Know the feeling… - Posted by JHyre in Ohio
Posted by JHyre in Ohio on February 20, 2000 at 08:03:20:
The shabby tax treatment of mobile dealers greatly diminishes expected return. Example:
- pay $2500 for MH, including lot rent and all other expenses.
- sell within 2 months for $1000 down, $7000 note with 12.5% interest, 36 payments of $234.18.
Returns (using Excel IRR function, which slightly understates return because it assumes cash is received at end of year and not during year):
After-tax (Assume 31% federal rate, no state tax): 63%
Before tax: 179%
OK, 63% return ain’t bad, but Sheeesh! Whatta difference! This difference becomes MUCH larger proportionally if notes are carried for longer terms- a good reason to avoid long notes if possible.
Solutions? First, I am in the process of converting to exempt money. Granted, you can’t live off of money that you can’t reach- as is the case with IRA money. Of course, I do not need to consume the MH money- that’s what the old J-O-B is for. If my job gets too expensive to keep, I’ll look into charging the IRA fees for investing the dough.
Second- use charitable contributions. I believe Dirk does this. The catch is: My impression is that capital property gets more favorable treatment than dealer property for contribution purposes. So I am kicking around the following proposed (i.e.- do NOT try this without appropriate advice!) solution: Seperate MH and Note companies. Note company buys notes from MH company at a discount (@50 to 60%) of face value. Note company is an “investor” as opposed to “dealer” for tax purposes because the notes are held, not sold- so notes are capital gains type property. Once in a while, note company (an LLC) contributes note to a charity and continues to service the note (probably for free). Full face value of note is chartiable deduction. This works best with notes that are greatly appreciated. People do this sort of thing with stock all the time, but I gotta check & see if it works with the note structure I’ve proposed.