Taxes - Posted by Eddie-MI

Posted by swwa on August 07, 2003 at 23:12:01:

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Taxes - Posted by Eddie-MI

Posted by Eddie-MI on August 07, 2003 at 09:29:30:

ok i have a question, Ernest Tew says that the net lease with an option to buy is the best way to do business as compared to owner financing (on parks and on individual mobile homes).

My question is this:

Isn’t all income taxed as ordinary income no matter if its rent payments or ‘contract for deed’ payments?

What Steve said and… - Posted by Philip

Posted by Philip on August 07, 2003 at 11:35:41:

it hurts! I think I like a mixture of l/o and contract for deed…in our state cfd requires no work on my part…almost.
My lawyer said in Missouri he would for sure pay the taxes and insurance during l/o’s, so it requires a little more work on my part.
Philip

yabbut - Posted by Steve-WA

Posted by Steve-WA on August 07, 2003 at 09:53:52:

Yeah, but . . .

Your entire sale is taxed in the year it was made, payments or not. You are taxed like it was a cash sale. W/ L/O, you are not “selling”, and you are only taxed on the rental income, which behind the shadows, is dropping the sales price for when they eventually exercise their option. So you ARE paying, but it’s spread out.

John Hyre’s aggressive note-valuation method of spreading out the income is an alternate method - search the archives for “insomnia”.

And it is covered in his course for setting up and maintaining RE investing business accounting.

Re: yabbut - Posted by TT

Posted by TT on August 07, 2003 at 21:28:49:

Steve , would you explain what you mean by:

W/ L/O, you are not “selling”, and you are only taxed on the rental income, which behind the shadows, is dropping the sales price for when they eventually exercise their option. So you ARE paying, but it’s spread out.

I dont get what you mean by dropping the sales price.
Are referring to a rent credit?

TT

I am finally gonna L/O 1 or 2 mhs… - Posted by Philip

Posted by Philip on August 07, 2003 at 11:31:00:

in this first tax year, which will mean more cash to tax ratio…whew! I didn’t know if the opportunity was going to come up, I just now found a park owner that will allow it.
I also have a payor who claims he is going to pay off his note entirely Sept. 22. He does have a good job, and is getting married. He hinted at using the little mh as income property, which he has had before.
He thought I would buy it back for “what he had in it”…duh…I sold it for that amount! We will see if he can find a buyer to suit the park his unit is in!
Philip