This is an opportunity to reduce your taxable income by $375,000 with a one-time $150,000 investment into an income-producing tiny home.
Summary
Due to its unique designation as a business property, the BoxHouse qualifies for a one-year, 100% deduction as defined under the Internal Revenue Code, section 179. For tax years beginning in 2024, the maximum expense deduction is $1,220,000. (Larger amounts can be deducted under IRC 168k)
A taxpayer puts a one-time $150,000 down payment toward the purchase of a tiny home, which is subject to a cashflow buyout lease with a remaining $225,000 per unit payable out of future cash flow.
Let's look at the transaction process.
One-Time DownPayment
With a one-time down payment of $150,000, the taxpayer acquires ownership of a BoxHouse for $375,000.
Lease Agreement
The acquisition comes with a lease in place to a qualified lessee who places end users into the homes. The lessee agrees to pay the remaining $225,000 owed under the financing terms over 360 months.
BoxHouse manufactures and sells the tiny home on payment terms described above and keeps a security interest until the final payment is made.
Section 179
The amount of expense write off available in 2024 is 100% of the basis of the asset placed into service in 2024. While real estate is not eligible under section 179, IRS rulings have concluded that when a structure is movable (such as with a wheeled trailer) these portable homes are delivered on wheels and can be readily transported, and are therefore considered business property, not real estate.
Expense Write-off
Section 179 is a deduction that allows the tax payer to write off the cost of qualified property or equipment as an expense, during the first year it was purchased and placed into service. Compared to section 168, which tax payers use to write-off a portion of the depreciation over 5 years, section 179 gives the tax payer the ability to deduct the entire cost in a single year.
Frequently Asked Questions
What Is Section 179?
Section 179 of the U.S. internal revenue code is an immediate expense deduction that business owners can take for purchases of depreciable business equipment instead of capitalizing and depreciating the asset over time.
What is the maximum deduction?
The maximum Section 179 deductions a tax payer can claim in 2024 tax year $1,220,000.
What does placed into service mean and when is the deadline?
Placed into service means the moment when a piece of property is ready and available for a specific use.
Typical BoxHouse Scenario
John is a skilled surgeon. At 56 years old, John is seeking ways to optimize his financial situation and reduce his tax liability. Let’s explore how he can leverage the BoxHouse program to his advantage.
John’s annual income as a surgeon stands at $800,000. John currently has a tax rate of 37% and is now subject to a tax obligation of $254,187. John would like to reduce his tax obligation. He is now the perfect candidate for the BoxHouse Tax Mitigation program.
Let’s illustrate the specifics of John’s tax-saving plan using Section 179 of the US tax code.
John plans to purchase a BoxHouse for $375,000. To secure the home, a purchase agreement is completed wherein John provides a down payment of $150,000.
The balance now owed is $225,000. This acquisition comes with a lease in place to a qualified lessee who places an end user in the home. The lessee agrees to pay the remaining $225,000 owed under the financing terms over 360 months. With the lease in place John does not need to worry about making the payments.
Now, due to the unique qualifications of a BoxHouse John is able to deduct 100% of his tiny-home purchase in the first year by applying section 179 of the US tax code.
This unique purchase combination provides John with a substantial deduction which decreases his tax obligation.
Here is an example of how John’s tax obligation can be reduced by purchasing a BoxHouse using Section 179.
*John is a single filer
Where are the tiny-homes installed?
The majority of homes are currently being installed in West Texas.
Why West Texas? Housing has been a major challenge for oil companies to secure in rural areas. The typical living situation for an oil field worker includes numerous employees sharing small confined spaces referred to as “Man Camps.” Companies in West Texas are seeing the value in providing premium housing for their employees, where the alternative is an unappealing “man camp” that struggles to recruit and retain valuable employees. As evidenced by the photos below, West Texas companies have been able to utilize the BoxHouse to set themselves apart from others by providing far more appealing living accommodations.
About The BoxHouse
Measuring 19 feet by 20 feet, or approximately 380 square feet, the BoxHouse is designed to provide privacy and comfort by including a full kitchen, bathroom, bedroom, dining & living area.
Constructed with a steel frame and walls, the BoxHouse is designed to endure significantly longer than conventional stick-built houses due to its reduced susceptibility to severe weather conditions, mold, rot, etc.
Testimonials
The BoxHosue as Compared to Traditional
Man Camps
As you can see, the accommodations are much nicer in a BoxHouse as compared to typical “Man Camps” in West Texas.
Frequently Asked Questions
Who is responsible for vacancy, loss, or damage?
The lessee is responsible to carry the insurance and pay the monthly buyout rent regardless of the condition or occupancy of the unit.
Who are the lessees and why do they want a BoxHouse?
The lessees are real estate owners, business opportunity seekers, and oil service companies who are excited to acquire a tiny home with no money down on very favorable long-term financing terms. BoxHouse procures these individuals and sells the tiny homes exclusively, subject to the leases. The leases are part of the purchase price of the BoxHouse (just like a hotel is sold on a per-door basis, i.e., a structure plus its associated cash flow).
What are the total cash outlays?
The outlay is a one-time down payment of $150,000, with the remainder of the purchase collected directly from the lessee.
How do I get started?
We will send you a purchase agreement, which you will sign and forward along with the one-time payment to our attorney’s escrow account. The funds will be used for our next bulk delivery order.
Is this a security?
No. This is not a pooling of interest, nor is it passively managed off the efforts of others with the intent to generate a profit. You own the unit(s) directly, and you have full control and discretion over how to continue managing the lease buyout arrangement with your lessee. We simply provide the package upfront and maintain a collateral assignment of the rents until we are paid in full.
References
1. https://boxhouse.com/legalopinion.pdf
2. Basis is the amount of your capital investment in property for tax purposes. Use your basis to figure depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale, exchange, or other disposition of the property. The basis of an asset is its cost to you. The cost is the amount you pay for it in cash, debt obligations, and other property or services. See https://www.irs.gov/taxtopics
3. Borrowed cash is full basis, untaxed money in the borrower’s hands. These funds may be used to purchase assets with a full-cost basis that enables the financier to earn profits and suffer losses in operating or disposing of the assets. If the debt is genuine and reasonable in terms of the fair market value of the purchased property, the full amount of borrowed funds generally gives rise to cost basis. See: https://www.thetaxadviser.com/issues
4. There is no need to discount a note receivable to the present value when determining tax basis. See Peracchi, Donald
J. et ux v. Commissioner where a 10-year note at 11% interest was held to contribute the full face value to the calculation of basis: https://www.taxnotes.com/research/federal
5. See Uniform Commercial Code §1-203. Lease Distinguished from Security Interest.
a. Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case.
b. A transaction in the form of a lease creates a security interest if the consideration that the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease and is not subject to termination by the lessee, and: (1) the original term of the lease is equal to or greater than the remaining economic life of the goods; (2) the lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods; (3) the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement; or (4) the lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement.
6. This is based on our suggested use/exit. As the direct owner and manager of this equipment, the financier can modify the program to include renegotiating the buyout lease or any other element of the program. Nothing herein is intended to constitute a security nor to suggest that the financier is in any way a passive party to the transaction. Each transaction is entered into on a stand-alone basis, and there is no pooling arrangement.
7. https://www.irs.gov/publications/p946
Disclaimer
Tax Investor and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.