Figured out how it pays itself. The business gets a loan and buys house from you. you have the 500k now and pay rent to the business with the 500k you just got. This is if the house is payed off. Otherwise subtract what you owe from the 500k. You are basically taking something you own and changing hands so that you do not pay taxes on any money while keeping your property.
This seems like a great strategy when your house doesn't have a mortgage attached to it. I wonder if a Land Trust could be used somewhere to jump that obstacle.
If your going to sell a residence for less than your basis, turn it into a VRBO for a while first. This allows you to take the loss on an IRS Form 4797 LOSS FROM SALE OF BUSINESS ASSET. This loss offsets all forms of income , including W2 income, so it it more useful than a capital loss. As with a capital loss, any unused amount carrie’s over into future years.
I just turned my first house into a rental, trying to figure out what I should be setting aside monthly from the rental income towards taxes? According to this video it seems there are some other options to avoid tax liabilities. I’m not fully understanding this video. I just opened an LLC and was going to put the house title into the name of the LLC and open a Trust. Any advise on best practices with my first rental from non novice property investors out there?
What are the tax ramifications when you go to sell the property held in the scorp? (you have a video stating scorps are a bad idea). it would be great to see a side by side comparison of when to use and when not to use (and why).
Good idea. I will put it into production. If you sell in an S-Corp generally speaking it is taxable to you on any gain on the property sale. I will discuss some nuances in the video.
My property taxes were $1,200 a year. I got married and rented my property for 2 years. I forfeited my homestead exemption. After my divorce, I moved back in and my property value went way up...along with my taxes. My new bill? $4,800 a year $400 a month. I took the new homestead exemption of $50,000 and STILL had an huge increase in property taxes for life. Should of met with this man 1st first! Live and learn. I sold a year later for a nice profit, then... BAM!!! The real estate crash started THE NEXT MONTH. WHEW!!
In your example the actual property tax will be increased due to the sale to the corporation which you will pay$3600 per year more. Since the property tax is income deductible you are paying less federal tax due but make local county happy.
This depends on the State. Not all states assess taxes based on the last sale or because of ownership changes. Many do regular "appraisals".. so the property you bought for 200K could easily be taxed at the 500K value already before you made the sale... V.s.V., or the property may only be valued at 300K, which would not change just because ownership changed. In Indiana, for instance, most counties do a yearly appraisal that is largely based on the homes statistics (SF, constuction type, room count, etc) in combination with "comps" of sales near the subject property.
I may be wrong but to avoid the lender accelerating the Note due to the sell of the property, one would first need to deed the property into a LT then sell the beneficial interest of the LT to your S-Corp on an installment sale. Clint: is this correct?
If you notice, he started this example on a house he had owned for 15 years. I'm no expert, but I believe selling a mortgaged property to a land trust in this manner could be quite problematic.
That's exactly what I had plan to do with some personal assets as start new biz. I knew could do it but of course not all of the specifics of how it's done.
What about S corp, doesnt the corp has to pay taxes as well? So if add up your personal tax for property rental plus corp tax, would it be almost the same amount if combined? 😕
Isn't the Cost Basis for calculating depreciation the Fair Market Value of the property at the time of conversion from personal residence to rental property? So in your example, it would just be 500K without the need to pay the transfer tax. I thought the Cost Basis for calculating the capital gains tax purposes would be the 200k plus any capital improvements.
Property taxes have nothing to do with your tax basis. They are based on the local county assessment which can be revised every year and can also be protested. So, this house could be assessed at $100k, $300k or $500k today. If a sale is publicly recorded, it can trigger a re-assessment by your county collector, depending on their policies and procedures. One other caveat: your local property taxes will go up in either case, because you will lose your homestead exemption.
What if the home has a mtg? I have 3 homes two with mtg and one free and Clear . Can it only be done with just 1 property? Sorry it’s a bit confusing for me
thats my question. you are now paying a 500K mortgage but receiving them on the other end and are paying whatever was left on your original mortgage . now sure what he is trying to do. he is trying to not pay taxes on the gain of the house but not actually get rid of the property. You still have to pay the new mortgage he makes no sense.
gildardomagallon the s Corp is receiving 20k in rental income and is paying you 15k in mortgage payments. So since you’re not being taxed on the 300k gain on the value of your house you are essentially moving 15k of profits to you tax free every year until you reach the 500k that you sold the house for.
Andrew Holcombe has nobody heard of a due on sale clause? If you have a mortgage on the house you need to pay the lender before it transfers to your corporation
You made another video titled, "Why S-Corporations Are A Horrible Idea For Owning Rental Real Estate" so I'm a little confused as to why you would advocate selling your home to a s-corp to be used as a rental since in the other video, you said that was a horrible idea. Won't this cause all the problems you mentioned in that video in future? Can you please clarify?
Generally speaking that is correct but in some cases you might want to do it for the reason I provided in this video. Remember, planning is not a one size fits all approach and different strategies may require different solutions.
