All Forum Posts by: Paul Allen

 If the loans are secured by your residence, but are being used to finance rental properties, the loan interest is deductible as business interest. (This is not an itemized deduction on schedule A, but a business deduction on schedule E.)

If the loans are secured by your rental property, but being used to finance the house you live in, the interest is not deductible in 2017 or 2018. To deduct the interest paid to finance your residence (as an itemized deduction on schedule A) the loan must be secured by the residence. This has been and will continue to be the law. It also can't be deducted as a business expense on schedule E as the interest is not being spent on the business.

If the loans are secured by rental property and being used to finance the rental property (or other rental property) the interest is deductible on schedule E as business expense.

What portion of the loans are government loans? Have you looked at income-based repayments or the possibility of student loan forgiveness programs? Most of the government loans of the past decade or so have some built in payback advantages. Kudos for thinking out of the box, but be sure you have exhausted the off-the-rack possibilities. Some of them are pretty good.

studentloanhero.com  has a lot of good info on this topic.

Best of Luck on Your Journey!

In my experience most people do not attain good savings rates because they can't (don't) get their spending under control. Far too many Americans earning $48K /year are spending $50K/year.  They are the reason behind the rise of behavioral finance - the realization among economists that not everyone acts in their own self-interests. They react emotionally in the moment, and usually to their long-term financial detriment. 

This happens a lot less among the BP crowd, being a generally more financially savvy bunch. I have to remind myself of that when I read advice like "keep your emergency fund in stocks". The numbers work - for people who live by the numbers. Those people are less common than I'd like.  To the point that Virginia would likely pull my license if I advised clients to follow that path, as the risk of it turning out horribly for those who react emotionally during the next bear market would make that advice imprudent. I'm not saying you're wrong, but unconventional is not for everyone.

Good discussion! I'm glad I worked my way through an old thread on budgets to find the sprinkles and chocolate sauce at the bottom of the sundae.

Residential real property (section 1250) is depreciated in a straight line over 27.5 years. Commercial real property is depreciated in a straight line over 39 years.

Residential real property 'recapture' (a.k.a. unrecaptured section 1250 gain) is taxed at a max rate of 25%, which may or may not correlate to the taxpayer's top marginal (regular) income tax rate rate.

@Brian Ulrich probably best to claim the correct amount per the Internal Revenue Code - which is the lower of FMV or your adjusted basis. In your case it looks like adjusted basis wins.

You can delay the repayment of capital gains and depreciation recapture if you 1031 exchange the property down the road.

You cannot escape depreciation recapture by selling the house within the next 3 years, although you can escape the capital gains.

Welcome to BP! Best of Luck with Your Real Estate Investments!

Good Stuff, thanks for posting! A couple of comments

(1) If you pay Virginia income taxes the Virginia 529 plan has value at any time. You can put the money in and withdraw it for qualified higher education expenses at any time and receive a decent Virginia tax deduction. Definitely worth the few minutes of paperwork to cycle the money through the College Wealth (bank account) program. We took unqualified money, contributed it to VA529, sent it to the college a week later, and took a little over $900 off our Virginia tax bill for the year.

(2) Tax credits for education are based on adjusted gross income, not taxable income. (Sorry, my fanatically anal tax pro nature got the best of me!)

On the Grandparents' contributions - because the Student Aid lookback is now 2 years (prior prior), grandparents can help contribute during last 2 years without derailing student aid for the student.

There is a technique I've seen advocated here at BP where parents with rental properties employ their minor children to work on the properties, pay them, and put the money in a Roth IRA. Then when college comes the contributions can be used tax free for college. It looks brilliant on paper, but I do not personally know anyone who is using this strategy.

Any of these calculators fit the bill?

https://www.calculatorsoup.com/calculators/financi...

Edit: Oops, Upon re-reading I see you also want that tied directly into your personal finance software. I shouldn't post responses before morning coffee!

True, but living in it AFTER it was a rental turns the period it was a rental into non-qualifying use.

You may want to reread the article you posted the link for, it does not support the conclusion you are reaching. I bolded the part that seems salient.

Example : Jane buys a home on January 1, 2009 for $400,000, and uses it as rental property for two years. On January 1, 2011, she evicts her tenants and moves into the house, thereby converting it to her principal residence. On January 1, 2013, she moves out and rents it again. She then sells the property for $700,000 on January 1, 2014. She has a $300,000 gain (profit) on the sale. Jane owned the house for a total of five years and used it as a rental property for two years before she converted it to her residence. Thus, two of the five years (40%) before the sale were a nonqualifying use, so 40% of her $300,000 gain ($120,000) does not qualify for the exclusion. This means that she must add $120,000 to her gross income for the year. Her remaining gain of $180,000 is less than the $250,000 exclusion, so it is excluded from her gross income.

Decent site for comparing and contrasting the options in that space, with user reviews:

https://www.crowddd.com/

@Tim Heindl you asked a question about financing in the forum for taxes, legal issues, contracts, and self-directed IRAs. You might get more responses if you posted in the forum for conventional mortgages:

https://www.biggerpockets.com/forums/49-private-co...

Best of Luck with Your Real Estate Investments!