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01. This Book
02. Syndicate Boom
03. Get Information
04. Syndicator
05. How much?
06. Depreciation
07. Depreciation Applied
08. Declining Balance
09. Straight Line
10. Paying Taxes
11. Pay Mortgage
12. Income Taxes
13. Paper Loss
14. Tax Shelter
15. Rent?
16. Syndicator Units
17. Wear + Tear
18. Lease-Hold
19. Building
20. Comparison
21. Specialized Properties
22. Growth
23. Leverage
24. Share Growth
25. Why + How
26. Syndicate Agreement
27. Net Lease
28. Long-term Lease
29. No Guarantee
30. Inflation Clauses
31. "Inflation Clause" Works
32. Inflation Clause?
33. Mortgage Due
34. Interest Rates
35. Short Term Mortgage
36. Good Mortgages
37. Refinancing
38. Refinancing Clauses
39. Share of Mortgage
40. Share of Profit
41. Purchase Options
42. How Purchase Options
43. Stunt the Growth
44. "Subordination"
45. Long Term Lease
46. Business Organizations
47. Syndicate Debts?
48. Management
49. Your Consent?
50. Sell Your Unit
51. Investment Trust?
52. Business Syndicate
53. Multiple Properties
54. Dream or Reality?
55. Syndicator's Background
56. Value of Guarantees
57. Look for Yourself
58. Conclusion
Resources
10. Paying Taxes on Money You Never See
The following are quotations from brochures recently examined.
Syndicate No. 1
In the llth year of ownership, the amount report-able as taxable income will exceed the cash distribution at which time the amount of taxable income will be $573.91 as compared to the cash distribution of $550.00 per unit. In the 12th and succeeding years, the excess of taxable income over the cash distribution will increase.
Syndicate No. 2
In the 8th year and thereafter, the net income re-portable for federal income tax purpose will exceed the annual cash distribution if mortgages have not been refinanced before then.
Do these statements mean that you may have to pay income taxes on money you never receive? Yes, they do. To make this quite clear, you may for instance receive a distribution of $500 a year, representing a 10% distribution on your $5,000 investment. For income tax purposes, let us say that you are deemed to have received $700 a year. This is quite possible. Does this mean that you have to pay income tax on $700 even though you received only $500? Again the answer is yes. If you are in the 40% income tax bracket, you will pay 40% taxes on $700, that is $280.00. Your distribution amounted to $500. After paying $280.00 in income taxes, you end up with $220.00. This is only 4.4% net return on your investment, and a far cry from the 10% you expected.
You must examine the brochure to see whether you will have to pay each year higher income taxes on your distributions. Some brochures will actually contain information like that set forth at the beginning of this chapter. Then it is easy. Others will simply show that in every year the taxable portion of the distribution increases, but the projections are not made far enough into the future. If that is the case, be careful. If you are not sure, ask your accountant or get a letter from the syndicator, if you can.
We have told you what to look for. It is not really necessary for you to know why you may have to pay taxes on moneys which you will not receive. If the syndicator, who wants to sell you participations gives you this unfavorable information, directly or indirectly, you can take his word for it. You may, therefore, skip the next two chapters and go on to the following one. However, if you are curious, read on. An explanation and illustration follow. But we want to give you fair warning. This is not easy.
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