Great videos and great didactic presentations! I moved out of my primary residence 3 month ago. I ran a home based business there for 20 years and now renting it to another similar business. If I sell the home in 3 years to the renters and do a 1031 exchange can I still have the 121 tax advantage or selling it to my S-Corp would be the only way to benefit from the 121 exclusion. Thank you for you answer.
Real Estate Asset Protection Thank you for the prompt response. Your videos are extraordinary! Keep doing them. I’m a subscriber and have many friends subscribe. Best!
@@ClintCoons If Gabriela sells the house which she lived in for 2 out of the last 5 years, isn't IRS Code 121 still applicable? Meaning, she has to sell it before the 3-year mark since she would've lived there for the first 2 years out of the past 5 years.
This is a specific strategy for selling your residence and the tax status of the entity is important. A normal LLC is perfect if you have an existing rental or you are not looking to accomplish what I stated in the video.
Good point. This assumes you have business. You would never set up a corporation just for this strategy because there would be no real business purpose for the corporation.
I have two concerns about this: 1. Property taxes will now be 2.5 times per your example. In California, we have Prop 13 so my tax basis is low if I don't sell. 2. Depreciation is only on the structure, right? Land is what appreciates. So, a piece of property which appreciated from $200k to $500k has the same depreciation regardless of whether it was bought at $200k or $500k. Am I missing something? Thanks again.
The transfer of property into an entity wholly owned by you (in this case your Corporation) is exempt - " _Transfers between an individual or individuals and a legal entity or between legal entities, such as a cotenancy to a partnership, or a partnership to a corporation, that results solely in a change in the method of holding title to the real property and in which proportional ownership interests of the transferors and the transferees, whether represented by stock, partnership interest, or otherwise, in each and every piece of real property transferred, remains the same after the transfer_ " Your depreciation is based on your cost basis in the property I.e., what you paid for the house minus the value of the land. If the house appreciates from 500k to 1 mm then your basis will increase in the hands of your corporation buyer for purposes of the transaction. Yes the value of the land will go up but so does the structure. If you look at your property taxes you will note these are separately stated e.g., land value 300k Structure 700k. The 700k is what you can depreciate. Further, when you sell your basis has been stepped up so you minimize taxes.
@@ClintCoons Would you please cite the quote you have above? Actually just found it: REVENUE AND TAXATION CODE - RTC DIVISION 1. PROPERTY TAXATION [50 - 5911] ( Division 1 enacted by Stats. 1939, Ch. 154. ) PART 0.5. IMPLEMENTATION OF ARTICLE XIII A OF THE CALIFORNIA CONSTITUTION [50 - 100.96] ( Part 0.5 added by Stats. 1979, Ch. 242. )
CHAPTER 2. Change in Ownership and Purchase [60 - 69.5] ( Chapter 2 added by Stats. 1979, Ch. 242. ) 62. (2)
@@ClintCoons - devils advocate- wouldn't the increase in stated value constitute something other than "that results solely in a change in the method of holding title to the real property"?
@@scottsissom4882 To be clear this is a CA-specific question. Yes, you might have an issue with your property value being reassessed for Prop 13 issue depending on how you complete the PCOR.
Why would appreciation of a house be only to land? Per square foot valuations increase for inflation of building materials to build similar. Just look at improvements value changes on a tax bill
Clint, what is the purpose of asking for an Installment Sale, if you later ask to opt out of Installment Sale treatment? Could you please explain this? Thank you
I assume you are referring to selling your home to an entity you own. Opting out of the installment sale is key to recognizing all of the income in the year of sale so you will qualify for the section 121 exclusion. If you did not opt out then you would pay tax on the payments you make back to yourself over time.
You can turn it into a rental without the sale to an entity. Also you would want to see at least 300k or more in gain before considering using this strategy. You need to live in he property for 2 out of the last 5 years to take advantage of 121.
@@ClintCoons Thank you so much. I could not live in that for 2 years unfortunately. Just 18 months. I got laid off and had to move to another city but I kept it. Its a great rental and that part of Houston is booming.
Hello , if I bought the house for 150k 40 years ago, and now I start renting it out and now the house value is at 950K? Do I use the current value of 950K or150K for depreciation when filing tax? I have never done depreciation on the house when I lived there. Thanks so much for your help.
@@ClintCoons no, I do not. I looked into it, but it seems there are different perspectives on whether it’s necessary. But maybe I should go ahead and do it.
Hi Clint, I am already a member of Anderson. I need someone to help me strategize. I have never been told those tricks. Is Kelly Allison not supposed to review and help optimize my portfolio?
Claire are you looking to rent out your residence? I will have my assistant Deborah Lewis (dlewis@andersonadvisors.com) reach out to set up a call with me.
Hi, can I get legal advice in the youtoob comments section? hahaha, anyway, I'm interested in how property tax fits in... especially since we're now capped at $10k!
Can i charge myself rent using this strategy ? We lived in the house for 13 years, mortgage recently paid off and the home is going to be put into an irrevocable trust to shield our assets. Since the " Trust " will own the home now can the trust charge us rent and apply these principles ?
So you are paying rent to yourself, deduction out plus you must claim the income from the rent so incone in (equal the deductions) creating no tax benefit other than a hassle and shuffling money!
