All Forum Posts by: John Hyre

Sub2 is totally depreciable, FYI, as long as rented out and the paperwork is well-drafted.

I have not listened to the podcast, but a CPA friend emailed me to say the podcast stated that Sub2 property cannot be depreciated.

That is mistaken in most cases, properties acquired in such a manner are normally depreciable assuming that they are rented out and not re-sold via owner-finance or the like.

Apologies if my info is mistaken and the podcast said otherwise.  No time to listen to it.  The CPA in question is normally punctilious about what he says.  

Under the bill, an IRA cannot own 10% or more of a corporation, partnership, trust, estate, or "other unincorporated enterprise". That probably means Single Member LLCs as well. Now, one can gamble and say "I think unincorporated enterprise does not mean SMLLC's". Of course, if you are wrong (likely), your IRA dies. Who wants to roll those dice?

PS: It certainly kills 50/50 JV's between an IRA and a "sweat equity guy", to name just one example of the many, many deals this legislation would ban. The IRA cannot own 10% or more of ANYTHING. And is banned from PPM's, etc. that require accredited investors, etc.

Also banned:  Anything in which the owner is an officer or director, which includes CBLLC's.  Note:  Putting a "strawman" as the officer or director (or manager or trustee, same thing) does not "get around" the problem.  The IRS looks at the substance and would ask "do you exercise the power of officer or director"; if one exercises such power, they are an "officer or director", regardless of what the paperwork says.

That this is "just in the House and has not passed yet" is no reason for complacency.  It'll be harder to stop the further down the line it gets.  It would ban better than half of SDIRA investing.  And you better believe that if they get away with it 401k's will be next.  

It's time Make Some Noise and not just let it happen.

@Muriel Brisson-Jackson, remember, 401k's/QRP's are subject to the same UBIT rules as IRA's, with a very relevant exception: IRA's that borrow to acquire or improve real estate pay UBIT, while a 401k would not. But if the proceeds of borrowing or of a refi on RE are used for non-RE (e.g. - to lend, buy BTC, buy notes, etc.), then the 401k pays UBIT like an IRA. Likewise, if a 401k runs a "continuous trade or business" or rents out personal property, it is subject to UBIT just like an IRA. I very often see posts to the effect of "401k's/QRP's are exempt from UBIT". Such statements are mistaken and much too broad. With that said, the ability to borrow to acquire or improve RE is a big, big deal. I personally used it in my Roth 401k to acquire rentals that we are now selling.

PS:  If you would PM the cost information, I certainly would appreciate it.  Thanks!

Bernard Reisz, good post, good info, and a useful explanation for those who do not speak "Attorney-Accountant".  Seems to be your pattern, much appreciated.

I am curious as to plan options for 401k's with employees (so no Solo) that are not "safe harbor".  I have found the latter to simplify matters as to compliance.  For smaller companies the cost of making minimum contributions to employees' 401k's accounts seems like a good trade-off to avoid costs of discrimination testing, etc.  Are there self-directed, non-safe-harbor solutions that are more cost efficient than safe harbor plans that I am missing?  Always looking to learn.  $2,500 set up and a similar per-year cost + contribution costs strike me as pretty reasonable.  But maybe there's something better out there.

The genesis of my chiming in on this thread:  I just put on a SDIRA/401k workshop.  One of the attendees, who is also a client, is consistently sharp (Well, actually, most of the attendees were; the average bear does not take time & money to attend such an event.) and asks good questions.  She had asked about the Lupo product.  I agreed with her that the Special Name is pure branding.  I'm looking to see what is behind the curtain.

Being the curious sort, I will dig into it.  I generally will not discuss custodians (e.g. - which ones I like, etc.) because I'm in bed with (receive clients from) most of them.  But here I see no such risk.  I do not produce or sell plan docs; I merely send clients to whomever I think best.  And plan doc producers do not tend to send me work, so not much economic risk on my end.  I think I'll look for eQRP sample plan docs & feedback (for those interested in sharing, I will preserve your privacy).  I may have a test caller get to the pricing point as well.  If it's a better product, I'll send people that way.  And if it's an over-priced thing (based on sizzle & marketing), I will send my clients to service providers who provide the same or better quality, minus the mark-up for sizzle.

