From: phil scott 
Newsgroups: misc.invest.real-estate  misc.legal  misc.taxes
Subject: Re: Real Estate Investment Tax Question
Date: Mon, 26 Nov 2007 16:09:41 -0800 (PST)
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On Nov 26, 3:52 pm, "twice.redee...@gmail.com"
 wrote:
> On Nov 26, 3:43 pm, mproo...@hotmail.com wrote:
>
>
>
>
>
> > I apologize for cross-posting if any of the above newsgroups are
> > inapplicable.
>
> > A friend asked me about the legal (tax) implications if he:
>
> > 1) Receives a $1M loan to buy a rental property
> > 2) Uses the $1M to purchase a rental property, A
> > 3) Uses A as 100%+ collateral for a $750K loan
> > 4) Uses the $750K loan to purchase a second rental property, B
> > 5) Uses B as 100%+ collateral for a $500K loan
> > Wash.  Rinse.  Repeat.
>
> > He then rents out all of the properties for the same monthly payment
> > as the loans used to purchase them plus any property taxes.  So the
> > rent from A is used to pay off the loan and property taxes on property
> > A, the rent from B is used to pay off the loan and property taxes on
> > property B, etc.  All of this seems to be legal at this point.
>
> > The plan is to claim no profit and thus pay no tax on the rental
> > properties.  He claims that he has nothing to tax until he has a
> > capitalization event.  I am neither a real estate expert nor a tax
> > attorney but this doesn't make sense to me as the rental income is
> > still income and the "loss" due to loan repayment and property tax is
> > not the type of "loss" referred to in the tax code.  My assumption is
> > that this is tax fraud and that he is responsible for paying income
> > tax on all rents received but I haven't been able to find any
> > California statute or case law that is sufficiently on point to
> > convince him.  This would not be the owner's primary residence or
> > anything like that... strictly investment property.
>
> > Is there a name for this type of scheme and does anyone know what the
> > typical penalty (in California) would be?
>
> > If anyone has any information, please forward it to my email address:
> > mproo...@hotmail.com
>
> > Thanks in advance,
>
> > - Matt
>
> He can get the loan to purchase A, but beyond that he has no equity
> for the following purchases. They are going to look at market value
> minus what is owed, and that will be zero. Lenders aren't stupid, at
> least prime lenders, they want to see collateral and equity in case
> they have to foreclose.- Hide quoted text -
>
> - Show quoted text -

that little glich was handled with bogus appraisals until lately...
you could still do it with off the books finance leverage, paying a
premium for the new ppty... giving others the tax write off you cant
use..that will still go on.

failing in the end... but not in the middle.

such scams support a get something for nothing mind set... turning its
host into a slime bag.


Phil scott