There's the potential of having a relatively large capital gains tax through my crypto investing as I take profits this year, which is taxed the same as stock. I'm curious if there's the potential to instead use the money to go towards the purchase of investment property, cost segmentation, and accelerated depreciation vs. just eating the tax bill. It sounds like this "loophole" might be closed through PAL, but I'm hoping someone can clarify if that's the case or if there are any other unique ideas. I understand that's a lot of moving pieces that have to fall in place, but just looking for some ideas. Thanks!
Passive activity losses don't offset investment property gains, but for a 25k amount for those with minimal AGI.
Additionally, the concepts of cost segregation and accelerated depreciation have in my opinion been vastly and repeatedly distorted in some of the comments on BP. You would think reading some of this very dubious commentary it's as simple as buying any nature of real property characterizing 99% of it as something other than 27.5 / 31 year property per a "Cost Seg Study" and then merrily expensing the whole kit and caboodle in year 1 - voila.
Good luck with that unless you really enjoy playing tax deduction Russian Roulette.
Need to examine if you'd receive any tax benefit or if it'll all get caught up as passive. e.g. real estate professional, $25k allowance, etc.
There may be opportunity for tax planning but no one will be able to help based on what you've provided.
A CPA that you've engaged, one who knows your facts, circumstances, and goals is in the best possible position to help.
Thanks, Christopher & Eamonn. I assumed if it's too good to be true, it probably is. I have no desire to be on the bad side of the IRS. Short-term capital gains taxes might just be the cost of quick money. Thanks again.
Two completely different issues.
1. Deferring capital gain taxes. You can explore reinvesting the gains into a Qualified Opportunity Zone Fund. It is a controversial strategy, and you should not do it just for taxes, only if you believe in the long-term viability of such investment.
2. Tax benefits of holding investment real estate. There may be some tax relief, depending on your situation, but again - it should not be the reason to invest. The reasons should be current cash flow, future appreciation, or both. Taxes is a side benefit.
@Michael Plaks - Thanks. I've been looking at getting into the market in 2022 as I start to diversify more but thought there might be an opportunity to accelerate the timeline if I could also reduce capital gains for 2021. I appreciate the response.
As Michael mentioned, Opportunity Zone Funds can be a good fit for people realizing gains from Crypto investments. You can defer the tax on any portion of your gains by investing into an OZ fund within 180 days of realizing the gains. Taxes on the existing gains are deferred through 2026 and new capital gains inside the fund are tax free if held for 10 years. The flexibility of being able to invest as much or as little of your gains as makes sense for you has been a good fit for many crypto investors. Reach out if you'd like to discuss further.
Qualified opportunity zones will allow you to defer your tax + get you started into real estate.