Re: taxes on LLC - Posted by Dave T
Posted by Dave T on July 21, 2002 at 22:46:07:
The aggressive stance: Treat the thing as a rental, take the depreciation, pay at ordinary rates on the rental income, pay capital gains taxes on the option consideration when the option expires or is exercised and sell at cap gains rates, no social security taxes paid at any time
I agree that there are not enough facts presented to give a definitive answer. However, Heeron did say that he wanted to keep the property for about 4 years, but only give his tenant-buyer a two year lease-option in a sandwich deal.
My asumption here is that he obtained a four year lease option, and by giving his T/B only a two year option, hopes that either his first or his second tenant-buyer will exercise and cash out his position.
Now I am struggling with some questions related to this scenario.
If we assume that his T/B’s option is exercised and forces Heeron to exercise his option with the original seller, aren’t option monies involved in the deal included in the purchase price and therefore taxed as part of the profit on the sale?
If Heeron exercises his option, then turns around and sells the property to his T/B the next day, isn’t Heeron’s profit on the sale (the back-end) taxed as ordinary income (i.e., short term capital gain) rather than the more favorable long term capital gain implied in your comment (after all, Heeron’s holding period is only one day)?
Since Heeron only owned the property for one day before selling to his T/B, wouldn’t any depreciation taken be disallowed under the dealer disposition rules? If Heeron’s only asset in this scenario is the option he owns, I do not see how he can take depreciation for the underlying property before he exercises his option with his seller. Could you explain this to me?
Wouldn’t Heeron decrease his tax liability by selling his option to his T/B? For example, Heeron could accept the amount of the potential back-end profit as his sale price for his option with the original seller. Now, as long as he held his option position at least one year, Heeron’s profit (the back-end) on the sale of his option is taxable as a long term capital gain.