All Forum Posts by: Bob Norton

@Tucker Cummings Think of your 401k as part of your diversification strategy. I've always regretting cashing out my 401k when I was younger. I would have rolled it into a self-directed IRA at some point. So, I would recommend keeping the funds in your 401ks until you leave your employer, then roll them into a self-directed IRA. Some employers allow in-service distributions, as @Arthur Schwartz mentioned; however, most do not.

I would suggest that you continue to contribute to your 401k up to the match, then set aside extra funds to build a real estate purchasing fund.  Since you wife does not get a match, she could stop contributing to her 401k and instead set aside those funds for your real estate investing fund.

If your 401k has a Roth option, I'd recommend switching your contributions to the Roth. You don't get a tax break with the Roth; however, the earnings are tax-free forever. Right now we are experiencing some of the lowest tax rates in US history, which are scheduled to go up in 2026. In addition, you are in a lower tax bracket right now than you will be in retirement (real estate investors' incomes do not decrease in retirement, so required minimum distributions from a traditional IRA may kick you into an even higher tax bracket). So, with a pre-tax deduction, you are saving lower taxes now and will be paying higher taxes in the future.

Good luck!

@Joeel Rivera Depending upon your market, you could consider the BRRRR strategy to build a portfolio of cash flowing properties relatively quickly. I would focus on properties with good cash flow up to a 4 plex, using this strategy.

@Karen O. The reason for becoming a "Real Estate Professional" under tax law is to be able to fully deduct your rental losses.  This is a specifically defined term under tax law that has nothing to do with being a Realtor.

If you setup your rental business to create "earned" income, then you are intentionally increasing the taxes you pay (because it's all ordinary income and subject to self-employment taxes).  This is the opposite of why you want to qualify as a real estate professional under tax law.

If you do not own any rental properties (or have any rental losses), then being a real estate professional is irrelevant.

@Dmitriy Fomichenko I agree.  That's why it's important to work with a CPA that understands real estate investing to make sure that you structure your investing activities in your SDIRA so that you comply with the rules and don't inadvertently enter into a prohibited transaction.

@Kevin Lanphear Good decision!  The tools are awesome and the education is priceless.

@Hector Test There are quite a few good CPAs on BP that can help you structure your business to be tax efficient.  I recommend that you contact several to see which ones will be a good fit for you.

@Kevin Lanphear Yes.

@Kevin Lanphear You should be able to deduct those expenses for 2021.  It all depends upon when you started your (rental) business.  I think you could argue that you started that business when you signed the purchase agreement for the property (if not before).  The refrigerator and expenses for sprucing up the property will not be placed in service until you close, so technically they become expenses on the day you close. 

@Andrew D Hansen If you take the property out of service as a rental and treat it as a second home (for instance), then you can stop depreciating it.

@Robert H Hilbert If you intended to resell the property within a short time after you bought it, regardless of the amount of rehab, then you have a flip taxable as ordinary income + self employment tax.  Intent matters.  If that was not your intent and perhaps you intended to fix up a property as a rental, but conditions of the market or the property or something else happening in your life made you decide to sell it shortly after you bought it, then maybe your have a short-term capital gain.