All Forum Posts by: Paul Allen

@Aaron Taylor, you may be running up against the settlement period, which is established by the SEC. Two business-day minimum to convert securities to settled cash in your account.  Then (usually) another business day to move the cash from broker to bank. 

@Michael Lee, Thanks for your response. The disdain you heap on the financial planning/investment advising industry was all earned. I think it's getting better, but the hole we have to climb out of is deep!

Don't leave us hanging. Give us the secret sauce.

It isn't necessarily about 'getting sued'. I can't speak to the laws of Indiana, but in Virginia Lawyers, CPAs, and Investment Advisers are regulated. (Some might say 'highly regulated'.) Part of those regulations include what you can or cannot say in a public forum, and what does or does not constitute official advice. Governments are merely decades behind the rapid evolution of social media. Ambitious young regulators (and frustrated old ones) have been known to take a narrow view of the law (written in 1978, but being applied in 2018) when citing violations of the code. (Citations that stay on your public record forever.)

While everyone here wants to be helpful, no one wants to do it at the expense of their professional license and livelihood. 

Best of Luck with Your Real Estate Investments!  

@Fahim Ahmad if the money is used for business purposes, the interest on a HELOC is deductible. In general, the federal government doesn't care HOW you borrowed the money, they care what the borrowed money was used for. If it is used for business, it is deductible.

There used to be an exception for HELOCs. You could borrow up to $100K and spend it on anything and the interest would be deductible. That exception has gone away. I think that is what you are referring to.

From@Steven Lewis's description, his parents borrowed money thru a HELOC and gave it to him to use in his business. He will pay it back plus the interest the bank is charging the parents. He can write off that interest as a business expense. The parents will be issued a mortgage interest statement, but the interest is not deductible for the parents. They had no business motive in making the loan to Steven.

Medicaid has an asset-based component. Wealthy people side-step it with ease.

I just took on a client who spent $12,000 setting up a special needs trust for his sister, then funded it with $1.55M for her support and maintenance. The structure of the trust guarantees the money can only be used for her, but it doesn't belong to her. All this was so she can qualify for Medicaid. 

 I have another special needs family who have about $38K total. They can't afford to spend $12K of it setting up a trust, so they will have to spend it down before the special needs member qualifies for Medicaid.

As for @Scott Trench's question: the people who hitch their wagon to government largess and call themselves "financially independent" had better hope they never run out of other people's money. 

Yes, you would have to pay the unrecaptured section 1250 gains.

Also, your presumption of skipping out on capital gains is not 100% true. Moving back into a property that was previously a rental creates a period of "non-qualified use". Meaning the amount of capital gains that can be excluded under section 121 gets pro-rated based on the ratio of non-qualified use and total length of ownership. You might get to exclude all the capital gains, but you might not. You would need to run the actual numbers.

Best of Luck With Your Real Estate Investments!  

My understanding is that home equity loans can also be deducted on the business schedule/return if used for business purposes. For example, interest on a home equity loan secured by the primary residence that is used to finance a rental property would be deductible on Schedule E as a business expense of the rental property.

 I'm not sure if I should raise my prices or link all my clients to this post so they appreciate me more.  

If you don't get a personal recommendation, you may want to try the Find-an-Advisor tool from NAPFA.

NAPFA is a professional association for fee-only advisors. The search tool can help you narrow down the field quite a bit.

XY Planning Network has a similar feature, although I think there is significant overlap between the two tools (nearly all XYPN advisors are also NAPFA members).

Best of Luck on Your Financial Journey!  (And to your Daughter/S-i-L, too!)

@Garrett Bailey The tax implication is that you would take income (rents) not subject to self-employment taxes (Social Security tax and Medicare tax) and funnel them through an entity (an S-corp) required to pay you a salary that would be subject to self-employment taxes.  

If your strategy is to pay less tax, an S-corp for your rentals moves you in the wrong direction.