Strategies to use 264K tax loss??

TangoWhiskey

Frequent Forum Member
Registered
A partner and I are just finishing a mixed apt and townhome development (18 units total) that once refinanced will have a 264 K tax loss on the corporation's books from the development phase. The development is expected to net about 2-2.5K per month net, lets say 25K per year.

Using the tax loss to write down income means we will have about 10 years of non-taxed income. However it seems to me there must be smarter strategies to maximise use of this tax loss. Ideas that come to mind:
- buying a company that owns real estate that has been depreciated to where a sale means a big tax hit
- possibility to turning this company into the general partner in a limited partnership to transfer tax loss to limited partners and become a vehicle to start focusing on raising capital
- focus on buying highly cashflow profitable real estate to soak up the tax loss faster, for example buying 5-10 SFH's and putting them all as rent to own (which I have experience with) as rent to own income including the final sale capital gain is classified as active income for taxes.

Any thoughts on this by anyone? Are these viable strategies? We are meeting our accountant soon and I'd like to have some options to discuss with him.

Thanks!!
 

Thomas Beyer

Senior Forum Member
REIN Member
Is this a capital loss or a (income) loss ?

Why not sell it at a gain to a NewCo ?

You can sell tax losses but will get little for it.

But yes buying an asset and reselling it in short order for profit is the best approach.

If you open an LP with tax losses there are tax shelter provisions / issues / required disclosures / required filings in Canada best discussed with a tax accountant.
 

RE123RE

Inspired Forum Member
Registered
yes buying an asset and reselling it in short order for profit is the best approach.
Hi,
Is this an example of what you mean:
Corporation with 200K loss buys a property for 1 Million.
Then sells it for 1.4 Million.
Tax should normally be paid on 200K (half of 400K), but since the Corporation has a previous 200K loss, there will be zero tax owed following the sale of the property.
Is this correct?
Thanks
 

Thomas Beyer

Senior Forum Member
REIN Member
Depends on the 200k loss and 400k gain. Is it capital or income ? You cannot commingle a 200k capital loss with a 400k short term profit.
 

Thomas Beyer

Senior Forum Member
REIN Member
An example ? Be a smart buyer. Ina rising market, say BC or TX. Or AB. Many distress sales there right now.
 

TangoWhiskey

Frequent Forum Member
Registered
Is this a capital loss or a (income) loss ?

Why not sell it at a gain to a NewCo ?

You can sell tax losses but will get little for it.

But yes buying an asset and reselling it in short order for profit is the best approach.

If you open an LP with tax losses there are tax shelter provisions / issues / required disclosures / required filings in Canada best discussed with a tax accountant.


Thanks for the response - this is what we are thinking:

My partner and I form Newco, which would likely be an LP and raise cash
We as Oldco sell asset to NewCo (the LP) using appraisals to support price and have fair hurdle rate for investors but keep small percentage (say 20-25 %) and control of Newco as the general partner/GP
Oldco selling the asset makes sufficient capital gain to absorb the $260K loss. We get our capital back in Oldco and go find more assets to buy, reposition and refinance, aiming to take on the high risk/high return development projects with our capital and sell as finished low-risk/low-return at higher valuation to the Newco while keeping the 20-25 % and control as GP in return for managing and achieving the hurdle rate.
Isn't that pretty much what you were talking about?
Vielen Dank im Voraus... Tris
 

Thomas Beyer

Senior Forum Member
REIN Member
Thanks for the response - this is what we are thinking:

My partner and I form Newco, which would likely be an LP and raise cash
We as Oldco sell asset to NewCo (the LP) using appraisals to support price and have fair hurdle rate for investors but keep small percentage (say 20-25 %) and control of Newco as the general partner/GP
Oldco selling the asset makes sufficient capital gain to absorb the $260K loss. We get our capital back in Oldco and go find more assets to buy, reposition and refinance, aiming to take on the high risk/high return development projects with our capital and sell as finished low-risk/low-return at higher valuation to the Newco while keeping the 20-25 % and control as GP in return for managing and achieving the hurdle rate.
Isn't that pretty much what you were talking about?
Vielen Dank im Voraus... Tris

Well as long as it is disclosed and you can justify making money upfront. Most investors would be a little gun shy if you take in 260,000 and they might lose money.

It all depends on the story told and the possible upside !
 

TangoWhiskey

Frequent Forum Member
Registered
Well as long as it is disclosed and you can justify making money upfront. Most investors would be a little gun shy if you take in 260,000 and they might lose money.

It all depends on the story told and the possible upside !

Agreed, we need to run numbers and ensure it wins for all. The asset is oceanfront with its own pier and boat ramp 2 km from a major air force base front gate, all brand new units, paving etc etc, so the long-term gain is just the steady operations and mortgage pay down on 2.3 million in mortgages. At 15 % in 5 years amortization that's 345K in mortgage paydown not counting cashflow or value increases. I don't see much difference between selling an asset I already own at a fair hurdle rate and raising capital to buy an asset at a fair hurdle rate...
 
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