I just recently heard that if you complete 5 or more property transactions per year you are considered a “dealer” and begin to have less than favorable tax ramifications. Is this true? My real estate company is an LLC, does this help in any way? How do I avoid this little problem? Thanks.
Sonriffic
You could buy anything you normally buy personally under the expense account of your llc. as an executive officer you have access to these funds and can write them off as a deduction. Also a portion of the interest you pay on your home can be an office deduction. There are plenty of ways to deduct to the point where the taxes you pay will be nominal.
:boink:
I don’t know or really even care about the “tax ramifications” of dealer status in MI. Taxation is a Federal issue with state laws typically mimicking the IRC to a lesser degree, Same harlot, different gown…
The issue with dealer status in MI is conforming with state law. If you sell a certain # of props per year (4-5 I believe) using Sub-2’s or assignments, you’re now classified as a dealer and are required to jump through the hoops. Find a way to stay off title and recordation with the state and you’ll be OK in MI for as many properties as you want. I control several properties in Albion, in case anyone disputes my qualifications.
Regards,
Dave
David,
Thanks for the reply. How do you stay “off of record” as you put it in your state? The way I am doing properties is by acquiring properties “subject to” and then recording the deed. Are you suggesting not recording the deed? It sounds like you understand an angle that I do not. Any help would be appreciated. Thank you.
Sonriffic
Maybe what dave is saying is that you dont have to record the deed all you have to do is cloud the title. As long as you have ran your title search and it comes back to your standards, all you do is sign a memorandum of agreement and what that does is let anyone that is searching the title know that it is already tied up. If the homeowner tries to sell to someone else you would be protected.
Not quite, Charlotte,
The way you describe sends a red flag to the lender, which could potentially trigger the DOS clause. I simply don’t want to pay off a mortgage in 45 days…lol.
sonriffic, the way you describe definitely can trigger the DOS (if the lender REALLY wanted the property back…little appreciation in MI so I’d doubt it would happen in the immediate future) by virtue of you recording the deed sub-2. “In my state” doesn’t apply, I own properties in NM, NV,AZ,MI, PA and FL. I’ve never applied for financing in my name on any of my investments. I show up on no documentation and none of my properties are subject to liens, BK,Judgements or probate. I also have no landlord headaches (the only way I could own out of state) and my tenants are responsible for 100% of all costs, maintenance, taxes and insurance plus my cash per month. I think I found the ultimate way to do real estate. Contact me offline if you think I may be of further assistance. I’m going to drink beer and watch some playoff football.
Regards,
Dave
ok Dave you are right maybe signing a memorandum might set off a DOS, but why would it set off the DOS. The homeowner has the right to sell to whom ever. If the title is Signed, notarized and placed in escrow then how would this set off a red flag? Memorandum is that i may or may not have an interest in the home. How would you propose to avoid the DOS and secure the property so the seller can’t sell to someone else or take out another mortgage?
:rotate:
True, the Homeowner may sell to whomever he wishes. He may NOT assign the existing financing. Read the Garn-St. Germain Act and you’ll learn why. Do a Google search on Illinois land trusts and you’ll be headed in the right direction.
Regards,
Dave
Wow. Good info but not quite what I was asking. I simply am interested in finding out if “dealer status” is something I should even concern myself over or is this something that doesn’t actually matter? If it is important to avoid…how do I avoid it? Thanks to whomever may know.
Sonriffic
Sure, limit your transactions to no more than 5 in a 12 month period within the state of Michigan. This avoids dealer status all the way around.
Regards,
Dave