All Forum Posts by: Jason Bohling

 You are absolutely right!!!

To @Dmitriy Fomichenko and everyone please disregard/ignore what I wrote above;  I was tired and got two different things confused.  

After I wrote those posts something wasn't sitting right about what I wrote and realized I made some mistakes. I looked back at my tax returns when I was doing the conversions from my traditional IRA to my Roth IRA and realized I had converted up to the limit of my standard deduction allowing that amount to be tax free, but the excess above that that I converted each year was at the lowest tax bracket, so while I did convert some money tax free each of those years I DID IN FACT pay more than a few cents in taxes on the amount above the deduction.  As to the buddy I mentioned in Washington state it was the same scenario; he converted tax-free up to their standard deduction but above that he kept within the lowest tax bracket and paid the smallest amount of tax possible.

Thank you @Basit Siddiqi for calling me out on this and giving me a chance to address my mistake; it's important people have the correct information.  Take care everyone.

@Dmitriy Fomichenko here’s a link briefly describing what I’m talking about:

https://www.cnbc.com/amp/2024/10/24/income-limit-for-0-percent-capital-gains-bracket-2025.html

@Dmitriy Fomichenko scratch the part about being taxed at the capital gains rate, you’re right that it is taxed at income levels, however the rest stands.

@Dmitriy Fomichenko because if the holdings in the retirement account are held longer than 1 year they are taxed at the long-term capital gains tax rate and not your ordinary income rate. The way it works out, for 2025 if your taxable income plus any long-term capital gains amounts total up to less than $126,700 (assuming married filing jointly standard deduction of $30,000 plus the 0% LTCG tax bracket of $96,700) right now the capital gains tax rate is 0%. If single you would have standard deduction of $15,000 plus LTCG tax bracket of $48,350 giving you room of $63,350 to fit income and converted amounts in before you pay any tax. Even if you had to exceed that, as single you could convert an additional $485,050 above the $63,350 (or $503,350 if married) and you’d only be taxed at the 15% LTCG tax rate (not counting any state if applicable).

Each year I’d get my taxable income as low as possible to give myself as much ‘room’ as possible in the 0% tax bracket and convert the max amount possible.

@Chris Kittle I’m not an attorney and could be completely wrong, so please consult an actual attorney before you do anything no matter what people say here.

That being said, I asked an attorney who I'm an acquaintance of about this very thing, just for my own curiosity, and his response was get the LLC in whatever state the property is in. If it's in Michigan and you put it in a Wyoming LLC, what will happen is they'll sue you in Michigan and it will still go by Michigan law…Wyoming law will have virtually no bearing. In addition, his point of view is that any attorney worth their salt can find a way to defeat an LLC, they aren't the rock solid wall people think they are by a long shot.

Again, this is what I was told, so please find the answers from an actual attorney.

@Dmitriy Fomichenko not sure if you were aware, but depending on your income and circumstances, you can convert that money into a Roth IRA, tax free.

A friend of mine lives in Washington state (no state income tax) and his taxable income is about $50k a year. Because of this, he's able to convert roughly $60k per year of his money in his old 401k's and trad IRA to his Roth and he pays $0 in long term capital gains taxes. I did the same several years back with my trad IRA and my Roth IRA and never paid a cent in taxes.

@Patience Echem I agree. Even if it were easier to find ‘1% rule’ properties nowadays, you still have to look into it and do your due diligence as every circumstances different. For example, you go to a high property tax state like Texas and you may find a property that appears to fit the 1% rule but once you factor in the $500/month property taxes and $100/month insurance your potential cash flow has gone up in smoke.

@Sean Gallagher I look at CoC/Return on Investment but main focus is on Internal Rate of Return (IRR). I'm not into commercial so I don't pay attention to cap rate.

I put my money where it's going to perform best, either in real estate or my brokerage account in the form of an S&P 500 index fund. I want what's doing best, as the S&P since the Depression has returned on average 10.6% (it fluctuates by .1 or .2% periodically) if I buy a property I want it's IRR to at least beat that. Those are difficult to come by so I'm keeping my powder dry and investing through my brokerage right now until something pops up. As a comparison, the S&P 500 index fund I use is returning 22.42% over 1 year and 18.69% year to date.

@David Butler I appreciate the respectful disagreement, and I can see where your point of view is coming from.

However, as you mentioned

her “included statements about having the money to purchase 2 years later and never could have had that if she had to pay off the debt”, there’s no way when she filed for bankruptcy she could have possibly known how much or how little of her debt would be discharged (they don’t always allow all of it to be discharged) and that she would be able to start saving so quickly. Another way she could have phrased things is ‘I realized I had to file bankruptcy, and I caught a huge break because it turned out that all my debt was forgiven, allowing me to begin saving and get on a better track earlier than I anticipated. I would’ve never expected that and I was very lucky’.

I get that it’s not about her specifically and I agree on that. I’m just trying to point out that you heard it and interpreted it as presenting a less than ethical message about bankruptcy and BP should be more cognizant of that. My point of view is that I listened to the same thing and never heard anything remotely shady or ethically questionable.

However, I think it's good you said your point of view because any perspective to try to do the right thing is a great thing, and all of us are stewards of REI at large and have a responsibility to present it in the most professional and ethical manner.

@Saad D. never paid attention to the 1% Rule, and while some people in some markets can occasionally find a deal that it will apply to, it isn’t feasible in most situations.

The last few years I've seen it as pointless, as it was never a hard rule to be followed explicitly but a suggestion, and it seems like the only ones today who give it any credence are those brand new to REI and have heard it discussed on the older episodes of the podcasts or read about it in the books BP published 5+ years ago. I look at every property on its own merits.

I know others will disagree and that’s great, the more varied the perspectives the better. But in my opinion the 1% Rule has gone the same way as the 2% Rule. Both are irrelevant.