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  • 1.  Guarantor of mortgage

    Posted 08-09-2017 10:15 AM
    Hi- I have a client who is a guarantor on a mortgage. The mortgage was additionally secured by a building that at the time of purchase was occupied by a rent paying tenant.  Subsequently the building has become vacant and thus no rental income.  

    The mortgage terms provide that the property be maintained and all insurance and real estate taxes be current.  The client as guarantor has lent funds to the partnership to pay the debts as well as upkeep the property.  There is no expectation that these loans will be repaid.

    In 2016 the client (guarantor) lent approximately $125,000.  Can this amount be deducted on his 2016 personal return?  If so, which schedule would be the appropriate place to record it?

    Thanks in advance for any advice on this matter.

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    Jay Gordon
    SHELDON GORDON, CPA
    Lynbrook NY
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  • 2.  RE: Guarantor of mortgage

    Bronze Most Valuable Member
    Posted 08-09-2017 10:32 AM

    I assume you mean can the underlying expenses that were paid with the 125,000 loan – can they be deducted. If the client is actively trying to rent  the building, and hopefully can prove same, then the tax law assumes the building is in use and the expenses can be deducted as rental real estate, subject to the passive activity regulations if your client is not deemed a real estate professional.

     

     

     

     

     

     

     

    Vincent J. Preto, CPA

    Senior Partner

    Wagner & Zwerman LLP

    450 Wireless Blvd.

    Hauppauge, NY 11788

    Tel. (631) 777-1000 Ext. 340

    Fax  (631) 777-1008 

     

     

      logo-wagner-zwerman2                 image005.png@01D1E40C.9CB93920              images                          

     

     

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  • 3.  RE: Guarantor of mortgage

    Posted 08-09-2017 11:50 AM

    Thanks for the quick response.  Yes, I meant to say can the underlying expenses that were paid with the 125,000 loan be deducted?  

    Our client is a real estate professional who is a partner in numerous buildings owned throughout Queens.  In this instance, he was a sponsor of the deal/one of the guarantors but is not a partner.  He does not receive a K-1 and therefore we do not record a profit or loss on schedule E.  On an ongoing basis they continue to market the building to attract tentants.

    Given the above additional facts, does tax law still permit the expenses to be deducted as rental real estate, subject to the passive activity regulations? 





    Original Message


  • 4.  RE: Guarantor of mortgage

    Bronze Most Valuable Member
    Posted 08-09-2017 11:55 AM

    I would say no because the deduction would go to the underlying owners of the entity and this is just a loan. With that said, if your client thinks the repayment will be a number of years away, why not consider restructuring the deal so your client can be specially allocated the losses based on his contribution and he is to receive allocated future profits up to the losses previously  allocated and an amount thereafter to be deemed his rate of return (instead of interest) on the contribution.

     

     

     

     

     

    Vincent J. Preto, CPA

    Senior Partner

    Wagner & Zwerman LLP

    450 Wireless Blvd.

    Hauppauge, NY 11788

    Tel. (631) 777-1000 Ext. 340

    Fax  (631) 777-1008 

     

     

      logo-wagner-zwerman2                 image005.png@01D1E40C.9CB93920              images                          

     

     

    **********************************************************************************************************************************************************************

    This email, and any attachments to it, may contain information that is privileged, confidential, and exempt from disclosure under applicable law.  If the reader of this email is not the intended recipient, you are notified that any use, dissemination, distribution, copying, or communication of this email is strictly prohibited.  If you have received this email in error, please notify the sender immediately by return email and delete the email and any attachments. 

     

    Unless specifically stated otherwise, the written advice in this e-mail or its attachments is not intended or written to be used for the purposes of avoiding penalties that may be imposed under the Internal Revenue Code.

     




    Original Message


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