All Forum Posts by: David Charles Edwards

For those that have followed along, we met with our CPA and ran several income and tax scenerios where we shifted a portion of my rental property passive income to self employment property management income for my wife.  Here is the two main examples.

This is our baseline. (married filing jointly, 1 college dependent, standard deduction)

$80k passive rental income = $5,135 tax bill

This next example shifts $11k to self employment income with matching $11k traditional IRA contributions

$69k passive rental income with $11k of self employment income = $5,273 tax bill

We could shift more passive income of course with the idea of a matching IRA contribution up to $15k.

The tax bills seem close enough to call it a wash with the largest benefit being that the self employment income would replace a zero in my wifes social security calculations.

yeah, I keep hear that song and dance but its not my kind of music. Show me the math where I come out way ahead without incurring a bunch of risk. I don't want to aquire any more properties and I'm ready to enjoy my life rather and work all the time. Here' some raw figures. rentals worth 2 million. primary residence $500k and no mortgage. 840ish credit score. $300k in IRA. i wont get into the cash and hand held investments but I was a watchmaker for 35 years so you can figure it out.

In my mind it doesn't make sense to borrow money at 8%+ just to turn around and make 5% in fixed income even with the write offs.  All it does is make my taxes complicated and makes money for the CPA, lawyers, and financial advisors. Sure, I could get a mortage on my primary residence at 5-6% plus points and fees and gamble in the market and MAYBE come out ahead.  I don't even itemize anymore.

 Why are you pushing solo 401k vs the individual IRAs we already have?  Im trying to keep things as simple as possible.

Here are some additional details and note.  I'm 55, wife is 50, we are 100% debt free.  We net $80k from rentals.  We both have 40 credits towards SS although my wife has a couple zeros in her calculations.  $300k in IRAs.

We could divert $15k of our passive income to self employeed property management and pay the 15.3%.   This would be credited to my wifes SS to fill in her zeros and increase her SS benefit.  Then we would just turn around and contribute the $15k to our IRAs.  

As a side note, we have considered selling a few of these properties which would incur recapture and capital gains. The IRA contributions would help reduce our AGI thus allowing more "headroom" for captial gains at the 0% rate.

Anyway, my accountant thinks it isn't really worth the hassle and paperwork and that we should focus more our life goals than jumping through these hoops for a few grand in "possible" savings.

I closed my business this year and didn't have enough earned income to be able to make my full IRA contribution. I mistakenly thought being a real estate professional would allow my passive income from my rental properties to count as earned income for IRA purposes. I had to take some of the money back or pay penalties.

I've read where I could start a self employeed Property management company and pay myself whatever I would need to in order to make IRA contributions but then I'm looking at 15% self employment tax. I already have 40 credits with social security and 35+ years of social security contribution with no zeros so I'm not sure if it's worth the hassle and accounting. MAYBE I could replace some of my lowest earning years when I was a teenager but I really wouldn't want more earned income than was needed for the IRA contribution threshold.

Anybody have an alternative strategies for IRA/retirement contributions without earned income OR another method to create earned income from my passive rental property income?

Is it even worth it considering the 15% self employment tax I would have to pay?

Should I just forget about the IRA and keep the passive income as is?

If it matters, I'm married and my wife is in the same boat since our only jobs are managing our rental properties.  She also has 40 credits with social security although she would have a couple zeros for her 35 year work history at this point.

Most of the 1031 to DST options I've found are rife with fees. Any tips on how to avoid these huge fees for small investors like myself. My units are relatively low priced so the fees are much more impactful.

 How do you invest in mortgage notes for 12%.

"organizing" 15 LLC's would cost a minimum of $500 per year per unit here in North Carolina plus the headache of book keeping. Corp return for each unit plus annual $200 fee to North Carolina plus K1 preparation.

 Mine were mostly purchased between $35-$45k and now worth $125-$135 although we just had huge reevaluations from the county so they will likely go up a decent amount over the next few years.

I had a offer of $125k a unit 2 years ago but the capital gains were gonna be close to $400k calcuated by the accountant.  Seller financing saved around $80k but all the state depreciation recapture was due up front.  The net proceeds wouldn't have carried us through retirement so I turned it down.