All Forum Posts by: Paul Allen

You avoid the10% penalty, but you still pay the taxes.

If you're a sole proprietor or partnership (where both partners are the parents) you don't pay payroll taxes on your children under age 18.

https://www.irs.gov/businesses/small-businesses-self-employed/family-help

@Ralph R. Essentially true, although you are always able to take the deduction. Realizing the passive losses may be suspended until the year you sell the property, but since the unrecaptured section 1250 gain is also paid in the year you sell the property, it works out.

@Syed Rizvi, 1031 exchanges involve "like-kind" property. Stocks and real estate are not like-kind property, so there is no way to not pay the tax owed when you sell the stocks to raise capital to purchase real estate. 

You cannot take a loan from your IRA. Federal law allows loans from employer-sponsored plans, but check the specifics of your plan before you borrow against it. If you miss even one payment the entire 'loan' becomes a distribution, with applicable taxes and penalties. Borrowing is possible, but understand the risks and rules first.

@Account Closed if your federal tax return is correctly filed you will be claiming all the deductions for which you qualify to arrive at the correct taxable income.

There is no federal cash flow tax, so I am not sure what you mean when you ask about being taxed on cash flow.

It may be worth your time and money to have a consultation with a tax professional familiar with real estate to ensure you are correctly apprehending and applying the concepts involved.

Good luck with your real estate investments!

@Justin Fox that is the range when suspension of passive losses from real estate (with active participation) are phased in. A seemingly subtle difference that makes no real difference to your wallet in the year the passive losses are suspended. Nonetheless, it is an important distinction.

The actual difference to your wallet is that suspended passive losses can be carried forward. When a deduction is phased out, it's gone forever. If you earn too much to deduct student loan interest or your IRA contribution you lose the deduction. When passive losses are suspended you can carry them forward and take them in a future year as mentioned above.

To be technical, the deductions are not phased out. The passive losses are 'suspended'. You carry them forward until you can claim them against passive income, your AGI is low enough to claim them against active income, or when you sell the property.

Welcome to REI - best of luck on your journey!

If the appraisal was required by the lender it is added to the cost of the loan and amortized.

The inspection and title search are part of the cost of acquisition. These are capitalized and added to depreciable basis.

You are accepting a high amount of risk by investing in stocks for short (less than 5 year periods) to accumulate cash for real estate purchases. If you're OK with potentially losing 25% or more of your investment, then there is nothing wrong with this strategy. If losing 25% of your investment is going to make you miserable and/or derail your plans, you should keep your money somewhere more stable than stocks.

The stock market has been on a good run for a lot of years now. People tend to forget about the down side when things have been good for so long. But, there will be a down side in the future. I can't predict when that will be. Might be tomorrow. Might be years from now. If you can't deal with it when it happens you should not be invested in stocks.

The IRS is a big fan of good bookkeeping. They have also been known to disallow business deductions based on imperfect records. Seems like the tax professional you hired is trying to minimize the chances you will have trouble with the IRS in the future. Not such a bad thing.