I have the same question. I want to sell my house to my corporation then keep living in it and rent from the corporation. Is this possible?? It seems plausible but…
In this example, how do you pay off the balance of the mortgage when you sell for $500,000 on installments? Most banks want the balance of the loan when you sell, right?
@@ClintCoons Does that mean 1. I can never refinance, 2. S-Corp, the owner of the house, does Not pay the mortgage but someone, me, in the S-Corp will pay the mortgage? How to file the taxe return for the S-Corp?
@@boulderlist1094 You would need to find a bank willing to refi your loan in an LLC. 2. The S-corp will pay the mortgage. 3. The S-corp will file an 1120-S each year.
Clint, I live in Florida with a Homestead Exemption. Would I lose my homestead exemption tax saving as well as asset protection as well as my home equity loan loan?
What are the preconditions before using this strategy? 300k+ gain and the house has been paid off? Does the current loan servicer have to approve this transaction if the house is not paid off?
Definitely want to run the the numbers but the more gain the better. I would not notify the LSP of the transaction just begin making payments from the corporation.
You are correct, depending on the state your taxes could go up but I fail to follow the insurance increase. Would you not keep your property insured for its full value at all times? This is not a one size fits all approach and anyone considering it should look at the numbers to see if it makes sense in their situation.
So basically you’re able to use the 121 500k capital gain exclusion again with S corp since it is a pass through entity? Is that why you’re saying to use an S corp? This is a pretty complicated strategy hahah
Interesting, Why do you write a corporation is only used for flips? A corporation can have many uses. It comes down to electing the proper tax status for the entity to ensure the flow through benefits associated with rental real estate.
@@ClintCoons Yes, that is true but I am coming from an asset protection standpoint. How would I protect my house after being sold to my S corp, don't I always want long term real estate placed into an LLC? Secondly, can this tax rental strategy be done one house at a time or more than one up to the annual tax free limit?
@@cybereditorpro4728 Not sure what you mean b "protect it". The entity will protect you from liability associated with the property and vice versa. Typically the buying entity will be an LLC taxed as an S-Corp. This is a strategy for your personal residence thus you are limited how often you can use it per Section 121.
@@ClintCoons I mean protect the house with the same benefits as being in an LLC but LLC taxed as S corp was not mentioned and just S corp. So this method can only be used one house at a time or on just my personal residence?
Hey Clint! What ramifications are there (if any) if a buyer wanted to purchase a property but offers to give seller $100k outside of escrow and get a loan for the balance for the purpose of having lower property taxes for the buyer?
Not sure but this would be considered fraudulent if caught because you are attesting that the sale price is XX through escrow but in reality it is XXXX.
I think the idea with all these guys, like Rich Dad Poor Dad is to just emass tons of debt and then die. Because all that depreciation you "saved" has to be paid back once you sell the property. Is that not correct?
The shares in the entity can be passed to heirs with stepped up basis. That would give you stepped up basis in SCorp to claim a loss with when property is sold at a taxable gain after your death. Talk to a good CPA before doing it
Clint, I like this strategy... Because of increased depreciation, section 121 capital gains exclusion of primary residence. But I need the money from the sale to go buy another primary residence. Is there any similar strategy to get the full sales price at time of sale, instead of in installments?
Then all the appreciation you took over the years is computed and taxed as ordinary income. It is called depreciation recapture. There is no free lunch. You buy a house for one million dollars. You depreciate it over time to a basis of 100K. If you sell in the future for one million dollars, you will have to report 900K in ordinary income, to be taxed at a very high rate. The 900K is not even considered capital gain. All this depreciation gymnastics will have you singing the Willie Nelson IRS blues when you ultimately sell.
@@ClintCoons Thank you for your reply. Block Advisors (after escalation) told me the IRS would flag a transaction like this because it's not an arm's length transaction, and I was advised not to do so. Thanks again,
@@ClintCoons the key is that the house has to be sold to an entity that will file tax separately ? If we have a series LLC, can I create a cell that can be taxed as a corporation?
I am new and I want to know I am buying home through aggent She needs name on contract. How do I go about. Do put trustees name on contract as buyer. I have not formed a land trust yet. I have down loaded form from resourses. They have not asked for deposit. How do I pay the funds, from my personal accout and How do I receive rent payment in my personal account? How do I get your firm to help me?
Sure but what is the alternative. You are renting your house and with that comes risk. Someone can sue the corporation and take your house because they are hurt on the property. The alternative is to own it in your own name and risk losing the house and your other assets in the event of a lawsuit.
@@ClintCoons Thank you for replying back but I'm confuse in your explanation you said to sell your house to your corporation. So your corporation own your house in papers legally, you don't have left asset as a house owner, because the company owns it. In the event of lawsuit corporation will be sued and all the assets of your corporation will be freeze and taken away. There is no possibility to own the house again because its freeze unless the corporation is selling back to the owners name but could that be possible?
