All Forum Posts by: Ryan Anderson

Hi Brian. I just messaged you my insurance brokers cell number.  Good luck.  

I’ve only owned my Pocatello property for one year.  So my experience is limited.  But I retained 5 Star who managed it for the previous owner.  He had good things to say about them and my limited experience has been positive thus far.  They pay promptly, vacancies are filled in a reasonable time, and accounting/statements are solid.  When I have need to call or email about something the response time has been good. 

 @Brandon Hall  thank you for the clarification.  I had read somewhere else that seemed to indicate this change would encourage S Corp owners to pay themselves a more reasonable wage.  So this may not necessarily be the case for all.

However, for what it's worth for those that wondered like I did.  The math works out pretty easily for figuring out how to maximize the 20% deduction and also minimize the reasonable compensation under the 50% rule.  It appears you just divide the taxable income number by 3.5 to come up with the W-2 wage that maximizes tax efficiency.  There could certainly be other tax considerations to make however.  But with: 

$100,000 of taxable income - the most efficient wage = $28,571.  Giving you a 20% deduction of $14,285

$200,000 of taxable income - the most efficient wage = $57,143   Giving you a 20% deduction of $28,571

$300,000 of taxable income - the most efficient wage = $85,714   Giving you a 20% deduction of $42,857

Of course the IRS would still expect you to be able to defend your compensation as reasonable for your job duties, but I thought others may be curious how that works out.  Knowing your taxable income ahead of time and figuring wages might be tricky, but if your income is consistent then hopefully that helps someone.  

Seem correct to anyone else?

I want to offer up a tax savings strategy for review with regard to the 20% deduction for pass through entities such as S Corps   

Historically S Corp owners have been expected to pay themselves a reasonable compensation (W-2 Salary) to make sure they are still paying a reasonable amount of employment taxes (social security and Medicare).  However the incentive for S Corp owners has been to keep that reasonable comp as low as defensably possible to save on employment taxes. 

Now it appears that some S Corp owners may need to consider raising their W-2 compensation to take advantage of the 20% deduction.  As Brandon mentioned the 20% deduction is limited by 50% of wages paid.  

If a married taxpayer in one of the listed service industries such as an accountant has historically had a taxable income of $200,000 and paid himself a “reasonable salary” of $50,000, then he will not be able to maximize the 20% deduction since he will be capped at 50% of $50,000 or $25,000 rather than receive the full deduction of 20% of $200,000 or $40,000.  So in this example he would be wise to increase his W-2 salary to $80,000 to not limit his potential $40,000 deduction.  

Yes he will now have to pay more in employment taxes but the 20% deduction will more than offset the increase in employment taxes.  Paying more social security taxes could also benefit him if he ever needs or is able to draw social security benefits.  Also, if he has a solo 401(k) setup he can now fund more into the 401(k) since discretionary contributions from the employer are limited to 25% of wages up to the limits.  

Thoughts or corrections?

Welcome to Idaho Falls.  What brings you here from NC?  It's a good area if you can handle the wind and cold winters.  I'm sure there are some BP members that would want the opportunity to assist you.  If not I can refer you to some colleagues.  

In general the IRS does not allow married couples to deduct home mortgage interest on loan balances above $1,000,000 ($500,000 for single).  So any tax break they get is a drop in the bucket on a $52.8 million dollar home.  At that level of indulgence tax planning has been kicked to the curb like the remaining members of Destiny's Child.

@Pat Coogan @Steve Vaughan Are you not considering the option of leaving your primary residence loan in tact and adding a HELOC to tap the excess equity that's trapped? For example, I have a primary mortgage at 3.125% 30 year loan that I obtained 4.5 years ago that I'm not about to give up. Just last month I went to a credit union and opened up a free HELOC (no origination fees and no annual fees) for up to 85% of current LTV. With rising home prices they were generous with the desktop appraisal they did on my home and in reality they issued the HELOC with more like 95% to 100% LTV because of the over generous appraisal. Can't beat the free access to that equity which can come in handy if a deal pops up and I need quick access to capital.

@Anthony Hurlburt it was all of 60 days.  It's hard to say how much was attributed to the loan officer I worked with and how much was just a lack of urgency from MACU in general.  If you're putting in an offer I would give yourself at least 60 days though.  Luckily the seller I bought from was in no hurry so I was fortunate.  

@Brett Lanier I think the requirements are pretty standard for any other type of conventional loan, but you'll have to speak with them on those details such as credit score and debt to income, etc.  I notice they do have a footprint in New Mexico so it might be something worth looking into.  

Lower down payments inherently mean more risk. I wouldn't want my whole portfolio consisting of 10% down properties.  But when you can add that to the mix with some traditional financed properties it's a good fit for me.  I'm not worried about gaining strong cash flow on those properties.  I understand them for what they are.  But getting some cash flow, huge interest deductions, huge depreciation deductions, high principle paydown (higher than normal since the downpayment is small), and then appreciation,  I am very happy with my decision to use it as a wealth building tool.  

I closed on 2 loans with Mountain America Credit Union using their 10% down program. Pretty incredible deal. It's true you can only use it for up to 2 loans. But besides not paying PMI as mentioned, it can also be used for multi-family units. I used the program to buy 2 fourplexes one year ago at a rate of 4.75% for 30 years fixed. What an incredible way to leverage! I've had lower interest rates before but to only have to put 10% down is huge. With conventional loans I'd normally be looking at 30%. Also the other amazing thing is they don't have the normal reserve requirements that conventional financing requires. So if you have other mortgages they don't worry about a 6 month reserve. On the downside it did take longer to close than what I man accustomed to. But for those kinds of terms I can learn some patience. I have never seen anything else close to it. If you hear of anything else similar I would love to know.