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?

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

---

Request for Answer Clarification by dreambig-ga on 02 Jan 2007 13:19 PST

Hi Keystroke, 
Thanks for the answer. I have one additional question: can I rent this
place out to help pay the mortage? Is that considered running a
business?

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.