All Forum Posts by: Michael Plaks

Excellent point! 

Just to make the strategy clear. Let's say you need to take a $5,000 MRD, and you also want to make a $5,000 donation. You normally do this as two separate transactions. The $5,000 MRD will be taxable income. The $5,000 donation may or may not be deductible, depending on whether or not you can itemize and the size of other itemized deductions. In other words, these two transactions may end up cancelling each other - or they may not, especially after the tax reform.

What Buddy described (officially known as QCD - qualified charitable distribution) is a win-win strategy that merges these two transactions into one. You transfer money directly from your IRA into a charitable organization. Instead of $5,000 income and $5,000 deduction you have $0 income and $0 deduction. Itemized deductions do not matter.

It's a great strategy, but you must follow the rules. Here is a rather technical article about these rules and restrictions.

Good creative thinking, but this one won't work. LLCs and other pass-through entities do NOT get to deduct charitable donations as a business expense. Their donations are passed down to the owners and end up treated exactly as if they were made personally by you.

@Tyler L.

Some of the responses above may not be applicable, due to different meaning of the same word. "Option" has a specific meaning in REI, and it is not the same as wholesaling. In wholesaling, you enter into a contract to buy, and you re-assign (sell) the contract. Option, on the other hand, is a right to buy, not a contract to buy.

That said, whatever you can do personally, your retirement account can do as well. For example, your IRA/401k can act as a wholesaler, and your IRA/401k can trade options. (By the way, 401k is far superior to IRAs for these situations.)

What canNOT be done is dealing between you and your retirement account. For instance, you cannot sign a contract as a wholesaler and then sell/assign this contract to your IRA/401k. I got an impression that this was your plan. If so - it is not allowed.

Next, LLC. Always a good idea to create a formal separation between personal and business money.

Now, taxes. If you're shooting for $250k gross, you will be looking at maybe $200k net. At this level, S-corp is not helping enough. You will likely benefit from a C-corp. To be more specific, an LLC choosing to be taxed as a C-corp.

Implementing a C-corp is not a DIY project, however. Online "research", even here on BP, won't do. It is a must to work with a competent tax strategist. There're many of us here on BP ready to help.

Happy 2018!

@Eric Jan  @Dmitriy Fomichenko

Let's clarify what we call partnering. True partnering does not break the rules. For example, you can buy and lease a commercial property 50/50 with your retirement account, as long as you do not personally manage the property.

In a case of a flip, it is much more dangerous. What you, Eric, envision is essentially borrowing from your SDIRA - and that is strictly prohibited. It is possible to structure an arms-length partnership with your IRA on a flip, but it's a tricky setup to avoid violating prohibited transactions rules, due to your heavy personal involvement. Definitely NOT something you should try on your own, even after asking questions on BP.

I have not heard the podcast you've listened to, but I would not be surprised if that investor took dangerous shortcuts and risked violating the IRS rules. Such risk is not worth taking.

 Try to read today's blog post on my website. BP will not let me link it here, unfortunately.

We'll know more from the Temp Regs? That may be an overly optimistic prognosis :)  

@Bob Langworthy  

I also tell all my PL clients to issue 1098s. There is no downside, and it's easy. 

I'm still wondering about compliance aspect in these situations. Is it required or not?

As to using 1098s to enforce income reporting - I doubt that the IRS tracks the lender's income off of 1098s.

 You know we're opening a can of worms here. 

• Should not separate LLCs be treated as separate entities?
• What if it's a Series LLC?
• What if it is one LLC with multiple lines of business?
• What if one LLC is owned 50/50, and the other 40/60?
• and so on...

This will be fun for months

@Brandon Hall

Speaking of "per business"...   

If I have 10 properties spread between 3 LLCs. Do I have 1 business, 3 businesses, or 10 businesses for the 20% calculation? How do you read it? Admittedly, I did not spend enough time looking, but I did not see a clear answer at a first glance.

So what you're suggesting is to "create" income on a new property by reducing depreciation, expecting losses from existing properties to cancel out that income.

Then you still have zero combined income, ONE of your properties benefits from 20% freebie, and nothing lost over the life of the property, because less depreciation results in less depreciation recapture. No immediate tax savings, but less capital gain in the end. Without a 1031 or step-up, it will pay off when sold.

Now THAT is something marvelously creative. Thumbs up.