Real Estate Investor · Denver, CO · Member since 2012 · 83 posts · 17 votes
Hey folks,
Any thoughts on the efficacy of this strategy?:
We own several SFD rental properties held in our names. We file jointly a 1040.
I have a single member LLC taxed as a sole prop. This LLC holds another property. This LLC has a solo 401k.
The contribution to 1040 gross income (after depreciation et al) via LLC-as-a-sole-prop to our 1040 will be about $4000. Our tax rate on the margin for that is 33%, so $1320 to the IRS.
Let's say that I as the member/employee of the LLC did 100 hours of work on the 3 properties (not the one held by the LLC!!!) at $40 / hr = $4000. So that $4000 becomes an expense item of the properties, thus no $$$ from the properties to be taxed.
Then, through the LLC solo 401k, I choose to defer %100 of the $4000 into that solo 401k.
I believe that I just lowered my tax bill for TY 2015 by $1320.
Am I correct in understanding that you are calling a LLC that holds property producing passive rental income as the sponsoring employer for a Solo 401(k)? Passive rental income is not the same as self-employment income and would not qualify to sponsor a Solo 401(k) in the first place.
Services you provide to yourself are not typically deductible.
I strongly suggest you have a sit-down with your licensed tax professional.
Am I correct in understanding that you are calling a LLC that holds property producing passive rental income as the sponsoring employer for a Solo 401(k)? Passive rental income is not the same as self-employment income and would not qualify to sponsor a Solo 401(k) in the first place.
Services you provide to yourself are not typically deductible.
I strongly suggest you have a sit-down with your licensed tax professional.
I agree with Brian, you need a self-employment activity or a business generating 'earned income' in order to make contributions to the 401k. Rental income in it's nature is passive. Something is not right in your setup here...
The passive-income LLC with a solo401k cat was skinned already here. Check it out. Many of the big players (most who've already posted above me) chimed in and we got to the answer.
Do you have any self-employment activity other than the ownership of the LLC? I agree, you should have a talk with a qualified tax professional if not.