Posted by JHyre in Ohio on May 07, 2002 at 17:38:56:
First off, I be very careful about using the very general info you get here in your very specific circumstances, without very tailored advice. The reason I haven’t answered you in the past- my “top of the head” knowledge is geared towards small to medium-sized RE investors. While I have dealt with far larger clients, that requires research on my part, for the small to medium template simply does not fit. With a million in sales, I simply will not give informal advice- to easy for it to be wrong. Whether what I told Shawn fits your circumstances- or even Shawn’s- is a matter beyond the scope of this newsgroup. Shawn has met me face-to-face and heard me hedge like crazy…just thought I’d give you fair warning!
Related Finance Company for JHyre - Posted by Shawn Dostie
Posted by Shawn Dostie on May 01, 2002 at 19:53:10:
Can I buy a mobile home in my company name for $3,000.00, sell it for $8,000.00 36mo @12.75% thereby creating a note and sell it to my related finance company to defer taxes until $$$ received?
My reasoning is, if I sell that note on the open market I might get 1/2 of the remaining balance and therefore not be obligated to pay taxes on the “discount”. However the purchaser of that note pays on the income less expenses as it is receives thus creating the large “yield” because of the discount.
So if I sell this unseasoned note for $4,000.00 My company has profited $1000.00 and pays taxes on that income plus has the cash to fund another purchase. My RFC has a note that it will pay taxes on as it is received less it’s expense of the original $4000.00.
Re: Related Finance Company for JHyre - Posted by JHyre in Ohio
Posted by JHyre in Ohio on May 07, 2002 at 17:48:31:
Shawn,
See my answers to David below, to ensure that the answer I gave fits your circumstances. IF the note sale to the related company would result in a loss, that loss is disallowed. I didn’t think that the facts you presented created a related-company loss, but the manner in which the note was created may in fact do just that upon subsequent resale of the note- which gets you to a very different answer.
Why are you interested in this convoluted entity structure, when the cash method outlined on MH forum will work (unless like David, you make too much in the MH company, i.e. > $1 million)?
John Hyre
PS: Very un-Democrat to defend profit motive the way you do. Come to the Dark Side!
Re: Related Finance Company for JHyre - Posted by JHyre in Ohio
Posted by JHyre in Ohio on May 02, 2002 at 07:05:46:
Depends if you are a “dealer” with respect to the MH (you probably are if you are doing Lonnie Deals, as opposed to renting 'em out). If dealer, you can declare the FMV of the note as your initial gain (as opposed to face value), with a portion of the principal and all of the interest being taxes as received…this is what I do with mobile homes sold to customers (as opposed to sold to related company). See my posts on the MH forum for how this works with MH’s, and substitute “note” for “MH”. Notice: You DO pay taxes on “the discount”, you just pay them later. So using your example, you INITIALLY pay taxes of $1,000, plus you pay taxes on interest AND 50% of principal payments ($4,000 “discount” upon which no taxes were paid = 1/2 of $8,000 principal).
John Hyre
PS: Man who talk like Republican in Chinese restaurant in wrong party, see “Southern Democrat”, a rare thing after 1994.
Re: Related Finance Company for JHyre - Posted by James Buster
Posted by James Buster on June 30, 2002 at 22:18:20:
Can I assume that if FMV is less than face value for the note, selling for FMV is not selling at a loss? Only accrual method taxpayers are forced to make FMV = FV, correct?
What?! You don’t believe… - Posted by Shawn Dostie
Posted by Shawn Dostie on May 07, 2002 at 19:49:01:
That there are any wealthy Democrats? What about the Kennedy’s, the Baldwins? Besides that, I love the programs for the poor, and am willing to pay my share of taxes so that those under privileged folks can buy their beer and cigs,… and Mobile Homes…
Seriously, Your method is nice, but has it been challenged? Are you a licensed MH dealer, and has this arguement stood in court? I ask this completely without Malice, for there are a Lot of Buy Here Pay Here automobile dealers that have tried a lot of things, and I am certain that if this is tried and true you won’t have to buy MH’s or any other RE, because that method will make you a fortune fast.
I would like to know what type of scale you advocate this for, an independent non licensed guy, who can still sell a few on the installment method, or a full blown Licensed MH dealer? The accepted way in cars is to bite the bullet and pay up front or to set up a RFC. You are 100% correct when you say that the note cannot be sold to lose money, but at a minimal profit.
I hope this isn’t too technical for this board.
Another reason I thought this might be the way for me is 1. Obviously I can use this same model for cars and Mobiles, and 2 if I sell the car lot, or Finance @ discount for other MH Note toters, this would be a way to help them get the Quick nickel and get me the opportunity at a strong yield plus any defaults that I could resell.
Have a great day,
Shawn
P.S. Don’t let the little guy’s starve… give em’ a fish or teach them so they can contribute too!
I’ve posted this type of question here before, but this is the first time I’ve heard or seen this answer. Would this apply to my situation as well knowing the following:I am…
licensed dealer in Ca.
over a million a year in sales
use accrual method
Do you know any precedent for this as my CPA didn’t give me this advice?
Re: Related Finance Company for JHyre - Posted by JHyre in Ohio
Posted by JHyre in Ohio on May 07, 2002 at 17:44:34:
PS: Unstated assumptions in my answer to David- he is on cash method and does NOT sell notes at a loss! This gets complicated…if he creates the note for $8,000 after selling a MH with a basis of $3,000 and declares the gain of $5,000 in company #1 (based on accrual method of accounting), his later sale to a related company at anything less than $8,000 will NOT produce a loss to offset the $5,000 gain…in reading his post, I assumed this issue away- perphaps incorrectly.