Posted by Bud Branstetter on June 03, 2000 at 18:16:19:
Sheik,
Bill is an attorney not a CPA. I’m sure he knows from experience but will he feel free to comment on a tax issue. Since I’m not an attorney nor a CPA I can say most anything I want. The less than face value is not a loss if done in the same year. The difference would wash on the same return. If a dealer corp or individual has reported all of their gain in one tax year and later sell that note at a discount to their basis in it, then they can report it as a “loss”. The details are in some of the instruction on the IRS tax forms.
I am aware a number of people do such to try and avoid the ban on installment sales by dealers. The IRS may look at it as a device to avoid the proper taxes. I would much rather sell the note to a third party who may in turn sell, rent, or discount a note or property to me in turn.
Tax strategy - Posted by Sheik(NY)
Posted by Sheik(NY) on June 03, 2000 at 13:22:41:
I posted this on the Legalwiz message board, perhaps others can give input as well … thanks.
If my c-corp did a Lonnie deal where it bought a MH for $5K and sold it for $10K with $3K down and a $7K note.
Without selling off the note, my c-corp will owe taxes on the $5K profit.
If my c-corp were to sell the note to my LLC for $1K (market value), on what amout is the C-corp taxed? Is it the $1K it received for the note? Does the c-corp show a ‘loss’ of $4K?
Also, how do I determine the fair market value for the note?
Thanks a bunch
Sheik
Re: Tax strategy - Posted by Laure
Posted by Laure on June 04, 2000 at 08:04:31:
I’ve had the same thoughts and ideas about selling something to myself and taking the “loss”. I am unsure as to how the IRS would look at this, but if you could get other offers, in writing, on purchasing this note, and the qoutes for this note were 1000.00, I can’t imagine the “loss” being dis-allowed. I don’t know how they would respond, in an audit, if you made this a regular occurrance. I think the real questions involved would be that you are the same “owners” as the LLC. That would be the glitch in the system.
I was planning to sell my notes to a third party, for a loss, and then the third party would sell them to my IRA for a small profit. I have been advised that this would fly in an audit as long as the third party was not a family member, and had a financial gain in the process.
I hold a 5,000 second on a property I sold last fall. My office manager is going to buy the note from me for 2,000 and sell it to my IRA for 2,500. I don’t mind giving her the 500 profit as it’s better than a bonus she deserves anyway. I don’t have to pay her social security tax on this deal, and I would on a bonus if I gave her one ! WIN WIN WIN WIN
Laure 