I am designing a strategy for tax-deferred savings that builds current cashflow and could essentially function as an alternative retirement or FIRE strategy.
So...here's the strat in a nutshell:
1. Form an S Corp with 20 or fewer owners (some of whom are REP's)
2. Purchase STR's for cashflow
3. BRRRR large long-term rental units (4-plex and up, at least one per year with target ARV roughly equal to 20% of the additional gross income of the business that year)
4. Perform cost segregation on new properties to create tax offsets for new income
5. Tax offsets are distributed to investors against distributions and active income
6. Properties are held until the tax life is exhausted and then 1031 or CRT or Refi to further defer taxes
7. Leverage REP status to use other losses against capital gains in the liquid assets of the company (invested in EFT's, etc)
The policy for loss distribution would be:
-All must be active (preferably material) participants to get deductions; hence the 20 or fewer so relationships can be maintained
-Non-REP's can take up to $25k/y as PAL. The company allows them to take an amount roughly equal to their contribution assuming the company performance allows for it.
This should allow for tax-free profit less the deferred taxes on the cost segregation, and it would be accessible to anyone under 100k income. It would be a little hard to get out of, but not more difficult than a retirement account while providing more freedom and current tax and income benefits.
Shoot me down, please.
Thanks in advance,
I am no tax expert lol. However, can your strategy work if all properties were purchased in separate entities? I DO NOT recommend holding multiple properties long term in the same entity. You don't want a scenario where a small number of properties that are not performing could put the entire portfolio at risk.
@Jonathan M Bojan You'll want to use an LLC for your strategy. If you use an S-Corp, then the losses will be hung up in the at-risk rules, because the shareholders will not be able to use the company debt as part of their basis. Aside from that, I think you will find it hard to continually generate losses like you envision.
@Bob Norton Interesting, I didn't know that the at-risk rules were different for S-Corps and LLC's. Thanks for the tip! I suppose I have no idea how hard it is to generate losses on that scale. Time will tell I suppose, but I would appreciate any examples you have to elaborate on your viewpoint!
@Bobby Feinman Agreed. Splitting up the assets is definitely the way to go. I'll have to figure out what the best entity is...Bob seems to think it's an LLC.