116 As A Lender, What Do I Need To Do, Reporting-wise, For Tax Season?

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116 As A Lender, What Do I Need To Do, Reporting-wise, For Tax Season?

Bill, Wendy, and Jonathan are live in the Active Income Passive Wealth Show to answer today’s “Ugly Question”.

As a lender what do I need to do, reporting-wise, for tax season?

Understand more about this topic by watching this video.

Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the “Small Builder” borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and “Ground-up Construction Loans” for investors only in NC, SC, GA, VA, and TN (some areas of FL, as well).

As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.

Bill Fairman (00:02):

Hello everyone. Have you been wondering as a lender, what it is you need to do to prepare for tax season? Well, in this show, we’re going to let you know what it is you need to take care of right after this. Hi everyone. I’m Bill Fairman and this is Wendy Sweet and Jonathan Davis. We are your hostesses with the most disses for the Passive Income, Active Wealth Show.

Wendy Sweet (00:42):

You have to change the name. If we can’t say the name over and over and over again, I think it might be a problem.

Bill Fairman (00:48):

No, It’s only a problem for me.

Jonathan Davis  (00:49):

How many drinks you had at the admirals club?

Bill Fairman (00:51):

So by the way, we are broadcasting and I haven’t had any free beverages yet, other than a latte. We are broadcasting live, except for Jonathan.

Jonathan Davis  (01:02):

I’m not live?

Bill Fairman (01:02):

He’s got his grass skirts.

Jonathan Davis  (01:08):

This is pre recorded.

Bill Fairman (01:08):

We’re in the Charlotte Douglas airport, ready to fly out to parts unknown. But how are you doing, Jonathan?

Jonathan Davis  (01:23):

Great. You know,

Bill Fairman (01:23):

It’s just not having you in the same room.

Jonathan Davis  (01:26):

I know. I know. I took advantage of you all not being here. I was productive. I got my whiteboard put up on my wall. It’s actually starting to look like an office here now.

Bill Fairman (01:36):

Excellent. Well, we are Carolina Capital Management, we are a lender you can find out about borrowing money if you’re in the southeast at CarolinaHardMoney.com click on the apply now button. If you’re looking for passive returns, same website, CarolinaHardMoney.com click on the accredited investors tab. Don’t forget to like share, u, what else? Ring the bell, subscribe, all that good stuff. See, I always need these extra little things in the screen to remind me what I’m supposed to say. Maybe I should write them on the back of my glasses. And yes, this is the ask and ugly question segment and if you have any questions or comments, you can add them to the chat on the right side of your screen or underneath, depending on the platform that you are watching us on and even if this is recorded and you’re watching it at a later date, you can still utilize the chat and we still have folks that look at it and respond. Hopefully it’s an answer you want.

Wendy Sweet (02:48):

That’s right.

Jonathan Davis  (02:52):

If not, oh well. Next time.

Bill Fairman (02:52):

And so, as it is every week when we do this show, we have some breaking news. So let me talk about breaking news, momentarily.

Wendy Sweet (03:19):

This just in!

Bill Fairman (03:23):

And we’re back. All right. So, you know, the jobless claims we’re in again this week and while they’re still high in the 900,000 range, they were still below expectations. So they expected a hundred or 910,000. They came in just slightly above at 900,000. It’s still high, no matter what you say, continue in claims still a little over 5 million. They were expecting more than that. So it was under expectations, which is a good thing, but, you know, frankly, it’s going to ebb and flow for a while until we are at 70% huge herd immunity, I would say. And then even then you’re going to have people that are still going to be kind of afraid to go out and do things like they used to. The world obviously is changing and the one thing I can say is that we all have pretty short memories. So, in a couple of years, everybody will be back to going out and doing stuff like they normally did.

Wendy Sweet (04:30):

Oh I hope it won’t even take a couple of years.

Bill Fairman (04:31):

If they don’t have, they may not have the money to do it, but there’ll be out

Jonathan Davis  (04:37):

On the bright side, if you are looking for a job, construction companies are hiring as many people as they can. They are hunting right now for people for bodies.

Bill Fairman (04:49):

Yeah. That said, housing starts were, I think it was 1,000,600 thousand. They were expecting 1,000,500 thousand. So it was above expectations. And then permits were above expectations as well, for the upcoming construction that’s going on and yes, now is a great time to be in one of the trades. I’m telling you right now, if you’re entrepreneurial at all and you want to be a electrician or a plumber or a welder, a HVC person,

Jonathan Davis  (05:32):

A house flipper, and you want to learn how to do some of the work yourself.