Yeah, but you take PROPERTY TAXES/SCHOOL TAXES completely out of the Picture.. If your Corp Making 15k in "Rent" this is barely covers those EXTORSION FEES.. Any way you flip or flap, Pirates always win.. ;)
Your business should be properly funded in the first place. However, in this case, the "rent" a tenant pays is 20K, which should be enough to pay the 15K per year installments.
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Will this work if you have a mortgage on property in your personal name?
Figured out how it pays itself. The business gets a loan and buys house from you. you have the 500k now and pay rent to the business with the 500k you just got. This is if the house is payed off. Otherwise subtract what you owe from the 500k. You are basically taking something you own and changing hands so that you do not pay taxes on any money while keeping your property.
This seems like a great strategy when your house doesn't have a mortgage attached to it. I wonder if a Land Trust could be used somewhere to jump that obstacle.
This. can it be done?
I can't think straight because my mind...just...uh. wow!!
Explain this to me like a 5th grader... it was very complicated.
If your going to sell a residence for less than your basis, turn it into a VRBO for a while first. This allows you to take the loss on an IRS Form 4797 LOSS FROM SALE OF BUSINESS ASSET.
This loss offsets all forms of income , including W2 income, so it it more useful than a capital loss.
As with a capital loss, any unused amount carrie’s over into future years.
I just turned my first house into a rental, trying to figure out what I should be setting aside monthly from the rental income towards taxes? According to this video it seems there are some other options to avoid tax liabilities. I’m not fully understanding this video. I just opened an LLC and was going to put the house title into the name of the LLC and open a Trust. Any advise on best practices with my first rental from non novice property investors out there?
What are the tax ramifications when you go to sell the property held in the scorp? (you have a video stating scorps are a bad idea). it would be great to see a side by side comparison of when to use and when not to use (and why).
Good idea. I will put it into production. If you sell in an S-Corp generally speaking it is taxable to you on any gain on the property sale. I will discuss some nuances in the video.
Gain on the excess of sales price over your NEW basis after depreciation
@@ClintCoons did this video ever come out? Loosely looked at your uploads since and may have over looked it.
My property taxes were $1,200 a year. I got married and rented my property for 2 years. I forfeited my homestead exemption. After my divorce, I moved back in and my property value went way up...along with my taxes. My new bill? $4,800 a year $400 a month. I took the new homestead exemption of $50,000 and STILL had an huge increase in property taxes for life. Should of met with this man 1st first! Live and learn. I sold a year later for a nice profit, then... BAM!!! The real estate crash started THE NEXT MONTH. WHEW!!
In your example the actual property tax will be increased due to the sale to the corporation which you will pay$3600 per year more. Since the property tax is income deductible you are paying less federal tax due but make local county happy.
This depends on the State. Not all states assess taxes based on the last sale or because of ownership changes. Many do regular "appraisals".. so the property you bought for 200K could easily be taxed at the 500K value already before you made the sale... V.s.V., or the property may only be valued at 300K, which would not change just because ownership changed. In Indiana, for instance, most counties do a yearly appraisal that is largely based on the homes statistics (SF, constuction type, room count, etc) in combination with "comps" of sales near the subject property.
In most jurisdictions this sale will increase property tax assessment
I suspect in California the property taxes would increase to the new 500k assessment- quite an increase
California is a financial soul crusher
I may be wrong but to avoid the lender accelerating the Note due to the sell of the property, one would first need to deed the property into a LT then sell the beneficial interest of the LT to your S-Corp on an installment sale.
Clint: is this correct?
If you notice, he started this example on a house he had owned for 15 years. I'm no expert, but I believe selling a mortgaged property to a land trust in this manner could be quite problematic.
That's exactly what I had plan to do with some personal assets as start new biz. I knew could do it but of course not all of the specifics of how it's done.
What about S corp, doesnt the corp has to pay taxes as well? So if add up your personal tax for property rental plus corp tax, would it be almost the same amount if combined? 😕
S-Corporations are pass through entities and do not pay any federal tax
Isn't the Cost Basis for calculating depreciation the Fair Market Value of the property at the time of conversion from personal residence to rental property? So in your example, it would just be 500K without the need to pay the transfer tax. I thought the Cost Basis for calculating the capital gains tax purposes would be the 200k plus any capital improvements.
Cost basis is $500k cost basis paid to you by SCorp. Treat it like a business down the street, not as yourself
this sounds great. Can i still sell my house to my own corporation IF i bought my house initially through the fha loan?
Yes but the lender might accelerate if they discover the sale. Maybe use a pocket deed on the sale.
Wouldn’t your property taxes double?
I’ve been watching all your videos thank you for the information. Does this strategy work if there is still mortgage
Yes but it is more complicated.
Thank you for the video Clint. Question, will the S-Corp pay higher property tax as the base went from 200K to 500K?
Exactly what I was wondering
no because even before you sold it to the corp it was still worth 500k, 200k is what it was worth 15yrs ago
Sell price can absolutely effect real estate tax assessment, when your taxing body reassess the property.
