All Forum Posts by: Frank M.

Thanks. Decades ago, I owned 3 rentals, but they were put into service immediately after closing, so this distinction is new to me. I'm sure as I get closer to having the rehab done, I'll have another quick question or two.

Can a tax expert answer this?

One thing to consider is that when you refinance to a different amortization, say 30 yr from 15, looks like a savings, and yes there's better cash flow, but the savings is measured in the interest bill at year end.

1/2% is the savings I see, just under $1000 per year. $5000 total cost to this on a 5 year balloon isn't worth it at all. There's really no savings. (I understand balloon to mean you need to refi in five years, correct?)

But to add to the point, the $100K-$150K range is AGI, not gross. So a couple might be able to use a 401(k) to reduce their income, along with an HSA if eligible, or dependent care account if you have a child.

And the loss isn't gone forever. It carries forward year after year until (a) the property has a bit of gain instead of losses, (b) your income drops below the phaseout level, or (c) you sell the property, If you buy another property that's cash positive, these losses can offset the profit from the new one.

Joe, like any rule of thumb, this is a starting point.

The 3 to 1 is one thing for a single person who is hopping the bus (no car at all) to go to work, and another thing altogether if it's a couple with 2 kids and two cars. One is likely flush with cash, the other, struggling to get by.

I'd break the rule only in limited cases. Combine that with the full credit report and use good judgement.

Go to the forum section that has multiple 1031 discussions. You do not find someone wanting to swap, but find your own properties and use a third party intermediary. The full details are on BP, easy to find.

To be fair to your accountant, everyone has their own expertise. A real estate attorney is not a trust expert, etc. People would be best off sticking to their area of expertise. There is no question, his remarks were in error.

That's exactly right. Zillow may round, or use data that's a bit off. Your math is perfect.

If you collected last month's rent, then returned the deposit (which you never received) you would deduct that deposit. In effect, this cancels the last month's rent.

Your tax guy is right, if you collected the deposit, and didn't claim it as income (which, if you put it in an escrow account, you don't add it a income) then upon returning it, there's no tax event, no deduction. But here you 'paid back' something you didn't collect in the first place.

The loss doesn't go away. Your $1400 loss will carry forward, until used. $95 is $1140/yr. Your interest will also drop. Not like a rock, but a bit each year. If there are no major repairs, you'll be at breakeven for tax purposes fairly soon.

The situation you describe is not ideal. $2400 in rent would point toward offering $120K for a house. You won't see the cap rates members here shoot for. But. If you look at what cash you put in, you are getting the principal paid a bit each month, and the potential gains over time, along with increase to rents.

Getting a license won't change things. You need to work on your properties more than half time and more than 750 hours per year. That path makes no sense if you're on the fence about real estate. The tax situation is the least of why most people are in RE. If it takes writing off losses on your taxes to make a difference, the deal is too tight. Members with multiple properties enjoy the lower tax on their positive cash flow due to depreciation and other write-offs, but that's a side benefit. Most of their deals would still be good regardless of taxes.

Right. The best one can say here is what the IRS allows or even what their particular employer allows, but that's it.

The Solo 401(k)s have their own rules as well, my solo happens to be with Schwab, and no loans are permitted. For those who aren't comfortable with the self-directed flavor of putting the real estate inside an IRA/401, etc, creating Solo 401(k)s for both spouses at a custodian that permits loans is an interesting way to have $100K (total) at the ready. A 5 year payback on $100K is nearly $1900/mo, but still far better than hard money, and keeps the retirement money in tact with no risk of "getting fired" and forced to pay penalty/taxes.