BulldogTom Posted March 14, 2020 Report Share Posted March 14, 2020 I have a new client that is buying tax liens. I understand the concept of the investment, but not sure of the taxation. Do any of you have a client doing this and if so can you answer a couple of questions? 1. Are the liens held as inventory or an "other asset". 2. If they are redeemed, do you show that in Gross Sales on the C or as a sale of the lien (same question as #1, just asked another way). 3. Do you split out the interest component paid on redemption from the redemption price paid? Or combine it all as one transaction? 4. If the purchase price is higher than the underlying liability, and it is redeemed, where do you put the loss. Taxpayer is just starting this business. I think it is a mistake, but they believe they can make money doing this. Not my job to give them financial advice, but I do need to prepare the return for them. I believe they should be treating this as an investment, but they contend they will be regularly and proactively engaged in this activity to earn a profit. Thanks in advance for any thoughts. Tom Modesto, CA Quote Link to comment Share on other sites More sharing options...
Lynn EA USTCP in Louisiana Posted March 14, 2020 Report Share Posted March 14, 2020 I have a nonfiler (needs to file back to 2012, and is willing to do so) who started doing this in 2011. This is new territory to me, too, so I will be watching this topic for info from more enlightened folks than me. Quote Link to comment Share on other sites More sharing options...
Lee B Posted March 14, 2020 Report Share Posted March 14, 2020 I am puzzled, what kind of tax liens ? Quote Link to comment Share on other sites More sharing options...
Max W Posted March 14, 2020 Report Share Posted March 14, 2020 They are county tax liens on property that the county has been unable to collect on. The county auctions them off from time to time. That means the buyer of a lien has to try and collect on it from a deadbeat property owner and if it can not be collected, the property can be foreclosed on. If successful, the lien holder takes possession of the property and then has to evict the former owner, unless it is abandoned. Then the new owner either tries to resell it, or rent it out. Much of the time the property is in bad shape and requires a substantial investment, in repair and remodeling. There are companies on TV and the internet promising riches by investing in tax liens. Just buy their tax lien kit packed with all the info and tools to become a wealth tax lien investor. It is not so easy, as there are many legal traps and pitfalls that can occur. There is also the condition of the building which can only be seen from the outside. What if, if after the lien has been bought you find out it has mold, mildew, water damage, termites, etc.? There is no refund on the lien. I have a client who has been buying liens and acquiring property for several years, but now has given it up. Several properties were acquired, but no profit was ever made. 2 Quote Link to comment Share on other sites More sharing options...
Lee B Posted March 14, 2020 Report Share Posted March 14, 2020 The reason that I was puzzled was that in Oregon, the county forecloses and then puts up the property for auction, so that the winner of the auction doesn't have to try to collect from the previous property owner. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 14, 2020 Author Report Share Posted March 14, 2020 1 hour ago, Max W said: They are county tax liens on property that the county has been unable to collect on. The county auctions them off from time to time. That means the buyer of a lien has to try and collect on it from a deadbeat property owner and if it can not be collected, the property can be foreclosed on. If successful, the lien holder takes possession of the property and then has to evict the former owner, unless it is abandoned. Then the new owner either tries to resell it, or rent it out. Much of the time the property is in bad shape and requires a substantial investment, in repair and remodeling. There are companies on TV and the internet promising riches by investing in tax liens. Just buy their tax lien kit packed with all the info and tools to become a wealth tax lien investor. It is not so easy, as there are many legal traps and pitfalls that can occur. There is also the condition of the building which can only be seen from the outside. What if, if after the lien has been bought you find out it has mold, mildew, water damage, termites, etc.? There is no refund on the lien. I have a client who has been buying liens and acquiring property for several years, but now has given it up. Several properties were acquired, but no profit was ever made. From what I get from my client, they are got sucked in by one of those programs and they think this is how they are going to spend their retirement years. When you see the look in their eyes, like they are the ones who found the goose that lays the golden eggs, you know they are not going to listen to anyone but the guy who sold them the program 2 Quote Link to comment Share on other sites More sharing options...
Max W Posted March 14, 2020 Report Share Posted March 14, 2020 42 minutes ago, BulldogTom said: From what I get from my client, they are got sucked in by one of those programs and they think this is how they are going to spend their retirement years. When you see the look in their eyes, like they are the ones who found the goose that lays the golden eggs, you know they are not going to listen to anyone but the guy who sold them the program Some people have to learn the hard way. 1 Quote Link to comment Share on other sites More sharing options...
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