All Forum Posts by: Pixel Rogue

Open to discussing there in the forum as always. :-)

@admin, @na na

I reposted in Innovative Strategies

Qualified for the first time in 2024 as a real estate professional. Was excited to take deductions in the year incurred UNTIL learning that doing so would also change future years - so have questions....

Take 2024 losses for 2024 tax return.
As I understand, taking the losses in year losses were incurred turns passive income to active. While these are losses for 2024, future years would then require gains to be recorded as normal income and subject to personal employment tax....AND...future returns would need to do the same (unless a qualifying life event occurred.) What are scenarios in which this would be advantageous, as I understand real estate professionals actually do NOT file this way, opting to deduct losses at time of same rather than year incurred.

In my situation, there is a good chance I will no longer have W2 income and 1099's would be minimal.

One potential positive would be applying (this now) active income to retirement. There was zero 401k contribution in 2024 ~ selecting this option would offer the ability to put funds to Roth 401k (not interested in traditional 401k ftr.) Thinking out loud, if 2024 had a net loss, then does that mean nothing can be put towards Roth 401k? As an independent contractor back-in-the-day, income applied to 401k was capped at (maybe) 30% of reported income....and if that is still the case and this is a similar situation then I would need reportable income of about 95k to max out 2025 401k contribution - strike that .... think I could max out at 60k meaning reportable income would need to be 200k? If so this is too far out of reach and possibly the main motivation to take deductions in year incurred.

Interested in thoughts, and (OH) have 11 days if I'm chasing the 401k contribution for 2024.

NOTE: I do have a tax professional assisting, with expertise is current state tax recording/reporting, less so in the future impacts and decisions.

Let me know if this topic would be better suited for another forum.

Thank you...

Qualified for the first time in 2024 as a real estate professional. Was excited to take deductions in the year incurred UNTIL learning that doing so would also change future years - so have questions....

Take 2024 losses for 2024 tax return.
As I understand, taking the losses in year losses were incurred turns passive income to active. While these are losses for 2024, future years would then require gains to be recorded as normal income and subject to personal employment tax....AND...future returns would need to do the same (unless a qualifying life event occurred.)  What are scenarios in which this would be advantageous, as I understand real estate professionals actually do NOT file this way, opting to deduct losses at time of same rather than year incurred. 

In my situation, there is a good chance I will no longer have W2 income and 1099's would be minimal.

One potential positive would be applying (this now) active income to retirement. There was zero 401k contribution in 2024 ~ selecting this option would offer the ability to put funds to Roth 401k (not interested in traditional 401k ftr.) Thinking out loud, if 2024 had a net loss, then does that mean nothing can be put towards Roth 401k? As an independent contractor back-in-the-day, income applied to 401k was capped at (maybe) 30% of reported income....and if that is still the case and this is a similar situation then I would need reportable income of about 95k to max out 2025 401k contribution - strike that .... think I could max out at 60k meaning reportable income would need to be 200k? If so this is too far out of reach and possibly the main motivation to take deductions in year incurred. 

Interested in thoughts, and (OH) have 11 days if I'm chasing the 401k contribution for 2024.

NOTE: I do have a tax professional assisting, with expertise is current state tax recording/reporting, less so in the future impacts and decisions.

State is PA.

Taking to an extreme example for illustration purposes, could someone purchase into an HOA where one owner had 60% of its units, 60% of the vote? Would the HOA not need to disclose in advance of sale?

When purchasing into an HOA, are there legal obligations for the HOA to disclose...
A) Number of rentals, or rental percent, in the HOA?
B) Ownership count/percentage, for example if one party owned multiple units?

Quote from @Drew Sygit:

@Pixel Rogue everyone has different future plans - many though haven't thought that far ahead!

As already mentioned, you could sell via seller financing to lower AGI, as all you would have to claim is the payment income - until balloon payment received.

Did know an investor that had 14 properties paid off and he moved into one every two years to then sell with the $250k single exemption. He had a Viper and several other toys:)

Are you planning on passing any of your wealth to others?
- If so, 1031 into something bigger and easier to manage and then when you pass, the inheritor receives your property(s) at a stepped up basis - subject to Inheritance Tax limits.

Otherwise, sell one every 1-5 years when you need the cash, so you can plan expenses to offset capital gains.

14 properties - presume these had to have been single families.

Oh, I'm modifying the original post to mention leaning toward creating a trust which we manage..so we would own very little yet manage the trust which owned investments and such.

Here is what I understand/misunderstand (better or worse) on moving every 2 years (as we are open to that albeit pia.) 

• Multi-unit would only support a %, so a quad would 25% and prorated over all years of ownership....witteling advantage to not worth the effort. 

• Single unit properties get pro-rated. So if you have the property for a total of 10 years, moved in at year 8, little value or tax advantage. (IF you purchased and lived in property asap, then rented it out, then returned to it it sell it years later - better plan. That never happened.) 

So not as easy and moving every two years if you have had the properties for any length of time. We have also toyed w/the idea of buying/moving into fixeriuppers and selling every 2 years.

Quote from @Greg Kasmer:

@Pixel Rogue - Looks like you have a VERY solid portfolio. Just want to clarify your question... Are you looking to sell some/all of your portfolio by minimizing your tax exposure and be more "maintenance free"? 

I'm still in the process of growing my portfolio, but have heard others 1031 all their smaller properties into a larger building and have a property management company manage, OR, set up a seller financing deal with another buyer that gives you the cash flow you desire. 

I wouldn't miss letting go of the maintenance. Today I had a heater issue and snow company that was late handling commercial before residential so we ended up clearing it.

Open to each option. Love the idea of rolling them together into a larger property and have a company then manage. I looked into the maintenance option years back to discover a trend of:  apx. 8% monthly fee which only included rent collection (everything else from maintenance to turnovers etc, extra, and poor reputation on repairs.) Rent collection is zero effort. 

For the areas of interest (you are local so I'll say suburbs west of City Line Avenue) there are few and far between -and- have many investors sitting on large sums of cash to jump on anything that comes up (where I would be navigating a reverse 1031.)  Not keen on seller financing component.