Double Closing and Tax Question... - Posted by David(Ca)


#1

Posted by JPiper on January 13, 1999 at 13:43:08:

David:

I guess I misinterpreted your question. From the title of you posting “Double Closing…” I assumed that you had not closed on this property yet. This evidently is NOT the case…so much for my assumptions. Therefore, STRIKE everything I said in my prior posting.

You would have to deed the property to the corp as you said. You could do this by executing a contract from yourself to the corp, and having the corp execute a note for the $24K to you, payable at closing.

The question I would have is why are you going through all this over this $16K profit?? I would run all this by my tax advisor to see if it truly makes any sense. I believe in using corporations to flip, but in this case you have already closed personally. If you sell to a corp to simply to create a tax sham, I would question it. You can form a corp any time and fund it with the proceeds from the sale. In any case, check with your tax advisor.

Deeding a property from yourself to a corp can have complications, especially when you concurrently resell it to a third party at a higher price.

JPiper


#2

Double Closing and Tax Question… - Posted by David(Ca)

Posted by David(Ca) on January 13, 1999 at 11:01:05:

I’m selling a house, buyer is under contract, escrow is open and it looks like buyer will get loan approval.

I’m thinking now would be a good time to form a corp. I would like to capitialize the new company and shift the tax burden on the profit from me as an individual to the corp by doing a double close.

I can have escrow draw two deeds, one from me to the corp and the other from the corp to the buyer. That’s the double closing part of the question. I think it’s straight forward, if not please comment.

The tax part of the question is this, the house cost $159k ($135k existing loan + $24k cash) and sold for $175k (sales price is actually higher, I reduced it by my costs). Since I’m deeding to the corp, I believe escrow will issue the $40k proceeds in the name of the corp, but I want my original $24k cash back in my name. So, do I create a note and trust deed from the corp to me for the $24k and give escrow a payoff demand? Or, am I making more out of this than I need to, maybe I should take the $40k in the name of the corp and simply cut a check after closing from the corp to me?

Thanks in advance, Dave.


#3

Re: Double Tax Question… - Posted by Bud Branstetter

Posted by Bud Branstetter on January 14, 1999 at 01:21:07:

While you can funnel through the corporation check with your CPA if it is a good idea. While the tax rate may be 15% on the first 50K don’t forget about employment and other taxes as you distribute money to yourself as wages.


#4

Re: Double Closing and Tax Question… - Posted by JPiper

Posted by JPiper on January 13, 1999 at 12:55:17:

Dave:

Here?s how I would handle this situation.

I would assign my contract to my corporation. They will now be the seller. There is no need for a deed, etc. The title company should be able to do this for you.

I?m assuming that you have not put up the $24K yet. So the corporation would be obligated to do this. If so, just execute a note between yourself and your corporation. You need to do this formally, because otherwise money that is distributed from a corporation to you personally could be taxable. At close, the check for the entire proceeds would be issued to the corporation. The corporation would then repay it?s note to you for the $24K. I would take these formal steps otherwise you?re playing a little fast and loose with a lot of different issues.

If you have already put the money up personally, assign the deal to the corporation, and execute a note for $24K.

Just remember that the corporation and you are two separate legal entities?and you should be acting as such.

JPiper

PS. Next time I would write my contract in the name of the corporation. This will limit your personal liability under the contract.


#5

Re: Double Closing and Tax Question… - Posted by David(Ca)

Posted by David(Ca) on January 13, 1999 at 13:26:36:

JPiper,

Thanks for your input.

The corporation is not yet formed, next time I will write it in the name of the corporation.

I have had title, as an individual, to the property for about a month, so I believe back-to-back deeds are necessary.

Hmmm, I like the idea of taking all the money in the corporation and having the corporation pay a $24k note after closing, this would simplify things. If I understand correctly.

Dave