All Forum Posts by: Carl Graff

Thanks for your response Ashish. Also I found out that I might have to pay 25% tax on any depreciation taking between purchase date and selling date. I think this is reguardless of our tax bracket does that sound correct as well?

Say we buy rental property and hold onto it for more than a year so it would be long term capital gain.

And our filling jointly Income is around 50K.

Would we qualify for 0% capital gain because we are in such a low tax bracket?

Thanks for any feedback.

I only have two rentals and this is my current formula for annual rent increase for current renters.

The greater of 4% or 1/4 the difference between current rent and Zillow Estimate not too exceed California AB 1482 which is capped somewhere between about 7% and 10%

A concrete example:

Current Rent $2937

Zillow Estimate $3592

4% = $3054

1/4 Zillow Diff = $3101

5% base + 6% CPI cap at 10% = $3231

In this case the increase would be $3101

Note my rentals are EXEMPT from AB 1482 but I do honor this because I believe it is the right thing to do. Of course if they decide to leave I would try to get the Zillow estimate of $3592 for new renters 

Your thoughts?

Thanks,

. Carl

@Account Closed So just so I understand correctly the 25K is not a once in  lifetime deduction but rather can be used any year you have a passive loss carryover and an income under 100K. 

So for example (disregarding additional losses or income from properties in future years):

Tax Year 2018, Passive Loss CarryOver 65K, Income < 100K, Take 25K special deduction, Remaining Loss CarryOver = 40K

Tax Year 2019, Passive Loss Carry Over 40K, Income < 100K, Take 25K special deduction, Remaining Loss CarryOver= 15K

Tax Year 2020, Passive Loss Carry Over 15K, Income < 100K, Take 15K special deduction, Remaining Loss CarryOver= 0K

Is this correct?

@Account Closed Thanks - that's the most explicit advice I've seen. Nope my eyes did not glaze over as I've created very complex business intelligence and  financial reports in various IT roles over the years. That being said, I agree it's best to work with a CPA or someone well versed in real estate tax to help with my planning because you never know what you don't know.

Yes it is mostly from depreciation, but also as a result of repairs and maintenance eating up profit - which could be deferred but at the risk of deteriorating the properties. Pretty sure I don't need to do traditional IRA conversion to Roth to take advantage of this because simple distributions from a traditional IRA count as ordinary income - but this is where some of the confusion starts to pop up. It may be advantageous to convert some or all of my Traditional IRA to Roth but I don't think it is necessary to do that in order to get the $25K per year passive loss carry over deduction. This is why I am glad we have a forum to discuss these things and hopefully this thread will be useful to others.

Thanks,

  Carl

Thank you Michael.

I don't want to arbitrarily choose a tax advisor because of the many conflicting responses by CPA's and tax advisors on this topic. So as in any profession not all tax advisors seem equally qualified and truthfully some replied that this was NOT the case and therefore a client might not be getting the best possible advice depending on who they choose.

I will do early planning for my 2018 tax return so I will have a real good idea of just how much money I should take out as IRA distributions. I will be getting my extension tax returns back for 2017 next week and can start this early planning process based on them.

OK just found out we (my wife and I) have about 65K in passive loss carry over going forward. So being retired with 2 rental incomes that break even or only generate a little income we will not be able to apply much if any of this for the foreseeable future. 

So one way to to benefit from the carry over is that we can apply 25K per year to ordinary income. Ironically I have visited web sites where licensed CPA's explicitly contradict each other over such a basic question as to weather you can use passive loss carry overs to reduce ordinary income. I believe, after several hours of research on the internet, the answer is yes you can use passive loss carryover to offset up to 25K of ordinary income *IF* you make less than 100K (which my wife and myself do as we only have a household income of about 40K per year - mostly from social security).

So assuming the above is true I think we can take withdrawals from our IRA's up to the amount where we have an excess of 25K extra ordinary income and than the carry over loss could then be used as a deduction against this income. 

Since I cannot find a clear answer to this - am I correct that IRA distributions count as ordinary (taxable) income and therefore we can use up to 25K per year of the passive carry over loss to reduce the tax liability incurred from the IRA distributions by that 25K amount?

I am really curious if the CPA's that reply (if any) to this are all in agreement. Because I will use a tax advisor - but due to the conflicting responses in blogs on this matter I just want to make sure that I choose one that agrees with the advice I get here.

Thanks,

  Carl

In this scenario you state below who does the 45K get paid to - the insurance agency?

You will have not met your co-insurance requirement 400k-355k= 45k > 10% of 400k. Your insurance company will then not disperse funds until you have provided 40k (your 10% penalty as an added deductible) + your deductible. Then, they will only provide the amount your insured for -- 355K to rebuild.

In total you will have to pay 45k to get the 355k to rebuild your house--

Thanks for informing me about co-insurance and yes it does frighten me that the estimate of an insurance adjuster can really ruin a person - can't the owner get a quote from a reputable builder and use that? Or does it depend on who you get your insurance through whether they only use an adjuster (or worse just their own adjusters) estimate or an actual quote from a construction company to determine replacement cost.

Also this statement unless I am misinterpreting it:

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But, I would bet a quote at 518k (or even 450k) would be basically equivalent in price if not possibly higher than your hypothetical 625k with an admitted carrier.  

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Seems to imply that buying higher coverage means paying less premiums.