Wendy Sweet (05:34):

I can help. That’s what we do. We can really help you get, get a little deeper into what you’re doing and, you know, what’s really, on my mind is what is going to happen to the sectors that are not doing well, like commercial office space. That’s a sector that, you know, they’re going to have to find a new use for those buildings and I’m really interested in seeing what they’re planning on doing with this building. Some of them are turning him into housing facilities and Jonathan, what are you hearing?

Jonathan Davis  (06:09):

Well, I mean, we’re seeing a lot of office buildings out there, trading around or trying to be traded around. So, and some of them are arms length, some of them are not arms length. There’s already, REO, commercial buildings that are out there being sold by banks or whomever took them back. I mean, that’s the issue it’s, you know, will office jobs go away? No, absolutely not. Will it look the same as it did two years ago? No, absolutely not. So trying to figure out what that looks like, like, you know, if you have a 400 office unit building, like, what does that look like in 2021, 2022? I can speculate but you know, we don’t, we don’t know. I mean, do you convert some of it to downstairs retail or, I mean, there’s a lot of guys that I know that are taking warehouse and old, or not old, but just office space that’s no longer being used and they are subdividing it into individual offices and leasing that out to, you know, people who are working from home, but maybe their home conditions aren’t conducive to answering phone calls or thinking with, you know, maybe some kids around or dogs or whatever it is. So they’re leasing out that space and I’ve seen some success in that. So, you know, it’s going to be creative and it’s, you know, it’s going to have to be creative because we, you know, no one, no one has the answer right now.

Bill Fairman (07:52):

Well, one of the things that’s already happening is that your we’ll call them your larger corporations, you know, global type multinationals where they had the big giant headquarters and say New York city. They don’t need all that space anymore and what you’re going to see is that they’re going to have remote offices in a more bedroom community type areas. So you’re going to see more office space being built or utilized in a saying, for example, we’ll just talk about Charlotte. Charlotte has several different areas around town, where they have a commercial office space in a community that surrounds, you know, golf courses, multi-family single family housing all around it. It’s like a little small township inside of the city but out more into the suburbs of the city. I think you’re going to see a lot more of where they don’t need the larger space and not all the employees in that area even need to be in there at the same time, so they can kind of share that space.

Jonathan Davis  (09:03):

Yeah. You’re seeing a lot of, you know, I guess, suburbanization of office buildings, you know, would you rather have a 2000 square foot office building in we’ll use local here or Concord, or would you pay 4,000 square foot in downtown Charlotte? Well, of course, you’re going to do 2000 square feet in Concord. It’s going to cost you, I don’t know a fraction of the price and like you said, I mean, you only have to have a couple employees in at a time, you know, whoever is essential or however you designate that break up throughout the week.

Bill Fairman (09:40):

Excellent. Well, Wendy and I are at the airport because we are flying to Dallas to participate in a mastermind. Jonathan is going to join us in that same mastermind, but he’s going to be doing it virtually and just to give you guys a heads up, and occasionally I’m going to be doing this because the screen keeps freezing because we’re having to use the airport wifi. So, anyway, there’s your heads up.

Wendy Sweet (10:18):

I’ll tell you, what’s really neat too is there’s nobody here, the airport is still just as empty as it could possibly be.

Jonathan Davis  (10:26):

It sounds very quiet there.

Wendy Sweet (10:27):

It is and, I mean, yeah, it took, I had had nobody in front of me to get through security, not one person.

Bill Fairman (10:36):

Yeah. I was the only person in the pre-check line.

Wendy Sweet (10:40):

It’s just crazy and we both got upgraded to first class, which is really nice, you know, that we’ll take that.

Bill Fairman (10:50):

So now, instead of bringing in a sandwich, they’ll hand me a sandwich,

Wendy Sweet (10:55):

But you have to eat it through your mask, but it’s, you know, we see all the unemployment statistics going out and what’s really got me concerned is the sectors that are going to suffer and I don’t see how they’re going to come back the airlines and any kind of travel and tourism, the hotels are hurting rental cars and that makes me nervous, especially for the areas that are highly dependent upon tourism. You know, that that’s got me nervous. It’s a lot of people that are going to be unemployed for awhile because it’s just so difficult to get it to come back.

Jonathan Davis  (11:35):

You brought that up and, you know, you know, I naturally default to the real estate side. I mean, we all do, but, like I’m looking at, you know, prolonged moratoriums on foreclosures on a rinse being collected which I was reading, this was probably a week old, but that there is back owed rents in New York, in the amount of over $1 billion. So over $1 billion in back owed rants in just New York alone.

Wendy Sweet (12:10):

That’s a lot of money.

Jonathan Davis  (12:11):

It’s insane. So, you know, one who, you know, when you hear that number, who the hell wants to own real estate in New York? but then, when it starts, I’m sorry, Bill. What’d you say?