Property taxes have nothing to do with your tax basis. They are based on the local county assessment which can be revised every year and can also be protested. So, this house could be assessed at $100k, $300k or $500k today. If a sale is publicly recorded, it can trigger a re-assessment by your county collector, depending on their policies and procedures. One other caveat: your local property taxes will go up in either case, because you will lose your homestead exemption.
depends on your state and county
I need this!!! I have property that I own and probably not getting the tax breaks I should be getting!
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What if the home has a mtg? I have 3 homes two with mtg and one free and Clear . Can it only be done with just 1 property? Sorry it’s a bit confusing for me
Does one need an S-Corp, or could it be an LLC?
how would this system work if I'm still paying mortgage on the house?
I guess it doesn't.
thats my question. you are now paying a 500K mortgage but receiving them on the other end and are paying whatever was left on your original mortgage . now sure what he is trying to do. he is trying to not pay taxes on the gain of the house but not actually get rid of the property. You still have to pay the new mortgage he makes no sense.
gildardomagallon the s Corp is receiving 20k in rental income and is paying you 15k in mortgage payments. So since you’re not being taxed on the 300k gain on the value of your house you are essentially moving 15k of profits to you tax free every year until you reach the 500k that you sold the house for.
Andrew Holcombe has nobody heard of a due on sale clause? If you have a mortgage on the house you need to pay the lender before it transfers to your corporation
@@ddubsr5886 instead of transferring straight into LLC, use a land trust, it protects the real estate and the due on sale clause
Great video!! Would the S-Corp that you used in your example provide asset protection?
You made another video titled, "Why S-Corporations Are A Horrible Idea For Owning Rental Real Estate" so I'm a little confused as to why you would advocate selling your home to a s-corp to be used as a rental since in the other video, you said that was a horrible idea. Won't this cause all the problems you mentioned in that video in future? Can you please clarify?
Generally speaking that is correct but in some cases you might want to do it for the reason I provided in this video. Remember, planning is not a one size fits all approach and different strategies may require different solutions.
@@ClintCoons when would it be bad to do rental property as an s-corp?
@@om8652 Almost always. I have a video covering this matter.
Thank you for asking this excellent question!
Great videos and great didactic presentations! I moved out of my primary residence 3 month ago. I ran a home based business there for 20 years and now renting it to another similar business. If I sell the home in 3 years to the renters and do a 1031 exchange can I still have the 121 tax advantage or selling it to my S-Corp would be the only way to benefit from the 121 exclusion. Thank you for you answer.
If you sell the house in 3years then 1031 is your only option. If you want the 121 then I would sell it to the corporation now.
Real Estate Asset Protection
Thank you for the prompt response. Your videos are extraordinary! Keep doing them. I’m a subscriber and have many friends subscribe. Best!
@@ClintCoons If Gabriela sells the house which she lived in for 2 out of the last 5 years, isn't IRS Code 121 still applicable? Meaning, she has to sell it before the 3-year mark since she would've lived there for the first 2 years out of the past 5 years.
Any particular reason you recommended to put the to-be rental home in S-Corp. I thought it will be more beneficial to put it in a normal LLC
This is a specific strategy for selling your residence and the tax status of the entity is important. A normal LLC is perfect if you have an existing rental or you are not looking to accomplish what I stated in the video.
If my personal residence is financed thru a Va loan, do I refinance first to a conventional and then sell it to the s-Corp? Help
Section 121 is for married couples only I think or am I wrong. I'm not married and rent two rooms in my house.
No it’s not. It just goes from a 500k exclusion down to 250k when single.
How about all the transaction costs of selling and the costs ofnsettingbup the corpotarion?
Good point. This assumes you have business. You would never set up a corporation just for this strategy because there would be no real business purpose for the corporation.
I have two concerns about this:
1. Property taxes will now be 2.5 times per your example. In California, we have Prop 13 so my tax basis is low if I don't sell.
2. Depreciation is only on the structure, right? Land is what appreciates. So, a piece of property which appreciated from $200k to $500k has the same depreciation regardless of whether it was bought at $200k or $500k.
Am I missing something? Thanks again.
The transfer of property into an entity wholly owned by you (in this case your Corporation) is exempt - " _Transfers between an individual or individuals and a legal entity or between legal entities, such as a cotenancy to a partnership, or a partnership to a corporation, that results solely in a change in the method of holding title to the real property and in which proportional ownership interests of the transferors and the transferees, whether represented by stock, partnership interest, or otherwise, in each and every piece of real property transferred, remains the same after the transfer_ "
Your depreciation is based on your cost basis in the property I.e., what you paid for the house minus the value of the land. If the house appreciates from 500k to 1 mm then your basis will increase in the hands of your corporation buyer for purposes of the transaction. Yes the value of the land will go up but so does the structure. If you look at your property taxes you will note these are separately stated e.g., land value 300k Structure 700k. The 700k is what you can depreciate. Further, when you sell your basis has been stepped up so you minimize taxes.
