All Forum Posts by: Pixel Rogue

Thank you!

Quote from @Ash Hegde:

The income has to be considered capital gain income in order to get the capital gains tax rate. Depreciation recapture will not qualify for this. If your recapture amount(s) keep you in the 12% tax bracket, then the capital gain portion will be zero, but you'll still pay on the recapture.   

Thank you and appreciate the pointer..much to learn. I was still trying to add context to the post when it locked. 

Recapture for property 1 would be significant given length of time owning, and the large property for the long term plan of 1031 to primary residence.

Recapture of property 2 could also be significant as it was purchased through 1031, where the relinquished property was apt. 17 years. This one likely a target for 1031 exchange into one of those other 1031 'fund' like options that support debt.

Additional context....unable to append original post...
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The investments in the LLCs are single dwellings homes (townhomes) where we would consider moving into each for 2 years to sell them off.

Question on this one would be length of time of ownership.

2) purchased as a 1031 exchange, rented now for about 5 yrs.

3) purchased traditionally in LLC and rented for about 5 years.

4) purchased traditionally as LLC, in third year.

5) purchased traditionally and going on 2 years rented.

6) purchased traditionally as LLC rolling into 4 years.

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1) quad in personal name, purchased 12 years or so back and has experienced equity lifts. Idea here is 1031 to long-term home, renting it out for a few years before moving to as permanent residence.

We have a few investment properties for several years. One in personal name, others in disregarded LLCs. Thinking through different exit strategies which include 1031s (traditional,) outright sales, switches into over vehicles (ie. funds such as Realty Mogul, QOFs, MAS that work w/1031s) etc.

One scenario, overly simplistic in my mind and thinking something obvious might be getting overlooked, is pane low income.

Lets say my wife and I save up funds and suddenly retire at the same time, where we would have zero w2 income and other income sources (ie. rental income) would be below the 2022 married filing jointly limit of $83 350 - would this then mean we could sell an investment property we had for over a year and incur 0 capital gains? Would this then also result little impact from recaptured depreciation as a result?  Given the other properties are set up as disregarded LLCs, where income rolls up to personal income, would this scenario also apply in the same way for selling investment properties from our various LLCs?

Quote from @Todd Goedeke:

@Pixel Rogue don t forget about a major advantage of a Solo401k is the ability to transfer old 401ks and IRAs into a separate Solo 401k for you and your spouse. There is no UBTI generated from leveraged RE inside a Solo401k as compared to an IRA which generates UBTI when using leverage.

Have one Solo Roth 401k.  Have other more standard Roth 401ks.
Does the mention above primarily focus on traditional 401ks or equally to both?

Maybe asking to rephrase as I'm missing something in the advance of transferring 401ks and IRAs into Solo 401ks... or how that 401k would have leveraged RE inside.

Are we saying something more along the lines of ...
Set up the real estate management company, have each entity pay the fee to said company each month. This takes passive income to active income making it eligible to invest in a solo (Roth) 401k <all of which has been the premise of the discussion> and then...this is where I'm not following. If the solo 401k itself is just that, how would it have leveraged RE inside and not following from where it would be generating the UBTI  income? 

Every 1-2 months I get a new blind SMS text to my private number from 'an investor' wanting to purchase one my multi-units. Property is not for sale. Each time I ask for detail on how the number was acquired as it is not a number listed on any public records, and each person (or 12 now) refuses to share - deeply guarded secret . Personally think a realtor from the past added my info to a service (ie. Lead Sherpa.)
Love it when they give the predictable 'Cash-as-is pitches."

Anyone else run into this? What are the most popular SMS services being used and I can try reaching out that way to stop the spam to my private number.

Consider due diligence w/township for example, such a if there could be a property line issue (something that happened locally where a long standing garage ended up being 50% on neighbors property... it wasn't pretty. This might be to get rid of a headache, or considered a tear down for reconstruction. 

