Author Topic: Thoughts On RealtyShares Closing Its Doors To New Investors  (Read 438827 times)

stingray

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1300 on: June 16, 2020, 03:58:14 AM »
@John_PVF:  Please pardon me if you are already aware of this:  If a portion of your returned capital is mischaracterized as income, the problem will not be completely solved by writing off the amount shown as remaining in your capital account when the investment is closed.  That is because the income will be taxed at ordinary income rates, but the amount you write off will only be a capital loss.  Even if you are able to offset the entire capital loss, you would be penalized at a rate that is roughly the difference between your ordinary income tax bracket and the long-term capital gains rate of 20%.  There are three ways out of this mess.  1) Get IIRM to fix the K-1.  2) File with the correct numbers and explain the discrepancy vs. the K-1 on your return.  3) As I mentioned in previous posts, if no liabilities have been allocated to you as a partner (quite likely in this case), you can abandon your partnership interest under Section 165(a).  This would place you in the correct position, as if the K-1 were correct.

berkel

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1301 on: June 23, 2020, 09:09:39 AM »
A new update posted by IRM on 5/26/2020

To all Franchise Growth investors,


The extension to the forbearance agreement has been fully executed, and the non-refundable deposit has been received on May 22nd, making the following dates effective:

Original forbearance agreement amended and executed, January 30th, 2020

COVID19 declared a federal emergency by the President of the United States on March 13th, 2020

The amended termination date will now be July 29th, 2020 at 17:00 Dallas, Texas time.

A non-refundable deposit of $65,000 has been received. (This is in addition to the original $100,000 that were deposited in January)

The Lender (Franchise Growth) has been given an optional extension of 30 days, subject to notice being provided at least 5 days before Termination, and an additional $35,000 non-refundable deposit being posted.



for regular people like me (lol)  what does it mean?
I am in 3 FG investments:

2 returned approx 50% of the total capital
1 returned 0 of the capital

thanks for those who can give a little more clarity...


No one??

Hi,

Just a layman here, but I also have one FG investment (American Family Care Largo FL Tranche 1).  I also got about 50% returned as well so far.  The forbearance extension pushes the termination date to July 29, so they have more time to reconcile this mess with everyone.  Otherwise, IRM could try to foreclose and go that route, but with COVID and other factors, who knows how much we would get.

I guess best case we get all of our money back, worst case, we end up where we are now.  Not sure likely either event is, but we'll see.

Hoping for the best.  Good luck!


JD

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1302 on: June 24, 2020, 05:50:15 AM »
I've been somewhat critical of IRM on here recently as distributions have slowed to a drip and many deals are getting downgraded.

However, IRM seems close to closing some buyouts on several properties I'm invested in which would return a pretty reasonable amount of my principal back. If they can pull it off, it will be an impressive step in the right direction IMO.

Deals are set to close by July 4th weekend so I'll keep posted here.

JD

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1303 on: July 08, 2020, 05:05:56 AM »
@JD, if a partnership fails to issue you a K-1, you should use whatever information you have to estimate what the K-1 would have shown.  You should ask your accountant exactly how to file, but I believe you can use IRS Form 8082.  The instructions for that form state "Also use the form to notify the IRS if you did not receive Schedule K-1 ..."

As a practical matter, if you did not receive any payments in the applicable tax year and the partnership has failed with no reasonable expectation of a return of capital, I would report zero partnership income and would report the capital account as zero.

A point that I have made before on this board that you really should consider:  under certain conditions, you can affirmatively abandon your partnership interest.  Why would you want to do this?  Because you may be able to claim an ORDINARY LOSS that offsets ordinary income, rather than a long-term capital loss.  The tax savings can be substantial.

https://www.cpajournal.com/2016/10/01/partnership-abandonment/

Again, your accountant can help you with this matter.

Good luck, and sorry for your troubles.

Hey Stingray,

Thanks again for your advice here. I'm looking into this some more now.

Do you know off-hand if your suggestions would apply to a debt deal that never returned principal or if it's only applicable to equity deals that went under?

stingray

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1304 on: July 08, 2020, 11:48:34 AM »
Hi JD,
If you are investing as an individual and not as a business, debt deals that default are the absolute worst from a tax standpoint.  All the interest you've received is taxable as ordinary income in the year you receive it.  If the debt defaults, it only becomes tax-deductible when the remaining balance becomes completely worthless, at which point it is a (long-term) capital loss that must be claimed in the tax year when the debt becomes worthless.  Thus, the interest you make is taxed upfront at your highest (marginal) tax rate and the capital loss only reduces your income tax at the end of your investment, at the lower long-term capital gains rate (with minor exceptions not covered here), and to the extent you have capital gains to offset it.  Uncle Sam takes the the difference.
This is why crowdfunding debt with high default rates is just a terrible deal, and why I don't do it anymore.
Your accountant can tell you more.
Good luck.
« Last Edit: July 08, 2020, 11:50:15 AM by stingray »

JD

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1305 on: July 08, 2020, 11:25:29 PM »
Hi JD,
If you are investing as an individual and not as a business, debt deals that default are the absolute worst from a tax standpoint.  All the interest you've received is taxable as ordinary income in the year you receive it.  If the debt defaults, it only becomes tax-deductible when the remaining balance becomes completely worthless, at which point it is a (long-term) capital loss that must be claimed in the tax year when the debt becomes worthless.  Thus, the interest you make is taxed upfront at your highest (marginal) tax rate and the capital loss only reduces your income tax at the end of your investment, at the lower long-term capital gains rate (with minor exceptions not covered here), and to the extent you have capital gains to offset it.  Uncle Sam takes the the difference.
This is why crowdfunding debt with high default rates is just a terrible deal, and why I don't do it anymore.
Your accountant can tell you more.
Good luck.

Yikes, that is bad. And of course it's the majority of the defaults I'm looking at so far.

The good side is it should be easier to file on my taxes than making up a K-1. I'll start looking into how to do that now.

Thanks again, your advice is invaluable!