@@ClintCoons Would you please cite the quote you have above? Actually just found it: REVENUE AND TAXATION CODE - RTC
DIVISION 1. PROPERTY TAXATION [50 - 5911] ( Division 1 enacted by Stats. 1939, Ch. 154. )
PART 0.5. IMPLEMENTATION OF ARTICLE XIII A OF THE CALIFORNIA CONSTITUTION [50 - 100.96] ( Part 0.5 added by Stats. 1979, Ch. 242. )
CHAPTER 2. Change in Ownership and Purchase [60 - 69.5] ( Chapter 2 added by Stats. 1979, Ch. 242. )
62. (2)
@@ClintCoons - devils advocate- wouldn't the increase in stated value constitute something other than "that results solely in a change in the method of holding title to the real property"?
@@scottsissom4882 To be clear this is a CA-specific question. Yes, you might have an issue with your property value being reassessed for Prop 13 issue depending on how you complete the PCOR.
Why would appreciation of a house be only to land? Per square foot valuations increase for inflation of building materials to build similar. Just look at improvements value changes on a tax bill
Clint, what is the purpose of asking for an Installment Sale, if you later ask to opt out of Installment Sale treatment? Could you please explain this? Thank you
I assume you are referring to selling your home to an entity you own. Opting out of the installment sale is key to recognizing all of the income in the year of sale so you will qualify for the section 121 exclusion. If you did not opt out then you would pay tax on the payments you make back to yourself over time.
Great video! What if I am still paying the mortgage and I did not live in that house for 2 years but for 18 months? Does it work even then?
You can turn it into a rental without the sale to an entity. Also you would want to see at least 300k or more in gain before considering using this strategy. You need to live in he property for 2 out of the last 5 years to take advantage of 121.
@@ClintCoons Thank you so much. I could not live in that for 2 years unfortunately. Just 18 months. I got laid off and had to move to another city but I kept it. Its a great rental and that part of Houston is booming.
Hello , if I bought the house for 150k 40 years ago, and now I start renting it out and now the house value is at 950K? Do I use the current value of 950K or150K for depreciation when filing tax? I have never done depreciation on the house when I lived there. Thanks so much for your help.
It would be your cost basis (what you paid plus improvements)
so interesting, this is incredible!!!
This only works when selling to a corporation? There is no way of making this work with an LLC taxed as a partnership?
Not it will not.
so If I understand this right then
20k income
-17k depreciation
-15k installment payment
=12k loss?
No. Installment payment is not taxable to you personally and is not deductible to the S-corp
Further to this: so you receive your rental income of $20k AND $15k instalments for 20 years? Or is it in lieu of?
Oh man, we moved from our residence 4 years ago, and have been renting it out. We should have done this.
Do you have the property in an LLC for protection?
@@ClintCoons no, I do not. I looked into it, but it seems there are different perspectives on whether it’s necessary. But maybe I should go ahead and do it.
@@dougp7934 Do it.
nice content! what if you still owe mortgage on the house? will your lender let you sell it to S-corp?
You sell it subject to the mortgage.
Awesome! Thanks!!!!
Sounds great, but where do you get the money to pay off the existing loan?
Buy it subject to the existing loan.
Hi Clint, I am already a member of Anderson. I need someone to help me strategize. I have never been told those tricks. Is Kelly Allison not supposed to review and help optimize my portfolio?
Claire are you looking to rent out your residence? I will have my assistant Deborah Lewis (dlewis@andersonadvisors.com) reach out to set up a call with me.
What option do I have with this strategy, if I already turned my house into a rental? Can I still sell it to my S-Corp?
It depends on when you converted it to a rental. Did you make the conversion within the past 2 years?
Real Estate Asset Protection my oldest rental property started in 2002. The most recent one started being a rental in 2012.
would of been better to sell to a partnership or LLC taxed as a partnership?
It’s a related Party transaction. It won’t have the same effect.
Why S corporation specifically? why not C corporation? Second question- can i rent that property from my S corporation in this example?
You need the flow through tax treatment and it is an investment - property not a flip. Yes you will rent the property from the S-Corporation.
No,step up in basis in s corp!!!
Hi, can I get legal advice in the youtoob comments section? hahaha, anyway, I'm interested in how property tax fits in... especially since we're now capped at $10k!
Can you turn your home into a rental, put it in the LLC, then rent it to yourself?
Yes. I have a video on how to do that with your personal residence.
What happens when selling the home to the business if you’ve only owned for a year?
No gain deferral
link would not allow full fill in of info
Can i charge myself rent using this strategy ? We lived in the house for 13 years, mortgage recently paid off and the home is going to be put into an irrevocable trust to shield our assets. Since the " Trust " will own the home now can the trust charge us rent and apply these principles ?
sounds possible since its irrevocable
So you are paying rent to yourself, deduction out plus you must claim the income from the rent so incone in (equal the deductions) creating no tax benefit other than a hassle and shuffling money!
I have the same question. I want to sell my house to my corporation then keep living in it and rent from the corporation. Is this possible?? It seems plausible but…
In this example, how do you pay off the balance of the mortgage when you sell for $500,000 on installments? Most banks want the balance of the loan when you sell, right?
Correct but the bank will not know unless you inform them you transferred your home to your entity.
Yeah, and then when they find out you are screw. Hahahhaaha this seems fishy. Wait for the irs coming and knock in your door.
