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Selling shares in an LLC as a way to divide up real estate
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2022 Mar 30, 10:03am 921 views 7 comments
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1
stfu
2022 Mar 30, 10:09am
Where are you seeing 300k/ yr and 900k every 3? Last I knew it was $250k every 2 years ($500k MFJ)
I'm in that period right now so any info is appreciated 👍
I'm in that period right now so any info is appreciated 👍
2
Hircus
2022 Mar 30, 10:16am
Hircus
2022 Mar 30, 10:16am
stfu says
I'm not talking about the 250k tax exclusion.
If you buy 3 houses at 300k ea, you could sell 1 house per yr as a way to keep your taxes lower. Maybe youll have 100k cap gains per yr, for 3 consecutive years.
If you buy 1 house for 900k, you have no choice but to sell the entire house in 1 year, banking 300k cap gains that year, putting you into higher tax brackets.
Where are you seeing 300k/ yr and 900k every 3? Last I knew it was $250k every 2 years ($500k MFJ)
I'm in that period right now so any info is appreciated 👍
I'm not talking about the 250k tax exclusion.
If you buy 3 houses at 300k ea, you could sell 1 house per yr as a way to keep your taxes lower. Maybe youll have 100k cap gains per yr, for 3 consecutive years.
If you buy 1 house for 900k, you have no choice but to sell the entire house in 1 year, banking 300k cap gains that year, putting you into higher tax brackets.
3
Hircus
2022 Mar 30, 10:22am
Hircus
2022 Mar 30, 10:22am
HunterTits says
pacaso says they create an LLC.
But I suppose I'm just interested any any method, doesnt need to be LLC.
LLC or LLP?
pacaso says they create an LLC.
But I suppose I'm just interested any any method, doesnt need to be LLC.
4
EBGuy
2022 Mar 30, 2:23pm
Just to be clear, we're talking about either 15 percent (up to $445,850 as a single filer) or 20 percent capital gains rates. Five percent ain't nothing, but not sure how much sleep I would lose over it. The simplest form of ownership (no need to register an LLC) would be tenants in common. I've done this with people I trust, but even then having a TIC Agreement is a VERY GOOD IDEA. The TIC Agreement is basically the sword of Damocles that hangs over everyone's head and usually specifies a partition sale as a last resort.
There is a Sea Ranch fractional property that has been around for a very long time. Occasionally you'll see an original owner selling off their share of the property on Craigslist (essentially a DYI timeshare). in this case, everyone is fully vested in the property and there is no financing involved.
There is a Sea Ranch fractional property that has been around for a very long time. Occasionally you'll see an original owner selling off their share of the property on Craigslist (essentially a DYI timeshare). in this case, everyone is fully vested in the property and there is no financing involved.
5
Hircus
2022 Mar 30, 7:51pm
Hircus
2022 Mar 30, 7:51pm
I dont know about other states, but CA not only has income tax, but they tax capital gains as regular income. So that's an additional 9-12+% tax right there on top of 15-23.8% federal (dont forget the 3.8% obamacare capital gains surtax, a surcharge reserved for evil rich fucks). But its more than that I think - I can't recall the details, but as your total income goes up for the year you start getting bit in less common scenarios that dont apply to everyone.
Also, I recall biden (and also separately CA I think) was trying to get a bunch of new tax law changes put into effect recently (which so far have failed) but they were structured to raise taxes on evil rich fucks who have over 400k income per yr. You may normally only make 50k in a normal yr, but in the yr you sell your appreciated home, you can easily top 400k, and you will become a "rich fuck who must pay" for the year. Some of the proposed tax hikes were fairly serious on RE. I don't think these changes will go through now, but maybe in the near future, and I think the theme of "raising taxes on those who earn over X per yr" will certainly flourish in the future, so I think strategies to avoid reckless bursts in income in certain years, instead allowing you to throttle them, will be increasingly valuable.
I'll have to read up on TIC. I never heard of it.
Also, I recall biden (and also separately CA I think) was trying to get a bunch of new tax law changes put into effect recently (which so far have failed) but they were structured to raise taxes on evil rich fucks who have over 400k income per yr. You may normally only make 50k in a normal yr, but in the yr you sell your appreciated home, you can easily top 400k, and you will become a "rich fuck who must pay" for the year. Some of the proposed tax hikes were fairly serious on RE. I don't think these changes will go through now, but maybe in the near future, and I think the theme of "raising taxes on those who earn over X per yr" will certainly flourish in the future, so I think strategies to avoid reckless bursts in income in certain years, instead allowing you to throttle them, will be increasingly valuable.
I'll have to read up on TIC. I never heard of it.
6
Eman
2022 Mar 30, 8:45pm
Eman
2022 Mar 30, 8:45pm
While you’re at it, why don’t you read up on installment sales?
There are various strategies to dodge taxes. Take the $500k exclusion, 1031 exchange the rest of the equity into various assets. Then liquidate those assets one at a time to spread out the gains.
Alternatively, keep tapping the equity while letting the asset service its debt. The cash-out equity is tax-deferred and can be tax-free if you pass it down to the next generation. Then the kids get a step-up in basis and can sell the asset(s) tax-free up to $24MM.
Consult with your CPA.
There are various strategies to dodge taxes. Take the $500k exclusion, 1031 exchange the rest of the equity into various assets. Then liquidate those assets one at a time to spread out the gains.
Alternatively, keep tapping the equity while letting the asset service its debt. The cash-out equity is tax-deferred and can be tax-free if you pass it down to the next generation. Then the kids get a step-up in basis and can sell the asset(s) tax-free up to $24MM.
Consult with your CPA.
7
EBGuy
2022 Mar 31, 6:13pm
Hircus says
You're right. I totally forgot about how CA handles capital gains. If you're making $61k+ then you've got:
3.8% net investment income tax (if over $200k for single filers)
9.3% state income tax
15% federal capital gains (20% over $450k)
------------
28.1%
You may normally only make 50k in a normal yr, but in the yr you sell your appreciated home, you can easily top 400k, and you will become a "rich fuck who must pay" for the year.
You're right. I totally forgot about how CA handles capital gains. If you're making $61k+ then you've got:
3.8% net investment income tax (if over $200k for single filers)
9.3% state income tax
15% federal capital gains (20% over $450k)
------------
28.1%
For a long time I've wished there was a way to own real estate but sell it gradually, specifically for the purpose of preventing a huge capital gain / income in a single year, which puts you into the undesirable "evil rich capitalist fuck that must be made to !PAY!" tax brackets. It seems this fractional share strategy would help by letting you sell only a fraction per year.
A big drawback though, assuming you do the LLC trick on your own instead of using a company like pacaso, is finding buyers willing to buy a home from you with such unusual circumstances. For example, I might wish to sell a home over 2 or 3 years, and so the buyer would need to deal with that, buying shares in my LLC over 2-3 years until they fully own it, at which point they could dissolve the LLC if they choose. I think that would scare almost all buyers away. OTOH, using pacaso, you can sell your shares on their online marketplace which would surely help a lot to remedy peoples fear of the unusual arrangement, but I still fear how the arrangement will fare in the future under various changes, as the company and the other owners might cause headaches or undesirable situations that sap profits and time.
So while the idea is interesting, neither pacaso nor self creating a fractional LLC seems too appealing to me.
Does anyone have any experience in ways to spread out RE capital gains over multiple years?
All I can really come up with is to either try to own less expensive homes (so you can sell a 300k home per year, instead of a 900k home once per 3yrs), or just sell often before too much in capital gains accumulates. But transaction fees would eat profits if buying and selling often.