Sir Plaks (You've been temporarily & arbitrarily demoted from Count, I'm feeling all bitchy today):

I hear ya.  Back when I did returns (I would presently prefer to breed with a Biden than do them again) I'd expense the non-accountable plan expenses paid via personal means and write the client an email saying "it may not fly in an audit, you are on the hook for penalties, etc., sign here" because they did wish to have an accountable plan and follow it (e.g. - have the 2-page plan doc, keep receipts, fill out reimbursement forms, etc.).  I believe you on business card points as well.  People have really weird priorities, young people even more so, SMH.  Get off my lawn, etc.

Which are some of the reasons why, per Jay Adkisson, a renowned expert in the area of asset protection, over 80% of small business LLC's would be easily pierced. Most purveyors of LLC's set them up (and in the case of people out of Nevada or Utah, tend to grossly overcharge for lots of needless moving parts) and do a terrible job of teaching people how to well & truly maintain them.  And even when such maintenance is taught....well, entrepreneurs.  The same DNA that drives them to seek deals seems to make them lousy administrators.  Except the engineers....for all that I pick on them a lot (and I do), they do tend to follow a plan (once they have grossly over-analyzed it).

Bottom line: Most REI LLC's I have seen would be easily pierced. With "commingling of assets" being the fastest ticket to that destination. Due To/Due From accounts, so-called "intercompany loans", spending company money on personal things, entities that do not even have bank accounts (evidently OK with some of the NV/UT "asset protection experts"), etc.

So, a distinction that is not really being addressed here, though it has been mentioned several times:  Is this eQRP a good tool for people who have employees and also want a self-directed 401k?  It is not a Solo K.  Comparing it to one is not helpful.  I "gotta guy" I send people to who sets up SD Safe Harbor 401k's (i.e., a 401k for people with employees) for about $2,500 & charges a like amount per year to maintain them.  I wonder how that compares to eQRP.  From what I have seen of Lupo, he's a very good marketer.  Names a mundane thing something different, makes it all sexy, hypes it up, etc.  I'm more interested in knowing 1)  Is the sexy, hyped, well-marketed product any good and 2)  What does it cost.

No need to explain to me how SDIRA's and SoloK's work....I get that.  Just want to know how the Lupo product compares to other SD401k plans that allow employees.  Curious as to whether it's a safe harbor plan (I'll bet it is) and how much it costs (I'm guessing "more" based on the marketing).

Excellent post.  Spot on for taxes. 

As to #9, the asset protection lawyer in me really, really does not like putting personal expenses on the company card.  That opens the door for a judge to start thinking about "alter ego" theories and "piercing the veil" from an asset protection perspective.  I prefer that personal expenses be paid for separately, even when it's a hassle.  That failing, pay for the mixed expense on the personal card and get reimbursed from the company based on its Accountable Reimbursement Plan.  Paying personal expenses from the company (even if reimbursed) is the top of a very slippery slope.  I'd avoid that practice.

Ooooh, I like.  Here's the deal.  It's vague.  Nice & grey.  Like when Daddy says "no" and Mommy says "yes", Baby goes with "yes".  Why?  Clear upside, little downside, as long Daddy don't whoop my *** (cause then he sleeps on the sofa).  Let's say Tax Court (because if an IRS auditor were to disagree with me on this item, it'd make for an easy & cheap Tax Court filing) ultimately somehow says "7 year" and for some reason it actually mattered.  First, not likely, the IRS settles 95% of Tax Court cases and usually in a Good Way.  But let's say it goes to trial and I/my client lose.  Any 20% penalty?  No, I think we have "substantial authority" for our position, kindly provided by Tovarish ("as if!") Plaks.  That means no 20% penalty, just interest at 5% or so on the tax that is finally due and paid.  The more grey, the better.

Probably not a very different result in most states, their procedures vary, but if they are relying on federal classification (and most do), the discussion would be similar.  

Except California because.....California.  And that'd be your fault for choosing to own property or live there.

Good research by PlaksMan, gonna tuck that into a file.

Of course, we'd want some substantiation on the actual business use of that-there excavator.  

@Brandon Hall, I assume election out of 263A (under $25M taxpayer) gives more room to maneuver.  Brushing up on this, hadn't looked at it in awhile.

I reside in PR.  I run my tax law and accounting practice under Act 20/22.  Love it here.