Buying and selling fixer upper house on H1B
Category: Business and Money > Finance
Asked by: dreambig-ga
List Price: $40.00
20 Nov 2006 12:22 PST
Expires: 20 Dec 2006 12:22 PST
Question ID: 784301
I am a H1B (working visa ) holder working in South Florida USA. I'm planning to buy a house in next few days. This is my first house. These are my questions: Should I buy the house in my name or open a LLC and buy it in the companys name? What are the pros and cons? If I buy a fixer upper house and have someone fix it for me, can I pay them out of the sale of the house? If I do this in a partnership, what is normally the share of a silent partner ( carryin the note/morgage )? What are my best options in the following scenerio: I buy the house for 200,000. I get a loan with no down payment( first time home owner ). I have someone fix the house, they spend $20,000 on renovation. I sell the house 1yr later for 250,000. How does this work out so that I can pay the people who fixed my house and not be taxed on the whole 50,000? Is it possible to do this on my visa status? I know that I can make investments such as house/stocks etc on a work visa and also open a LLC. However is the above scenerio legal?
Re: Buying and selling fixer upper house on H1B
Answered By: keystroke-ga on 13 Dec 2006 15:44 PST
Hello dreambig, Thank you for your question. You can buy a house-- "From An Immigrant, to Future Immigrants" http://www.immihelp.com/visas/h1b/ "H1 visa holder can buy house or any other real estate property in USA. H1 visa holder can also work invest money in stocks, mutual funds, bonds etc. H1 visa holder can not work as self-employed or freelancer and do contract type of work in free time." You can invest in property-- alt.visa.us http://groups.google.com/group/alt.visa.us/browse_frm/thread/3f87afd89ee78610/8f0d9df38437c89e?lnk=st&q=h1b+real+estate+investment&rnum=2&hl=en#8f0d9df38437c89e "There may be an option for you yet: if you can prove that the real-estate business is an investment rather than a business you work for, it would be perfectly permissible (just be sure that it doesn't grow so much that it becomes work!) Similarly, if you can prove that it is a hobby rather than work, it may also be permissible." I recommend that you actually live in this house for two years and then sell it, which would avoid any type of capital gains taxes at all, up to a sale of $250,000. However, if you do not want to live in the house and wait a year longer than your plan calls for, there are things that you can do to lessen taxes on the entire $50,000 profit. The home improvements you do would step up your house's "basis", or initial price. In the situation you describe, the house's basis would be $200,000. However, doing $20,000 of work could make the house's basis $220,000. Settlement fees and closing costs for selling would also be added to the house's basis. Here are the guidelines for what constitute improvements under the IRS basis clause: IRS-- Adjusted Basis http://www.irs.gov/publications/p530/ar02.html#d0e1868 Almost anything that a contractor would do for you to improve the home's value-- add a bathroom, pave the driveway, new flooring-- would make the home's basis higher. Therefore, if $20,000 of qualifying work was done, the house's basis would be $220,000 and you would only have to pay capital gains on that $30,000. To pay for the contractor, you could take out a home equity loan. The contractor will not want to only take payment on contingency of the sale. A home equity loan's interest is tax-deductible the same way that mortgage interest is. I see absolutely no reason that you would buy the house in the name of an LLC. This would make it look even more like you were trying to do real estate investment as a job rather than a passive investment and would also cost extra time and money unnecessarily. An LLC can protect you, for example on a rental property, from personal liability for the LLC's property. Especially if you're only keeping the house for a year, an LLC just complicates things. Are you thinking that a contractor would sue if he/she was hurt on the property? Most contractors have liability policies that cover this. An LLC would also not protect you from your own negligence. A silent partner whose name appears on the mortgage and title but does nothing else does not get a set percentage of the deal; that would depend on the circumstances. How much is the partner contributing? If most of the money is coming from the partner, the partner should get most of the payback. Sources: Laughlin Associates http://www.laughlinusa.com/LLC_whyform.asp Search terms: (Google) h1b buy house capital gains home improvements buy house with llc (Google Groups) h1b real estate investment If you need any additional clarification, let me know and I'll be glad to assist you. --keystroke-ga
Re: Buying and selling fixer upper house on H1B
From: homeowner789-ga on 28 Nov 2006 15:48 PST
I am a H1B (working visa ) holder working in South Florida USA. I'm planning to buy a house in next few days. This is my first house. These are my questions: Should I buy the house in my name or open a LLC and buy it in the companys name? What are the pros and cons? I would suggest you to buy home on your name rather than on LLC for the following reasons - a. It would be quicker to buy instead of waiting to open an LLC, to collect/provide pertinent company documents etc b. Documentation needed to obtain loan approval would be easier to obtain if you apply individually; most companies just request your bank account info, W-2s, employee info and formal application that will have you SSN, fist name, last name info etc - which can be in less than a day, as opposed to obtaining more detailed and accurate info for the LLC. c. Tax benefits on interest amount would be more(and straight forward) if you buy on you name, compared with amount you would get as deductions when you use the home for small business/LLC. If I buy a fixer upper house and have someone fix it for me, can I pay them out of the sale of the house? Most of the contractors request 20-50% of money upfront even before they start fixing the things, and 100% as soon as they are completed. There are few companies which can consider providing loans for the repair work performed. However, I'm 99% positive that most of the contactors would NOT agree if their payment is constrained with selling of house. If I do this in a partnership, what is normally the share of a silent partner ( carrying the note/mortgage )? This will depend on the mortgage company conditions and most of them are flexible. As long as the silent partner is listed as co-applicant and assumes liability in paying off the loan, mortgage companies are ok with that. Specific percentages for which your co-partner is liable can be discussed with the lender and accordingly, 'share' of silent partner can be decided. What are my best options in the following scenario: I buy the house for 200,000. I get a loan with no down payment (first time home owner ). I have someone fix the house, they spend $20,000 on renovation. I sell the house 1yr later for 250,000. How does this work out so that I can pay the people who fixed my house and not be taxed on the whole 50,000? You will NOT be taxed for sure if you make the home as primary residence AND live in for at least 24 months. In all other cases, you will be taxed on capital gains (50k in this case). I do not think employment loss or transfer to a different place would be considered by IRS to waive the tax on capital gains (a tax advisor can help you in this regard). Is it possible to do this on my visa status? I know that I can make investments such as house/stocks etc on a work visa and also open a LLC. However is the above scenario legal? Its perfectly legal and you can buy and sell homes as long as you are on valid H1B visa. I'm on H1b visa since 1999 and was involved in 3 buying and 2 selling transactions. I would suggest you to retain the home for 2 years and take advantage of capital gains. Good luck to you.
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