Depreciation offsetting tax penalties for IRA withdrawal

4 Replies

I'm looking to invest in MF through some crowdfunding platforms. I want to take some dollars out of my IRA to do so (not doing this in a SDIRA, I have a debt investment through that). I was wondering if the tax benefits of depreciation would meaningfully offset the withdrawal penalties from the IRA. I'm fairly new at this, so hope I'm not asking a dumb question (bit if I am, what the heck, I'll learn something). Thanks for the insight.

@Rich Dooley

You will have income tax on the withdrawal plus, if you're under 60, a 10% penalty. Possibly the state income tax, too, depending on your state.

Income tax (both IRS and state) might be partially offset by depreciation, depending on your overall situation: total income, the amount of your IRA withdrawal and rental cash flow. The 10% penalty is not offset by anything.

@Rich Dooley

The amount that you withdraw from your IRA will be subject to income taxes. Federal and possibly state taxes.
The amount will also be subject to a 10% penalty if you are not 59.5

If you invest in a syndicated/crowdfunding deal - the fund will be able to utilize depreciation expense. However, when you get the K-1; you may potentially not able to utilize the loss from the activity if you did not have at least active participation. You likely won't have active participation in a syndicated deal.