Family LP
I co-own a family home with my brother (who is married) - we both own property individually, he owns a coop and I own a condo. He does not want to claim the house on his tax return (we are making renovations to the property soon). Should we form a Family LP? What do I need to bring to the accountant in order to claim the family home on my next tax return?
Whether or not you should form a family LP is a legal question to address to a qualified attorney.
What you need to bring your accountant depends a lot upon how you are using the property. Your accountant should be able to tell you everything you need to provide. Have a conversation with your accountant long before tax time.
Thanks for the feedback. Have a great week!!!
If your rental activities are limited to rental property that you own, then BY DEFAULT, you are engaged in a passive income activity.
Material participation rules are to determine "real estate professional" status for those with active income from real estate activities who want to treat their passive net losses as active losses.
Active participation rules only apply to your eligibility to use up to $25K in net passive losses to offset your other ordinary income subject to income limitations.
Note that active participation is a much lower standard than material participation. Passive income tax treatment is definititely to your advantage at tax time. Passive income is not subject to self-employment income taxes, unlike active income from a sole proprietorship..
How did you acquire the land? Inheritance?
Friend of mine lives out of state, he gave me the power of attorney to sell his house. It was on .75 acres in the city so I split it up into three .25 acre lots, one with the house on it and 2 other buildable lots. He gave me the land in return for selling his house for him. Would I be taxed on this?
-Sly
Tough question to answer.
In one sense, you bartered your services for the land. The value of the land was your compensation, and therefore taxable as income.
If you report the value of the land on your tax return as barter income, then selling the land for the appraised value, would not generate any profit for you, therefore no taxes on the transaction.
On the other hand, if you can successfully argue that your friend gave you the lots as a gift, then your cost basis in the lots is the same as his cost basis. The difference between the cost basis and your selling price determines your taxable profit.
In my opinion, developing the land for resale is an active income activity. Your net profits will be taxable self-employment income (ordinary income tax rate + self-employment income taxes + state taxes).
Just selling the land without developing may still qualify for capital gains tax treatment, as would developing and holding the houses for rental income for a year or two..
Consult your tax advisor for specific details.