All Forum Posts by: Jeff Nash

Most of the specialty cost seg providers will do an upfront analysis and give you a range of the potential deduction and take into account your federal and state tax bracket to determine the tax benefit.  

Is the $5k cost an actual quote you received or just an assumption?  I am not sure about your situation (REPs, tax bracket, age or holding period of the property) but I look at the cost benefit just like an NPV analysis. If you have to pay $5k but will actually save $7k you take that option.  

To answer your question, I am not familiar with that DIY company but know of another one that a peer uses that might be lower for a property of your type.  I am not personally a proponent as I think there are a number of potential issues and limitations of DIY, but you can make your own determination.

You can’t deduct the principal balance of a loan itself, only the interest expense paid over time.  But in this case you are picking up interest income too so there is no benefit.  You might just look to other traditional or creative financing options.   

I just responded to an SDIRA question so was confused at first as lending or providing credit would not be permitted in that scenario, but if the LLC is not associated with a retirement account you can really do whatever you want (capital contribution, personal loan at market rates, third party loan, etc).

@Brian Jasinski from your write-up it appears that you have a pretty good grasp on how it works. You essentially need to treat the IRA as if it is self-sufficient and has the necessary balance to pay for all ordinary and necessary expenses associated with the rental and receives all of the income. I can't really say whether your 3% assumption is reasonable or not as it depends on location, market conditions, etc. You mentioned financing and that can be done with nonrecourse loans (UDFI applies), but there is also an option to coinvest with someone that is not a disqualified person (lineal descendants). You can get creative with how you invest, but just need to know the rules (disqualified persons and prohibited transactions).

As far as mutual funds, whenever I hear that word I think of a VCR or something outdated.  I would draw a comparison with low cost ETFs that have an expense fee of 20 bps or less instead. Generally if I see an “X” after a ticker symbol I pass on it.  There are always limited exceptions so I’ll just end on that. 

@Matt S. I would definitely work with one or more professionals to ensure you do things correctly from the start if you have a lot of changes.  That way you avoid failing to do certain things and realizing it later and not being efficient (finances, taxes, legal, risk management, etc).

For our planning clients we use software where you can link all of your accounts and manually enter too, and so it operates initially like Mint but goes way further with great analysis in all core areas, particularly taxes.  It’s called Right Capital. 

There are a few factors you have to consider:

1) Is your business subject to self-employment taxes?  Based on what information you provided, I assume you work as an employee of another unrelated company and are an S-Corp in some other type of RE business where you receive a 1099-NEC or similar income (ie rehabber, realtor, etc).  
2) Entity type - this matters for the profit-sharing contribution from you as an employer.  For S and C corps it’s 25% of your salary (with some consideration for health insurance premiums and other deductions) versus 20% of your net profits adjusted for self-employment taxes. Clients generally make this contribution before they file their taxes, including the extension deadline.
3) Age - for 2023 the employee contribution is $22,500, or if you are 50 or older, it’s up to $30,000.  You need to consider contributions from all plans you participate in for this.  

There are other relevant points and things you need to be aware of, but this hits on your main inquiry.  

For business owners that are profitable, have excess liquidity, and discretionary income that they can stand to defer, a solo self-directed 401k is one of the better tax strategies available. This can be adopted before yearend or even retroactively before taxes are filed.  

The other respondents provided some good considerations.  The issue of paying an entity versus an individual is an issue in various states.  Texas just changed this rule effective 1/1/2024 to allow agents rather than only brokers to be paid through an entity in consideration of the S-Corp election.  I think you should analyze your situation as I normally suggest if net profit is consistently greater than $40-50k the benefit probably outweighs the cost (additional tax return, payroll, etc).  Everyone’s goals and situation is different so working with someone is important. 

I can't speak for Fidelity or Etrade, but Interactive Brokers has a Tax Optimizer tool that is very helpful.  You can look it up on their website or Youtube.  

I agree 100% with @Michael Plaks advice on this one though.  I would make sure you are aware of all of your options.

If they do not match the only other consideration if it is available is to do the Roth 401K option.  If that is not doable then I would keep your money in the taxable bucket and allocate accordingly.