All Forum Posts by: Russell Roberts

 @Michael Plaks Thanks for the extra concern from your experienced viewpoint! and I agree with you. I was trying to keep the topic in this forum limited to the tax portion of my planning, but I'll share a bit more in case you or others are interested.

I'm approaching a season of life with more time discretion, making REP a more reasonable possibility. I have some LTRs that would benefit (market value and/or rental rate) from some improvement work. I also live in a town that has a lot of small multifamily real estate. Finding one that would adequately cash flow well seems only likely when buying one that needs some improvement work. I have some non-retirement funds for the equity portion of this potential investment. All of the above creates lots of hours of work needed for REP and builds on my progressing real estate investment experience. I have pre-tax 401K that I'll be ready to begin a tax withdrawal or conversion strategy on (post W2 earning season). I'd like to move to pre-tax IRA then Roth convert a measured amount with no immediate tax burden on the converted amount. The return of 100% bonus depreciation and my personal circumstances seems like the stars might be aligned to make it happen, Lord willing.

Thanks again for everyone's dialog and thoughtful input.  There are some fantastic, smart and generous people in this thread!

Based on continued learning and all of the generous input (I may do a paid engagement with one of you), 

here's the REVISED tax optimization idea.

1) Direct buy multifamily property and hands-on renovate/manage for minimum 500 hrs. Perform cost seg and apply 100% bonus depreciation to create significant 1st year loss.

2) Perform (250+ hrs) hands-ons renovation/remodel work on other currently owned single family rentals in order to "finish" qualifying for REP status in same tax year. "Group" with #1 above for REP.

3) Convert pre-tax IRA to Roth IRA (or take 401K distributions) that generates ordinary income, but that can be reduced by "non-passive" real estate loss created by #1 above.

Yes?

P.S. realizing that at some point down the road, I've got more depreciation recapture (potentially higher tax rate) to deal with, but there are options to 1031 or even gifting the property to a worthy cause at some point.  Wouldn't that be great to be able to do!

I expect @Julius Vincent is correct, but I have notes from a few years back from a podcast with a publicly notable tax advising expert. I'm not mentioning his name in the event that I may have misunderstood some of the detail (or tax rules changed). Below are my notes which seems to conclude differently, but this scenario was a 401k distribution instead of a pretax IRA to Roth IRA conversion.

my old notes:  take large $ from traditional 401k, in same year, using adequate leverage and cost seq/accelerated depreciation in real estate, can get a deduction that more than offsets the recognized 401k taxable withdrawl income.. (Need to verify whether or not the real estate investment can be passive or needs to be active in order to offset the 401k withdrawl) his example takes 200K from 401k and invests as 20% down payment to control 1M asset that cost seq gives yr 1 300K deduction.  Be older than 59.5 to avoid 10% penalty.

I wonder if these old notes are accurate?   (cause that could be a doable tax optimization strategy in my circumstances too.)

Wow, THANKS for pointing out that Roth conversion is always taxed as ordinary income.  I obviously did not realize that.   

Here's a tax optimization idea I'm considering.  

1) Make some new passive real estate syndication investments with 100% Bonus depreciation to create large K-1 losses in a given tax year.

2) Perform significant (750+ hrs) hands-ons renovation/remodel work on some currently owned single family rentals in order to qualify for REP status in the same tax year.

3) Convert pre-tax IRA to Roth IRA equal to the amount of K-1 investment losses. Since the REP status allows the K-1 losses to be treated as non-passive, it could be deducted against the ROTH conversion related income, I think?

Comments appreciated.

I've had an "All-in-One" HELOC on investment SFR property originated from Ridge Lending for a few years. The line of credit is actually serviced by https://www.northpointe.com/.  

There's an older thread with more detailed discussion on this at https://www.biggerpockets.com/forums/50/topics/628807-heloc-...

The All-in-one has served my needs well.   It is floating rate, which started at 3.9% when rates were low, but is now up to > 9% today.   Because of that rate, I'm paying it down more, but it is still nice to have the quick liquidity available when a large cost item comes up on one of my rentals. 

resolved.  thanks. 

Current Need:   I received K-1s from real estate investments that were located outside my state of residence.  The properties sold in 2022 with significant capital gain.  I need to file both GA and AR non-resident income tax forms.  If you are a tax professional interested in this work at your hourly rate (or preset if you prefer), please "connect" with me on BP and I can provide a more detailed description of my tax filing situation.

I'll pay well because I've reached that point beyond my tax form completion ability.   Additionally, I'm a nice, easy-to-work with person and solid record keeper.  I'm open to offloading all of my individual tax work in 2023.

Thank you.  It's no wonder you have so may BP votes!