All Forum Posts by: Michinori Kaneko

how did you financing the 1.94M? did you need to invest any additional cash for renovation? how much are you renting for? 

nice, are you looking to sell this property? what is it renting for?

That's great. what rent are you collecting, and how much are your cashflowing? what is your ROI?

Hi I wasn't planning on a house hack but I have a house that I'm considering renting out portion of it. It's not a multi family, it's a SFH. The question is on capital gains tax treatment when I sell the house down the line. I understand that when you sell your primary resident that you lived 2/5 past years you can get $500k deduction on your capital gains. I plan to rent it for few years then use the entire house as my resident when my kids get older and I need the additional space. My tax accountant told me that once I rent out a portion of the house that part becomes forever business property and while I can continue to take depreciation post rental period I will not be entitled to the capital gains treatment for that portion. Is this accurate? Is everyone that's house hacking paying capital gains taxes on portion they are not living in? Thank you for your help in advance

Quote from @Ashish Acharya:

No income from operation does not trigger 1231 loss recapture. 

1031 on the same asset can be tricky, you might want to ask this to your tax professional. 

Many taxpayers assume that gain or loss attributable to the sale of real property held for more than one year and used in a rental activity is Section 1231 gain or loss. That is not always the case; Section 1231 applies only to property used in a trade or business. The term trade or business is not clearly defined for purposes of Section 1231. The preamble to the Section 199A final regulations indicates that taxpayers should be consistent in treating an activity as a business or nonbusiness activity for all Code provisions that use a trade or business standard that is the same or “substantially similar” to the Section 162 trade or business standard. If a taxpayer takes the position that a rental is not subject to the business interest limitation, the IRS may expect the taxpayer to take the position that gain from the sale of property used in the rental is not Section 1231 gain.

While the sale of property used in a nonbusiness rental activity does not give rise to a Section 1231 gain or loss, it generally results in a capital gain or loss.15 Depreciation recapture rules (including the 25% rate applicable to unrecaptured Section 1250 gains) apply to both Section 1231 property and capital assets.16 As long as the property is sold at a gain, the taxpayer is no worse off as a result of capital asset status (and may be better off if the taxpayer has unrecaptured Section 1231 losses that would cause a Section 1231 gain to be taxed at ordinary rates). If the property is sold at a loss, however, Section 1231 treatment is generally preferable to capital gain treatment because a net Section 1231 loss reduces ordinary income.

Thanks Ashish,

so to clarify, the loss resulted from a rental apartment complex that was held in an LLC. The LLC held no other assets and owned by my wife and I. We sold the apartment for a loss and while the LLC is not dissolved we submit the tax return as final and it no longer has no revenue or expenses.

we however own several other single family properties held in our personal names and consider 1031 these into other rental properties. In this case, per your statement above doesn't seem to trigger the recapture.  Thanks for your help on this!

Quote from @Jay Hinrichs:

Quote from @Doug Smith:

We're a licensed Mortgage Company in Florida and I have 32 years of experience in lending/banking and I have a great deal of experience in IRA lending. I would love to chat about it. 1) There are more than one self-directed custodian that we have clients with. 2) We normally create a segregated LLC owned by the IRA and the money flows in and out of that to keep from triggering gate fees with the custodian. 3) Most of the loans we do have pretty quick turns...usually 7-10 days. 4) If we use "checkbook control" and create an LLC that holds the loans that is, in turn, owned by the IRA, that speeds things up and keeps the fees low from the custodian. If the amount we're lending is high enough, we usually eat the LLC creation and any filing costs. I hope that helps.

thats a great service if you setting up solo Ks for your clients..  I have been lending out of my IRA since the mid to late 80s back then I think there was  only one company if i recall right it was called lincoln.. then Entrust stepped in  since I was in Oakland at the time and they started there I was one of the first 500 or so clients.. but as you state running through the custodian runs up a lot of fees so check book control is the way to go.

Jay it's good to see you are still active here :) I was here few years ago when I was just getting started in RE investing and your inputs have helped me greatly back then. Hope you are doing well!

on a separate note are you still investing in loans via your IRA and what service provider do you use for it if you do? Thank you!

if you are getting just started, i would just use your personal name and get the freddie/fannie 30 yr fixed loans. gives you way better cashflows up front which allows you to grow faster in the beginning. 

Hi BP Community,

I have a pretty significant amount of 401k from my prior employers invested in mutual funds, but thinking about moving it into a self-directed IRA and lending out the money from it instead. I wanted to see if anyone does anything similar and curious about:

1. what vendor they use for their self-directed IRA

2. what the process around cutting checks and depositing works

3. turn around time on funding the loans from when you initially request.  

4. any other fees needed for the self-directed IRA.

Please let me know if you have any insights! Thank you.

Hi BP Team,

Hoping there is a tax professional out there that can address my question.  I recently realized a significant 1231 loss.  I understand there is a 5 year carry over on this so if i realize any gains those gains will be taxed at ordinary rates as opposed to preferred rate.  I am wondering if 1231 loss offset can be triggered either by  a) income from operations (e.g. rent - expenses) and B) if I did a 1031 exchange on a property, would I lose the capital gain deferral on this as a result of 1231? Please let me know.

Michinori

Hi there. Try the Facebook group for Fort Wayne REIA page.

group is managed by @Drew Wiard and @Adam Beckstetdt both wonderful people!