All Forum Posts by: Paul Allen

Definitely a hassle.  What alternative method would you propose for the IRS to use to verify someone's status as a Real Estate Professional? 

@Joshua Bowers

You have the gist of it, but some of the details are off.
25% is the max rate for unrecaptured section 1250 gains. You might not have to repay it at that rate. It would depend on your income that year.

You will pay the capital gains tax whether you reinvest the money or not.

Look at it this way: With a rental property you are being permitted to deduct a depreciation expense against an asset that is likely appreciating. That provides significant tax benefits to owning rental properties. 

Selling rental properties is often a very different tax story...

Read the Tax Strategies for the Savvy Real Estate Investor. 

There are a few optional parts of the tax code. Whether or not to claim depreciation on your rental real estate properties is not one of them. 

Best of Luck with Your Real Estate Investing!

You're kind of a nobody around here until you've taken one in the virtual chops from Steven Hamilton II. Its a rite of passage. He's Captain of the Morale Suppression Team, but his tax knowledge is extensive.

@Donald Hendricks Run your numbers through this worksheet (page 40)

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Or this version from The Taxbook

It's not very elegant, but if you can understand that worksheet you can understand @Ashish Acharya and@Brandon Hall

Best of Luck with Your Real Estate Investing!

@Ivett Soti I just want to applaud you for looking into this BEFORE you start buying houses. It intrigues me how many investors don't. 

Best of Luck with Your Real Estate Investments!

 No tax for you! 

@Clinton Fisher is the money you are inheriting already in an IRA? If it is, you might have to pay some income tax when you withdraw it.

@Clarence Watkins you will likely get a variety of answers to that question about whether or not it is important for the advisor you hire to be a real estate investor. I'm in the camp that says knowledge is important, but experience is optional. By way of analogy, if I need an oncologist, I wouldn't narrow my candidates to the ones who have had cancer. A thorough knowledge of it will suffice.  

Here are the things I think are more important than real estate experience:

A fee-only fiduciary. Make them put it in writing and sign it. "Fee-only fiduciary". If you don't know why that's important, Google it. 

For REI's I would avoid an advisor who charges based on assets under management (AUM). You can be a fee-only fiduciary advisor and charge AUM, but for the advisor with a client holding real estate it creates a conflict of interest. The advisor can bill you on your securities portfolio, but not on your real estate portfolio. This creates an economic incentive to the advisor for you to liquidate your real estate and buy securities (stocks, bonds, mutual funds). Can they still give good advice despite that conflict of interest? Yes, absolutely yes. But if they advise you to sell the real estate to buy securities, do you trust them? It might be the right advice, but you'll always wonder. The easiest way to deal with a conflict of interest is to eliminate it altogether. Find someone who charges a flat fee and no AUM.

Credentials are fine, but in all honesty have limited utility. Five years ago I answered questions on the CFP exam about the yield-to-call on callable convertible securities, and passed.  Don't ask me anything about convertible securities today. I haven't thought about them since! 

You'll learn more by interviewing advisors. Don't just read a couple of websites and Linked-In profiles and pick the best one. Interview them like you're hiring an employee (because you are!) Interview 5 or more. Ask them hard questions like "How are you compensated." Listen to the questions they ask you. Are they asking about your goals or are they asking about your money? 

I read recently that 65% of Americans don't trust financial advisors. Most days I think the other 35% are just naive and gullible.  There are a few good ones, but if your starting position when dealing with one is suspicion and distrust - well, that's probably just your good sense talking.

Thanks for the chance to get on my soapbox.

Best of Luck in All You Do!

What was your wife doing during that time? Is she ready to manage those properties if you do the statistically likely thing and check out first? If not, is she aware of the tax implications of liquidating those properties when she inherits your shares in them?

Nothing wrong with sticking with what you know as far as real estate investing. Might just need a solid estate plan to ensure she is taken care of if she is not as comfortable with real estate.

Welcome to BP, and Best of Luck!