All Forum Posts by: Jeff Nash

@Michael Cooprider your explanation makes things more clear, but I just question the billing arrangement. I would think they could put in writing the strategy and rationale for implementing it and break-down how they came up with the amount of tax savings. I generally like the 401K but it does not appear that it would be that effective based on the income you noted ($4,080 based on a 10% fee assumption). Sometimes certain things can be done (setting up an LLC in some outside state, new entity, etc.) but it does not mean you should do it or that it is entirely necessary from a cost/benefit standpoint. If you are uneasy about it you might be honest and explain to the practitioner why, which it appears that they just have not either explained it well enough or you just need more time to comprehend and grasp what they might have already told you. I'm not sure what applies but it really doesn't matter, as how you think and feel matters.

I just have a few comments and questions:

I guess I am not sure why you are asking some of these questions here since your new CPA should be obligated to explain as you have already paid good money for his or-her services.   

I do not know what your tax bracket is and if another pass thru entity is appropriate, but if you are converting otherwise passive income to active I assume maybe a retirement plan like a self-directed solo 401k is in the mix?  Any discussion around that topic?

I would think a CPA/attorney combination would be very helpful and address most of your needs, assuming the expertise is in the area of real estate, estate planning, and entity selection.  

I’ve skimmed the previous posts and know this is a polarizing subject for many reasons.  I am a CPA and also a licensed insurance agent.  I like life insurance, namely for the tax advantages and flexibility of its use for cash value types (whole life, IUL, VUL). The main problem is that it is sold to people that it is not suitable for and/or is misused by consumers. Just because you can do something with a policy doesn’t mean you should.  Life insurance is often not well explained by agents to consumers. The pros and cons, which applies to any financial product or service, are not properly addressed. Cash value insurance can be a great tool and fit for certain people in the right situations but not necessarily everyone.  

This subject is top of mind since me and another CPA worked together yesterday with a high net worth commercial real estate broker to come up with a creative solution involving cash value life insurance. He has almost all of his wealth tied to real estate, is about to get married, and already has 2 young children. The topic of protection and estate planning were on the agenda, along with tax free income in retirement, borrowing from the policy for any purpose, and the importance of legacy planning attributable to the death benefit.  It was a lengthy conversation and not one that would involve someone younger with less income and wealth.  This particular client is looking at funding $100k per year for 7-10 years and that is not an excessive amount for him (10% or less of income). Even with those dollars he would not be expected to borrow from the policy early on or until after the primary term, and ideally it would happen closer to retirement. So long story short, this makes a lot of sense for this particular client with this profile, and cash value life insurance can be a great solution or part of someone’s financial plan to some degree, but is not for everyone.  Life insurance is used for protection first.  

When people ask how or why the rich don’t pay as much in taxes (relative question) the answer usually is because they invest in and know how to use real estate and are able to capitalize on tax advantaged solutions using life insurance (and have great attorneys!). Not triggering or limiting ordinary income and using leverage tactically is key.

Yes, Sense Financial is very reputable and has been involved in this niche market for years.  @Dmitriy Fomichenko is the owner and very knowledgeable about self-directed 401k and IRAs and is active sharing and explaining how they work on BP.  

I assume you are talking about the monthly phone bill and not the cost of the phone.

Technically if your cell phone was used exclusively for business and used equally per property you would handle it that way.  I doubt it was used equally though as there was probably a property or 2 that gave you some more trouble and resulted in additional minutes incurred and that would be impractical to track.

My take is with an expense like this (and other smaller general overhead) it probably won't take too much time and effort to just allocate it across the properties using a reasonable approach in the first place; however, I assume it's pretty de minimis and I wouldn't object if someone opted for a more expeditious approach.  If the expense was significant and you had a history of over allocating it to one property rather than others and then sold it later (with passive loss carryovers being released) I suppose that might an issue but that's just food for thought.  I think I've written more here and you probably could have allocated it already!         

I’m not sure if this is something you would be interested in, but HomeRoom is a company we have worked with from an insurance perspective and have properties in attractive markets across the US - https://livehomeroom.com/?gcli.... 
They have a rent by the room model.  

@Harrison Sharp might be someone to connect with.

I'm not sure what you and your partner's financial situation and credit history look like, but you can use private credit and hard money loans, borrow from family if that is an option, leverage from your own financial resources, bring in other equity partners and JV to some degree on each project, etc.

Your fact pattern is very high level and you are looking at 2 very different markets. What area are you referring to in each state?  Have you gotten any market information yet? 

In an ideal world you could buy and live the residence in CT for 2 years and sell it once you leave and not pay any taxes, but I am not sure how much appreciation you’ll get there in such a short period in the current market.

I would ask someone on here to help you with analysis after providing more information. 

@Raj Shah I assume this was factored in, but just in case it was not there should be an allocable amount for land which is not depreciated. I've seen more than a fair share of returns where there are buildings and improvements with no land basis.

@Dominick Johnson the comments above are all great possible options depending on the situation. 529 for education, UTMA/UGMA (but you'll give up control eventually), Roth IRA if you can justify and substantiate the activities and tasks they perform (can't just issue a 1099 as it is assumed you have control over their activities and supervise). There are a few court cases over age and in the mid to high digits is supported (depending on tasks and work performed). If it was really important to you you could probably even do an NIL situation for website and advertising/marketing, but an actual contract or agreement with some analysis of pay would have to be done which would come with planning and upfront cost.

Another thing is cash value life insurance, preferably with a mutual company.  We’ve used that for our son and did it immediately when he was only a few months old.  We designed it a certain way so plain vanilla is not necessarily the best.  There are other reasons for doing this outside of investing such as guaranteeing his insurability, as life insurance is primarily for protection first. It is not something we are looking to get some knock out return on but just a way to set him up (and presumably heirs) for the future.  

We also do have him set up with an UTMA for a small amount.  We use it for educational purposes and talk with him about it frequently to the point that he asks how his account is doing and wants to know why, and also see if he is beating his older cousin!