@@ClintCoons Does that mean 1. I can never refinance, 2. S-Corp, the owner of the house, does Not pay the mortgage but someone, me, in the S-Corp will pay the mortgage? How to file the taxe return for the S-Corp?
@@boulderlist1094 You would need to find a bank willing to refi your loan in an LLC. 2. The S-corp will pay the mortgage. 3. The S-corp will file an 1120-S each year.
Clint, I live in Florida with a Homestead Exemption. Would I lose my homestead exemption tax saving as well as asset protection as well as my home equity loan loan?
Yes if you follow this strategy.
Yes of course you’re not going be able to live in it
Why s-Corp and not disregarded LLC?
You need a different tax payer. A disregarded entity would not meet the definition.
Does this work for a duplex or a quadraplex, if that’s your primary residence? Or just a SFH
If you won the quadraplex and you live in on of the units it will work.
Would the property have to be zoned commercial to be able to sell it to your s corp?
Not at all. The commercial would come into play when you are looking to obtain a loan in the name of the company.
What are the preconditions before using this strategy? 300k+ gain and the house has been paid off? Does the current loan servicer have to approve this transaction if the house is not paid off?
Definitely want to run the the numbers but the more gain the better. I would not notify the LSP of the transaction just begin making payments from the corporation.
Do a contract for deed between you and the s corp and don’t tell the mortgage company holding the loan. It’s often called a wrap note
Yes and your property taxes double, your insurance increases and you pay taxes on future increased value gains. There is more to it than that
You are correct, depending on the state your taxes could go up but I fail to follow the insurance increase. Would you not keep your property insured for its full value at all times? This is not a one size fits all approach and anyone considering it should look at the numbers to see if it makes sense in their situation.
@@ClintCoons looks like tax in CA would not go up using the 62(a)(2) exclusion.
Does this strategy work if selling to LLC?
It does provided the LLC is taxed appropriately.
So basically you’re able to use the 121 500k capital gain exclusion again with S corp since it is a pass through entity? Is that why you’re saying to use an S corp? This is a pretty complicated strategy hahah
No the s-corp is used because it is a separate taxpayer. The 121 flows through your 1040.
Can I sell it to an LLC treated as an S Corp, and have the same results?
What do you mean by an LLC treated as am S corp?
Treated as means taxed as. There are good videos on making these choices wisely.
Yes, Peter
Fuck off peter lopez i am calling the irs on you now
What if the house value is under water. Will this still work ?
It depends on if a renter will pay enough to cover the mortgage.
@@jtmfam90 which in this example is yourself lol
What if I have 7 houses that i turned from primary to Rental property??/
Great way to build a portfolio. Each of the properties can be depreciated.
I rather do this same move under an LLC instead of an S corp
Has to be an S-corp. Your LLC can elect to be taxed as an S-corp.
@@IRSHelpMichaelPlaksEAHouston Will doing so increase the property tax?
@@goosecouple no, but it can increase insurance premiums. None of that matters compared to the potential benefit.
This is nice but why would I ever want to put my house into a corporation? A corporation is for short term income like flips.
Interesting, Why do you write a corporation is only used for flips? A corporation can have many uses. It comes down to electing the proper tax status for the entity to ensure the flow through benefits associated with rental real estate.
@@ClintCoons Yes, that is true but I am coming from an asset protection standpoint. How would I protect my house after being sold to my S corp, don't I always want long term real estate placed into an LLC? Secondly, can this tax rental strategy be done one house at a time or more than one up to the annual tax free limit?
@@cybereditorpro4728 Not sure what you mean b "protect it". The entity will protect you from liability associated with the property and vice versa. Typically the buying entity will be an LLC taxed as an S-Corp. This is a strategy for your personal residence thus you are limited how often you can use it per Section 121.
@@ClintCoons I mean protect the house with the same benefits as being in an LLC but LLC taxed as S corp was not mentioned and just S corp. So this method can only be used one house at a time or on just my personal residence?
Can you do this with fha
Yes - you are selling it subject to the existing mortgage.
Can you sell properties from a trust (which I am the trustee) to corporations?
Absolutely if the trust give the trustee the power of sale.
Call we sell our house to our llc?
Hey Clint! What ramifications are there (if any) if a buyer wanted to purchase a property but offers to give seller $100k outside of escrow and get a loan for the balance for the purpose of having lower property taxes for the buyer?
Not sure but this would be considered fraudulent if caught because you are attesting that the sale price is XX through escrow but in reality it is XXXX.
You are crazy smart
Is it worth losing Homestead Exemption?
This is only to be considered if you are planning to turn your residence into a rental. Homestead protections only apply to a residence.
Love this!!! Keep sharing that knowledge! #MiamiKid
good info
When you have the S-Corp, Do I have to hire someone as a manager ?
No but you will be an employee of the S-Corporation. If you are using an LLC treated as an S-Corp then you are most likely the manager of your LLC.
@@ClintCoons wouldnt you have to pay employee taxes on the income?
So does the rental income now get taxed in the s corp every year
Yes
@@ClintCoons is it possible to pay zero tax on s corp rental income
Can you do Toronto?