Bill Fairman (12:27):

It’s a pause to, do you want to own rental property anywhere? Just there, but, you know, I was listening to one of the business channels this morning, and one of the guests was talking about the, government help that’s going out the stimulus package, 2.7 and he was talking about money going out for foreclosure and eviction relief and I’m thinking, well, I don’t know anyone who’s getting money from the government because their tenants aren’t paying or their customers aren’t paying their payments. So what’s that relief hoot. Where’s that money going? Is it going to the person that lives in the house or is it going to the landlord? Because I don’t see any landlords getting any money, do you?

Wendy Sweet (13:24):

I heard this morning, it was being directed to the tenants.

Jonathan Davis  (13:28):

Well it doesn’t even make any sense, like they have a moratorium on it, then you’re going to give them more money. Well, I mean, some people are going to the right thing and you know, that’s true. But I imagine a lot of people, I mean, they can say, well, I can take this money and bring up my,

Wendy Sweet (13:43):

That’s a new car!

Jonathan Davis  (13:43):

Or I can buy a new car or whatever it may be because they see it as a lost cause on the building that they’re already in or the room that they’re already in.

Wendy Sweet (13:52):

And they know they can’t get kicked out.

Jonathan Davis  (13:54):

That’s one of the things that just drives me nuts is this assumption that if you own real estate, you can survive anything because you have really deep pockets. Like, well, no, because there’s taxes, there’s insurance. I mean, there’s a mortgage, there’s all those things that are just building up that the landlord is responsible for and they’re not getting any income. And most landlords, I would say most do not pay a hundred percent cash for their real estate property. They owe debt on it. So it’s just like, I don’t know it, I’m not saying don’t help tenants, but I’m saying, you know, there’s gotta be some middle ground across the board for landowners as well as tenants,

Bill Fairman (14:44):

Well, the people that own property, they have mortgages in most cases that have to pay, you know, and then a lot of what we talk about as being lenders it’s individuals that can be lenders. It doesn’t necessarily have to be the big banks. So, that said, I want to do a couple of things quickly before we run out of time here and not answer the question.

Jonathan Davis  (15:12):

Oh that question real quick. That question that Scott threw up.

Wendy Sweet (15:22):

Don’t touch the button.

Jonathan Davis  (15:24):

Owners have better equity than 2008. And you know, that’s an interesting thing. So to refinance a property that’s tenant occupied, you have to show that it’s cash flowing. If it’s not, you can’t touch your equity. Like if the tenant’s not paying, there’s no refinance, then there’s no equity that you can pull out.

Wendy Sweet (15:42):

Equity doesn’t make the payments. Does it?

Jonathan Davis  (15:45):

It’s a catch 22. You can’t do anything there.

Bill Fairman (15:48):

Yeah. Yeah. But, to answer your questions Scott, yes. There’s a lot more equity than there used to because prices keep going up. But the only thing you can do with that equity is sell. And that’s assuming somebody wants to buy property. That’s not cashflow because the tenant is not paying and you can’t get them out because there’s a moratorium.

Jonathan Davis  (16:09):

That’s a market I want to buy right into.

Wendy Sweet (16:13):

We just did a loan for a guy who had a tenant in it when he bought the house and he served him an eviction notice. So he could, you know, rehab it and the guy’s not moving and there’s nothing he can do about it right now.

Bill Fairman (16:27):

See, now there’s opportunity. If you’re going to buy a rental property and turn it into short-term rental, where you don’t have leases where it’s a Airbn or VRVO or whatever you want to call it, vacation rentals, you don’t have to worry about a victim to a tenant because there’s no lease.

Jonathan Davis  (16:52):

Assuming, there’s no squatter’s rights in that state. So be careful.

Bill Fairman (16:55):

Be very careful with the regulations in each state that you do this in. All right. Let’s get to our question because, we’ve only got a few minutes left now. As a lender, what documentation or what is it you need reporting wise for tax season? Well, here’s my first answer on anything having to do with taxes. Consult a professional tax person don’t ask me.

Jonathan Davis  (17:23):

Here’s the second part. Do you service the loan yourself or do you have a sub-servicer? Because that’ll determine whether you have to do anything or not.

Wendy Sweet (17:31):

Good point.

Bill Fairman (17:32):

Yeah. And if you’re the lender yourself, you have to provide a 1098 I to your borrower. So essentially what you’re doing is letting that borrower know how much interest they paid.

Jonathan Davis  (17:49):

If you service your loan.

Bill Fairman (17:49):

Yeah. If you’re the lender and you’re servicing the loan, you have to give them a 1098 I, so they can deduct the interest that they pay that year, or at least be informed and then that same amount has to be put on a 1099 as income to you as the lender and those to better match up at the IRS, or there might be some issues. So if you’re doing a 1098 and a 1099, make sure the numbers add up, if you’re-

Wendy Sweet (18:23):

Those forms are free on irs.gov, those forms.