Quote from @Bill B.:

Real estate is pretty tax advantaged. By eke out a profit do you mean after depreciation? If so, that’s pretty good, or a property you’ve held for quite sometime as that usually erases most taxable income. By eke out do you mean $10,000 or more? Enough to make this worth the effort? (Enough to save a thousand or two.) If you only meant thousands I would assume you could find deductions you might have missed like your cellphone and it’s monthly bill, your internet, your iPad/computer, home office, mileage, umbrella insurance, supplies/equipment, CPA, etc etc. 

Glad to hear another success story either way. 

Have had the property for many years...where it is exciting to see more and more of a mortgage payment go to principle, and sad to know a fair amount of depreciation has been consumed. Figured depreciation would not come into play until relinquishing the property.  

Moving funds into a Roth vehicle, even if funds are somewhat small, is worth the effort and something that would scale over time. I actually already have a dormant real estate LLC that can be used asap as a management company...hardest part might be setting up the business bank account. Oh, and finding a Solo401k company supporting after-tax contributions and the conversion, that isn't charging $100s to setup and annual maintenance fees.) My current Solo 401k is w/eTrade and it was great until Schwab purchased them and changed the rules. Anyone know of other larger shops that support Solo401ks with after tax contributions plus conversions?

Might have missed a few deductions but nothing major comes to mind. The goal is more to get funds into a Roth vehicle. 

Unclear on the contribution side. If there is a profit of $5k (subjective and amount doesn't matter this is more to understand the process:)

Profit:  $5,000.00.                Profilt:   $5,000.00
SE Tax:      800.00                 SE Tax:        800.00
----------------------                CAP:              25%.  

Solo 40k:  $4,200.                  $1,250 (or $450.00)

There is something about 50% of SE tax to be mix in w/the above.

Current retirement portfolio includes reits in Roth vehicles. Guess I'm not quite clear on the advantage referenced above (beyond if one might need to borrow from an account?) Already have a solo 401k from a few year back as a contractor. Not clear on its advantage over Roth 401k or Roth IRA?

As an independent contractor years back I was able to exceed traditional 401k limits w/super/megaroth. This was glorious. Since then the company which provided the solo 401k was acquired, rules changed so that now (in 2023) what companies offer this option? I'm also now a W2, not a 1099.

We have a rental that may eek out profit by the end of the year. Passive income would no qualify...(note passive income IS taxed as normal income...gets added to reportable income for that year) Do people (have you) actually set up a company to for property management , charing a fee to each property for services? My wife and I do spend a fair amount time in the management...we do everything ourselves but landscaping.

How can we take earnings and invest in a tax advantaged (ideally roth401k?) My understanding is that any taxable 'source of income" can have its own retirement options. Note the standard 401k and IRA limits will be maxed..This needs to be AFTER TAX contributions that can then convert to Roth.

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Respectfully ask not to be contacted directly by financial advisors seeking new business.

UPDATE:

The above strategy is a thing... and many open up management companies for this purpose.
Presume standard annual 401k/IRA are maxed. Husband and wife are both W2. 5k earned that year in rental income for discussion.
Thoughts on the below plan?

• Establish company specifically for rental management.
• Over the course of the year new company will be paid $5k for services from rental income.
• Schedule C shows $5k (and payments are shown as expense on rental side.)
• 15.9% of $5k paid for Self Employment (apx. $800.00)
(note this would be less than ordinary income paid otherwise, plus 50% of SE tax is a deduction.)
• $4,200 contributed to solo traditional 401, then converted to Roth.

What other considerations are missing?
How about IRA requirements, for instance to be a real estate professional you need to document x# of hours (which is nearly impossible to do w/a W2 job.) Contribution limits (presuming max is the number around 60k, and this wouldn't be close.) Are checks/receipts/proof of payments needed or would transfers be ok? I would likely open a dedicated bank account to receive payment from rental income, then contribute to solo 401k from this account.

Contribution Rules?
Since this would only ever be from the 'Employer' side for foreseeable future, would the contribution to the employee be limited to 25% (5k - expenses -50% self employment tax,) or ok to use net? How would contribution limits work?

Thank you for any insight...