No we do not set up entities in Canada.
I think the idea with all these guys, like Rich Dad Poor Dad is to just emass tons of debt and then die. Because all that depreciation you "saved" has to be paid back once you sell the property. Is that not correct?
Yes if you sell but if you use a 1031 of pass the asset to your children it will never be taxed.
The shares in the entity can be passed to heirs with stepped up basis. That would give you stepped up basis in SCorp to claim a loss with when property is sold at a taxable gain after your death. Talk to a good CPA before doing it
Clint, would this strategy work if an LLC is used instead of an S Corp?
Yes but have the LLC treated as a corp for tax purposes.
@@ClintCoons Would the property be subject to capital gains tax if it was moved out of the LLC (because it was taxed as an S Corp) even if not sold?
@@retiretovallarta2944 Yes it would
Clint, I like this strategy... Because of increased depreciation, section 121 capital gains exclusion of primary residence. But I need the money from the sale to go buy another primary residence. Is there any similar strategy to get the full sales price at time of sale, instead of in installments?
Is this this an available option for 2022?
Yes but speak with a knowledgable professional.
Still have to charge AFR on the installment.
Correct
gold
Can I do this in NC?
Yes
HoLee Cow! That's fantastic!
...And then what happens when/if the S-Corp sells the home?
It is taxed to the S-Corporaiton but the tax basis is increased so you have minimized the gain.
Then all the appreciation you took over the years is computed and taxed as ordinary income. It is called depreciation recapture. There is no free lunch. You buy a house for one million dollars. You depreciate it over time to a basis of 100K. If you sell in the future for one million dollars, you will have to report 900K in ordinary income, to be taxed at a very high rate. The 900K is not even considered capital gain. All this depreciation gymnastics will have you singing the Willie Nelson IRS blues when you ultimately sell.
Doesn't the sale have to be an arm's length transaction?
Yes meaning you have to make sure the terms of the sale are reasonable.
@@ClintCoons Thank you for your reply. Block Advisors (after escalation) told me the IRS would flag a transaction like this because it's not an arm's length transaction, and I was advised not to do so. Thanks again,
Hello,can this strategy be used in greece?
People pay taxes in Greece?
i thought you guys already paid like 90% income tax lol
Do you need to no mortgage on the home in order to sell your house to a corporation?
Does the company need to be a c-Corp ? Can it be an LLC?
It can be an LLC taxed as a corporation
@@ClintCoons the key is that the house has to be sold to an entity that will file tax separately ? If we have a series LLC, can I create a cell that can be taxed as a corporation?
@@tracychen36 Yes you can
Wouldn't you just refinance? That is also tax free. Only reason I see selling it to your business is to offset personal debt to income.
A benefit of this strategy is to increase the tax basis of the property.
What about real estate tax?
Yes you may be subject to state tax on the sale.
What about if I have a mortgage?
You would sell it "subject to" the mortgage.
What is the mortgage is through a va loan? Do I need to switch it to a conventional loan?
Keep mortgage and do a wrap note with contract for deed
I am new and I want to know I am buying home through aggent She needs name on contract. How do I go about. Do put trustees name on contract as buyer. I have not formed a land trust yet. I have down loaded form from resourses. They have not asked for deposit. How do I pay the funds, from my personal accout and How do I receive rent payment in my personal account? How do I get your firm to help me?
Hahahhahahaha i will call the irs on you
Then if your corporation is sued we don't know it may happen then all your property is gone.
Sure but what is the alternative. You are renting your house and with that comes risk. Someone can sue the corporation and take your house because they are hurt on the property. The alternative is to own it in your own name and risk losing the house and your other assets in the event of a lawsuit.
@@ClintCoons Thank you for replying back but I'm confuse in your explanation you said to sell your house to your corporation. So your corporation own your house in papers legally, you don't have left asset as a house owner, because the company owns it. In the event of lawsuit corporation will be sued and all the assets of your corporation will be freeze and taken away. There is no possibility to own the house again because its freeze unless the corporation is selling back to the owners name but could that be possible?
@@freelancelife2131 You set up a new corporation for this strategy. You do not use an existing company. Does this make sense?
@@ClintCoons yes it make sense now. Thank you
Yeah, but you take PROPERTY TAXES/SCHOOL TAXES completely out of the Picture.. If your Corp Making 15k in "Rent" this is barely covers those EXTORSION FEES.. Any way you flip or flap, Pirates always win.. ;)
Can you sell it to an LLC?
If it is taxed as a S-corporation.
...wow.
Pretty neat strategy huh!
Can I sell my house to my LLC?
You can but it must be properly structured. Consult a CPA on how to set it up.
, love you guys information how can I get ahold of your guyses office number thank you
Interest rates hiking makes this less attractive
How does the business get the 500k to buy the house ?
And then pays (thru rental income) the $500k plus interest back to you tax free. This is pretty awesome.
Thank you
Your business should be properly funded in the first place. However, in this case, the "rent" a tenant pays is 20K, which should be enough to pay the 15K per year installments.