Bill Fairman (18:27):

Yeah. And if you’re in a fund that lends typically you don’t have to worry about any of that, you’re just going to get a K1 sent to you.

Jonathan Davis  (18:38):

If you’re an equity owner and you’re not a-

Bill Fairman (18:40):

Unless, you’re a debt investor, meaning you’re lending the fund money money. So if you’re in it as a debt investor, you’re going to get a 1099. If you’re an equity partner in a lending fund, you’re going to get a K1 because you’re a partner in the lending business, so to speak. But once again, I’m not a tax professional, consult your tax professional and you’d better hurry up because they’re about to be so busy, they don’t want to take any phone calls and especially when they’re constantly changing things. Um, all right. I want to touch on a couple of things before we wrap this up. Number one, we are going to be speaking at the 2021 cashflow expo. There’s a link here in the comments that you can click on and go register for the cashflow expo. I don’t have it right in front of me, but there’s typically, 25 to 30 speakers and all different realms of real estate. And it’s really about cashflow.

Wendy Sweet (19:55):

And all awesome.

Bill Fairman (19:55):

It’s a two day event, February 18th through the 20th. And the tickets are really inexpensive. And then you also have the opportunity to upgrade your tickets, to get all the recordings as well cuse it it’s two days. It’s hard to commit to two full days.

Wendy Sweet (20:13):

Yeah. It’s like under a hundred bucks to get your, get a ticket.

Bill Fairman (20:18):

Actually, the under a hundred also includes the recordings. So.

Wendy Sweet (20:22):

That’s amazing.

Bill Fairman (20:23):

That’s a heck of a deal that’s about the least expensive education you can get

Wendy Sweet (20:29):

That’s exactly right. In the comfort of your own home.

Bill Fairman (20:31):

That’s right. Last year there were, I believe there were 25,000 attendees. I think that’s what it was for that event. So they do a great service. Jonathan, you got anything to add before we get to our next show?

Jonathan Davis  (20:54):

You know, no, I mean just, yeah. Make sure you know your loan. If we go back to the question, if you defer the interest to the payoff of the loan, you don’t have to provide anything. If you collected interest over $600, talk like, again, talk with your CPA, but you’re going to have to provide a 1099.

Wendy Sweet (21:17):

I want to mention, go ahead.

Bill Fairman (21:17):

You have you had to modify the loan during the year too, you know, keep that in mind, they had 12 months worth of payments together and come up with a number if you modified the loan or deferred, three months of payments because COVID, remember that too.

Jonathan Davis  (21:36):

Also modification fees, extension fees, any other kinds of fees talking to your CPA? Some all, or maybe none will have to be included in those numbers.

Wendy Sweet (21:45):

That’s right. Good point. And you’ll notice that your CPA might have different answers to that question, too. It really depends on how, what they think is gray or not. I also wanted to mention in the very beginning, there’s a gentleman by the name of Dawn that mentioned he has signed up for my Wednesday with Wendy. And I just wanted to, we’ve got a link here. It’s also in the chat. If you’d like to talk for an hour, I’m giving away a time. Every, Wednesday, I tied my time. There’s Don’s message there. I’d love for you to book with me. We can talk about whatever type of real estate you want to talk about and if I can’t help you, I can hook you up with people who can. Just want to share the knowledge and give back. So, thank you for doing that, Don. I look forward to meeting with you.

Bill Fairman (22:37):

And Oh, by the way, if you book time with Wendy, make sure you show up.

Wendy Sweet (22:41):

That was, that’s nice.

Bill Fairman (22:41):

She’s doing this for free. She’s just giving over her time and she’s a very busy person and it’s, after getting several reminders. If you don’t show up, that’s just rude. Anyway.

Wendy Sweet (22:59):

Sorry for that noise at the background.

Bill Fairman (22:59):

We got to ending this on a nice note and yes, they’re looking for me and you can tell by the announcements in the back.

Wendy Sweet (23:09):

Quick, hide!

Bill Fairman (23:09):

So there’s a link for our next show. It will begin in approximately five minutes. So hope to see you there. Don’t forget. We are a Carolina Capital Management or website is CarolinaHardMoney.com. If you are a borrower and you’re looking to borrow money in the Southeast, click on the apply now tab, if you’re an investor looking for passive returns, then click on the accredited investor tab. Don’t forget to like, share, subscribe, ring the bell,

Bill Fairman (23:47):

Thumbs up!

Bill Fairman (23:47):

All that. And again, if you have any additional comments or questions, leave them over there in the, in the chat look forward to seeing you either next week or in the next five minutes, have a great day.

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