On Mar 25, 10:51 am, "RicodJour" wrote:
On Mar 25, 11:00 am, "Michael Bulatovich" wrote:



Nice post, Rookie. The point that stood out for me is the inverse
relationship between the quality of the drawings and the required experience
of the contractor.

What stood out to me was that there was no mention of the value of the
owner's time. Invariably these sort of posts make no mention of
determining the value of that time and don't acknowledge that it is a
real cost that should carry through to the bottom line. It's akin to
figuring a time and materials job and putting zero value on the time.
Do not ever put a zero dollar value on anyone's time at any point. I
am not saying that it can't be done, or shouldn't be done, but don't
fudge the numbers going into the project. That never works out well.

If anyone is serious about doing something like this, don't pretend
that reading a lot and good intentions make up for experience, nor
that your time has no value if you are working on your house. It
might make more sense, depending on your particular situation, to set
up an S-chapter corporation to build your house, hire yourself and pay
yourself wages, deduct the tools as a business expense, etc.

You can't be serious. If you pay yourself, you're taking your own
after tax money and recycling it back through the tax system. Not
only are you going to pay income tax on the wages your paying
yourself, but also social security and unemployment insurance. It's
highly unlikely that is going to be offset by writing off tools or
other expenses. Plus, the IRS does not allow a homeowner to assign a
value to labor they do on their own home with regard to capital
improvements. I would think they would take a dim view of an S
corporation, set up to skirt that, especially one that is running at a
loss.





That of
course depends on a lot of factors, such as licensing laws. If you
put zero value on your time, and you sell the house, you have made a
major impact on the base cost which will have a major impact on your
capital gains tax liability.

In most cases this is a non-issue. The first $250K in capital gains
is exempt from tax for singles, and $500K for couples. So, the house
would have to appreciate a lot before there is any issue at all. And
beyond that, the rate is only 15%. So, if he saves 40K doing work
himself, on the slim chance he exceeds the limits, he only winds up
paying $6K in tax someday in the future. Meantime, he's got the 40K.




Someone should not attempt a large
dollar project like building a house without consulting an accountant
that has knowledge of the tax implications _before_ you do anything
else.

R