All Forum Posts by: Brett Synicky

@Todd Knudson is there a loan on the property? That is the only way you can deduct some expenses and use depreciation within the IRA. None of this has anything to do with your personal tax return. Work with a qualified tax advisor on filing all of this including filing the 990T return for the IRA. If the IRA owns the property outright that is all moot. Yes all losses and returns the IRA incurs stay in the IRA until you take a distribution.

So you rolled the property from one retirement account into another, right? It's unclear on how that plays into your question about taxes. Are we missing something? What @Dmitriy Fomichenko and @Matt Devincenzo said are correct. 

 Here's a list of non-recourse lenders: 

https://www.biggerpockets.com/member-blogs/2810/50272-list-of-non-recourse-lenders-for-self-directged-ira-and-401k

@Tim Brinsek That is correct. See Dmitriy's comment about UBIT above as he explains it well.

@Eric E.UBIT only comes into play in an IRA on leveraged real estate and running an active business. Investing in a fund like PPR has no UBIT implications unless the IRA is an LP in a syndication but I don't think that's what PPR does.

 Many people invest in real estate using an SDIRA or even better a Checkbook IRA. Yes it will have UBIT on the portion of the income pro rata to the mortgage. It scales up to 37% once you get to around $12k of income but the UBIT is calculated after the first $1000 is deducted along with expenses and depreciation again only on the same % the property is mortgaged. Many opt for other investing methods in their SDIRA like private lending, crypto, private equity...anything except collectibles and life insurance.

Note that a Solo 401k is exempt from UBIT on leveraged real estate so if you have self employment activity and no full time employees save for you and your spouse you should consider the Solo K as an option. 

Bonus if you do any of this in a Roth account. It's not hard to understand the disqualified party rules and prohibited transactions. 

It seems that often when companies acquire large books of business in one shot there are growing pains and unfortunately those are felt at the client level. I would encourage anybody with an SDIRA to consider switching over to a Checkbook IRA for some of the following reasons:

1. Eliminate transaction fees

2. Eliminate the red tape of going through a custodian for all transactions/investments

3. Invest in as long as it takes you to write a check, do a wire transfer, or even an online bill pay

4. All investments and assets are in the name of the special purpose LLC instead of "name of custodian FBO Jim Bob's IRA".

5. In the event of an acquisition your "Checkbook Control" set up would not change. The challenges experienced in the cases mentioned above and elsewhere would be non-existent. Customer service from a support perspective matters of course, but no hang up or delays on investing would take place.

@Nick Am

My pleasure.I’ll look for your message. 

Answers and thoughts below in Bold

--> I am trying to setup a management company (LLC-B) and charge LLC-A management fees. This active income can help me fund my retirement as well as help me get reimbursement for home office and health care premium while lower my tax liability. Agreed but Sole Prop will accomplish this without all the hoops you're talking about.

--> This is my plan. I have two properties which at 10% fee will be around $35K. If I leave this amount in Sch-E, I get taxed at ordinary income tax rate at Federal and State level, which along with my regular W2 income can be substantial. Assume for a moment its close to max tax bracket ie. nearly 49% (Federal + State), roughly $17K. Can you swing REPS to offset? Will that help?

Now if I pass that income as management fees to S-corp, I pay $3.5K (SE tax) + $800 (LLC fee) + $1700 (CPA + bookkeeping) = $6K in total. Just don't see the S-Corp or another LLC having a place here..I've heard tax advisors say it takes around $70k min of self employment income for the break even point for S-Corp to make sense. That could be just federally, however...

Against $35K income:

1) I take $23,500 W2 which 100% goes into Solo 401K --> No income tax You have to account for taxes like FICA and Medicare so this will be closer to $25-$26k. If you adopt a solo 401k as a Sole Prop you won't have to run payroll and incur payroll taxes and you can still do $23,500 plus 20% of the profit as a profit sharing contribution. BTW you said you have a 9-5 so keep in mind you cannot double dip on the employee 401k contribution. If you're maxing that out at your 9-5 then you'll only be able to contribute profit sharing in the Solo 401k. If you're contributing less than the $23,500 then the difference can be put into the Solo 401k plus the profit sharing. Hope all that makes sense. 

2) LLC-B contributes $5875 towards retirement --> tax deduction what type of contribution is this?

3) Remaining $5625 is reimbursed to me as home office expense.

Where is the income tax of 49% here? How is this juice not worth the squeeze? $6K in taxes and expense vs $17K in Federal and State taxes.

Ok so after all this, book a consultation with a tax advisor. DM me if you want a referral. 

Since you're only going to manage your own rentals the S-corp/LLC is likely overkill. Why not just set up sole prop? I doubt 10% of the GRM will equal enough to where an S filing status makes sense.

The home office and such is nominal so that alone isn’t worth doing this. Many people who own rentals and are already self managing them will set up a pm biz to be able to adopt a Solo 401k. Since the contributions have to come from the business income (PM biz) it's not likely you'll come close to taking advantage of the high contribution limits of a Solo 401k. It will allow you to roll existing retirement funds into the 401k (save Roth IRA) and self direct those funds.

You listed some of the benefits but you didn’t explain what you’re specifically trying to accomplish. Let’s hear from some of the CPA’s in the group like @Michael Plaks or @Ashish Acharya.