Another Tax(ing) Question - Posted by B.L.Renfrow

Posted by The Baze on March 29, 2000 at 15:22:28:


Yes, the option consideration will go on Sch E as rental income, basically a forfeited security deposit. Your flips can be handled one of 2 ways. What I normally do, even though I didn’t take title to the property, is report on Sch D as though I had, with your purchase price as your basis and the sales price. In other words, I agree to buy a house for $50,000, but I assign the agreement to you for $5,000 and never take title. I put on Sch D a basis of $50,000 and a sale of $55,000. You could also put on the Sch D a sale w/ a $0 basis and a sale of $5,000. The net effect is the same, and it’s a short term gain, taxed at ordinary income rates. I prefer the first way because many folks who review the return may not be familiar w/ assigning contracts, but they do know flipping properties, and I don’t like it if they have questions about what’s going on.

Tom Bazley

Another Tax(ing) Question - Posted by B.L.Renfrow

Posted by B.L.Renfrow on March 29, 2000 at 12:55:37:

Yes, I know I should consult a tax professional, but not one of them in town (it’s a small town) is a RE investor and they all are ultra-conservative, except for one guy who is known for taking every legit deduction, and some that aren’t legit, then multiplying them by two or three…so, I’ve always done my own, but this has me stumped.

Most of my 99 tax year RE income was from sandwich lease-options, so I reported the net rents received, as well as the expenses, on Schedule E.

I am now in the process, thanks to Bronchick’s stuff, of setting up the appropriate corporate entities. However, already this year I have had around $11k in income from: (1) Profit on owner-financed note sales, in which I assigned my purchase agreement at closing, so I did not actually take title to the properties; and (2) option consideration on a deal where the T/Bers defaulted, so the option was not exercised.

Obviously the C corp and LLC which I am now setting up will be of no value regarding this income, which has already been received.

So, on my 2000 return, how should this income be reported? Can the option consideration go on Schedule E? What about the profit from the note deals? Does that just get reported as “other” personal income? I sure don’t want to file Schedule C if it can possibly be avoided.

I know these questions are probably basic, but this tax stuff has never been my strong point!

Brian (NY)