote:
On 2008-03-26 08:37, ceinvests wrote:
3. Mom bought 2nd home 4-05, son2 rehabbed, charging. Mom placed into rental 7-06, sold 1031 to son 11-06 for fair market. Mom keeping loan until timing right. No ? here.
You may not have any questions here, but this scenario intrigues me. Could you give a few more details about the structure of the exchange? How was your qualified intermediary able to construct an exchange that allowed your wife to hold a note for the sale of the relinquished property?
Son tried to assume loan. Lender would not allow. Lender cannot call loan that parent holds. HUD1 shows the payoff of loan per the day of settlement and worked all numbers as if it was a new loan since the lender still has same lean on property, so risk/loss is on son. All exchange $ were transferred 1031 from son sale to nonrelated, son 1031 purchase this property from Mom, Mom 1031 into new property w/new loan. Strict 2 year hold for son and Mom.
Ok, so Mom is not the note holder, just the mortgagor, right? Mom is not really holding a note that she can foreclose on if the son defaults.
Do I have it right?
For your other properties, the details are too sketchy and the transactions are complex enough, even before adding the related party rules to the mix, that you should seek assistance from a licensed tax professional.
Correct, Mom is not the lender... GMAC/Central Bank is (or whomever the investor actually is). She does have to assign interest to him since they would not allow assumption, but that is clean. She also watches to protect her credit (not a problem/same as a lender protects his interest financially) I never thought of the seller holding note for 1031... is that do-able?
What are your thoughts about the gift monies from family to family for transfer of deed as in other situations. Rehabs were done on 2nd homes w/cost never accounted for. Now, son2 has placed into rental status after transfer. Any issues here?
Rehab expenses are capital costs- they form a part of your basis, depreciated over 27.5 years or deducted from your sale revenue to calculate your profit.
Although borrowed money is not income, expenses paid with borrowed money are still expenses. Buy and hold rehabbers using borrowed money thus find that expenses and depreciation tend to far exceed income, and so look for ways to reduce depreciation to avoid future recapture. For example, land value is not part of your depreciable basis. The IRS will allow you to use the assessed valuation of the land, or the percentage of the total assessment attributed to the land. Most prefer to use the lower number and thus have more depreciation, but if you rehab and rent using OPM you may well find it beneficial to use the larger number and claim less depreciation.
Chris
make sure you understand what can be expensed and what needs to be capitalized and over what useful life.
Thank you. Yes i am not well versed in taxes yet. Although I do have 4 houses and did my taxes this year using 27.5 depreciation and itemized appliances on a shoter life. Looks like next year I will going to a CPA or a tax class. thanks again.
Quote:
On 2008-03-26 08:37, ceinvests wrote:
3. Mom bought 2nd home 4-05, son2 rehabbed, charging. Mom placed into rental 7-06, sold 1031 to son 11-06 for fair market. Mom keeping loan until timing right. No ? here.
You may not have any questions here, but this scenario intrigues me. Could you give a few more details about the structure of the exchange? How was your qualified intermediary able to construct an exchange that allowed your wife to hold a note for the sale of the relinquished property?
Son tried to assume loan. Lender would not allow. Lender cannot call loan that parent holds. HUD1 shows the payoff of loan per the day of settlement and worked all numbers as if it was a new loan since the lender still has same lean on property, so risk/loss is on son. All exchange $ were transferred 1031 from son sale to nonrelated, son 1031 purchase this property from Mom, Mom 1031 into new property w/new loan. Strict 2 year hold for son and Mom.
Any thoughts on cost basis per properties?
Ok, so Mom is not the note holder, just the mortgagor, right? Mom is not really holding a note that she can foreclose on if the son defaults.
Do I have it right?
For your other properties, the details are too sketchy and the transactions are complex enough, even before adding the related party rules to the mix, that you should seek assistance from a licensed tax professional.
Correct, Mom is not the lender... GMAC/Central Bank is (or whomever the investor actually is). She does have to assign interest to him since they would not allow assumption, but that is clean. She also watches to protect her credit (not a problem/same as a lender protects his interest financially) I never thought of the seller holding note for 1031... is that do-able?
What are your thoughts about the gift monies from family to family for transfer of deed as in other situations. Rehabs were done on 2nd homes w/cost never accounted for. Now, son2 has placed into rental status after transfer. Any issues here?