All Forum Posts by: Jason Malabute

I had a potential investor face a similar situation, and I've found that there are often more restrictions when investing from a 401k compared to an IRA. Based on what I remember, it gets even more complicated if the 401k is from a previous employer.

In your case, since Fidelity is declining the account due to the nature of the retirement funds, one option might be to consider rolling over a portion of your 401k into a self-directed IRA, which typically offers more flexibility. This could potentially help you avoid the restrictions you're encountering with Fidelity. However, it's essential to consider the trade-offs, especially with the difference in interest rates between uDirectIRA and Fidelity.

I’d recommend talking to a custodian who specializes in this because they would be more knowledgeable about the nuances. Let me know if you’d like a reference!

Hi Michael,

I agree with Michael Plaks. For 2024, since the property is partly your residence, you can only depreciate the portion rented out, and no loss can be claimed. In 2025, once you move out and rent the entire property, you can start depreciating the whole house. Just ensure you keep track of when the property use changes.

Philip, it really depends on your county’s housing authority. For example, I own two large multifamily buildings, and when I tried to get a tax exemption for them, I had different experiences. One housing authority wouldn’t even entertain the request, while another was open to it because it was an affordable housing property, requiring just an application for the exemption.

From my experience, dealing with government agencies, especially when trying to save money or get financial benefits, can be a slow process. Be prepared to follow up multiple times, using different forms of communication—calls, emails, and if possible, in-person visits to their office.

Hi Cherry,

You can generally include appliances in a cost segregation study if they have a depreciable life of less than 20 years, as these are typically classified as personal property. For 2024,  bonus depreciation allows for 60% of the cost to be deducted in the first year for qualifying assets. I recommend consulting with a cost segregation specialist to ensure accurate classification and compliance.

Hi Chandra,

Scott and Dave have provided great information. To reiterate, you can indeed buy two properties as long as the combined price is the same as or greater than the net sale price of the property you sold. This allows you to defer all of your capital gains through a 1031 exchange.

Additionally, it’s important to keep in mind that the exchange must be like-kind. This means that if you’re selling a rental property, both properties you purchase must also be intended for rental use (or for investment purposes). The same type of property usage needs to be maintained to qualify for the 1031 exchange.

Also, be aware of the time limits involved in a 1031 exchange. You have 45 days from the sale of your property to identify potential replacement properties, and you must close on the new properties within 180 days from the sale. These deadlines are strict, so it’s essential to plan accordingly.

Good luck with your exchange!

Hey Lisa, great question! When it comes to fix and flip loans, there are a few big risks you should keep in mind. First off, what happens if you can't sell the property when you planned? You could end up paying holding costs like loan interest, property taxes, and maintenance for longer than expected, which can eat into your profits.

Then there's the issue of selling for less than you expected. The market can shift, and suddenly the price you thought you'd get might not be realistic anymore. Plus, finding a buyer willing to pay your asking price could be tough, especially if interest rates are high and buyers are more cautious.

Another risk is that the renovations could cost more than you budgeted for. It’s common to run into unexpected problems that push your costs way above what you planned, which could turn your profitable flip into a financial headache.

And don't forget about taxes! Unlike holding real estate, where you can take advantage of depreciation to lower your taxable income, fix and flips don't offer those same tax perks. You'll likely end up paying short-term capital gains taxes if you sell within a year, which can be pretty high since it's taxed like regular income.

So, before diving in, make sure you have a solid plan for these scenarios. It’s all about managing those risks and being prepared for the unexpected!

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This version keeps it more conversational while still covering all the essential points.

Based on your assumption that you and your spouse file jointly, I agree with the others in the comments. I suggest listing only your name as the LLC member. This way, you can file as a single-member LLC with your 1040, avoiding the complexity of a 1065 partnership return and issuing a K1. It's simpler and less hassle.

Hey!

So, when it comes to writing off expenses, here’s the scoop: you generally can’t deduct travel expenses if you’re just looking for a new property to invest in. But, if you’re traveling to check out a property you already own, that could be deductible. Also, you don’t need a business license just to look at properties, but if you buy a bigger property, like a multi-family unit, you might need a certificate of occupancy, depending on the local rules.

For business trips, most expenses can be deductible, but if it’s part personal and part business, you can only deduct the business portion. The airfare, though, is usually 100% deductible even if you mix business with some pleasure. Meals, on the other hand, are only 50% deductible, with some exceptions. Just keep in mind that entertainment expenses—like taking clients out for a show or a game—aren’t deductible anymore.

And, yes, you can deduct 100% of your education expenses if you’re already a real estate investor. But if you’re just getting started and haven’t done any investing yet, those costs might not count as business deductions.

Hope this clears things up!

Derek, if you inherit the property after your mom passes, you’ll get a step-up in basis, meaning the property’s value at the time of her death becomes the new basis. This could save you a lot on capital gains taxes if you sell later.

Like what Ashish said, "As a joint owner, only her share would receive a step-up, and you'd still owe capital gains tax on your portion based on the original purchase price."

Yes, some LLCs are exempt from submitting Beneficial Ownership Information (BOI). For example, large operating companies with over 20 employees and $5 million in gross receipts, as well as certain regulated entities like banks or insurance companies, may be exempt. Sole proprietorships, which do not have legal separation from the owner, typically aren't subject to BOI reporting. However, if you have a Single-Member LLC (SMLLC), it will need to file the BOI.

Entities that must file the BOI include:

1. Small and Medium-sized LLCs: Typically required to file unless they meet specific exemption criteria, such as being highly regulated or having significant gross receipts.

2. Single-Member LLCs (SMLLCs): Required to file because they are legally separate from their owners, even if they only have a single owner.

3. Other Non-Exempt Entities: Any business not meeting the exemption criteria must comply with BOI filing requirements.

Filing Deadlines:

• Entities created or registered before January 1, 2024: Must submit their BOI by January 1, 2025.

• Entities created or registered on or after January 1, 2024: Must submit their BOI within 30 days of their creation or registration.

Penalties for Non-Compliance:

Failure to file the BOI as required can result in significant penalties, including:

• Civil penalties: Fines of up to $500 per day for each day the violation continues.

• Criminal penalties: Potential fines of up to $10,000 and imprisonment for up to two years for willful violations.

Therefore, it’s crucial to meet the filing deadlines to avoid these penalties.

As Chris mentioned, completing the BOI submission process is straightforward. It takes under 5 minutes, and it’s free to submit. So, it’s a simple yet important process to ensure your entity stays in compliance.