All Forum Posts by: Pixel Rogue

Quote from @Chris Martin:

@Pixel Rogue I went down a different investment path, leveraging Form 3800 ITC (Investment Tax Credit) favored development. The ITC numbers, basically, provide in year one 30% ITC and the accelerated bonus depreciation deduction provides a roughly 70% equipment write-off. For instance, a $400,000 investment (excluding land and other non-contributing expenses) in a solar farm (probably works for wind farms too but I'm not in that space) allows for $120,000 for the ITC General tax credit and $280,000 loss via bonus depreciation. These carry-forward if not used. For any given year, electricity production is taxable, but I offset that income with the bonus depreciation loss carry-forward and ITC carry-forward for 20 years. 

New rules, apparently, under the iRA (Inflation Reduction Act) will allow developers to sell Renewable Energy Tax Credits to other taxpayers. Historically I've kept all ITCs for myself (I am selfish) but that may change if I start doing more development. 

Just a thought.

I appreciate this mention and would like to learn more. Are there funds, eft's etc. for said ITC, or does one need to be in the trades or developer to participate? 

Quote from @Henry Clark:

Talk with a financial advisor.  Either you have to put all of your info in this post or we are just chipping away.

No matter what you do you should dissect your needs and wealth.  
  
1.  Near term you want cash equivalents.  How much money do you need and how far out are you comfortable with market risk.  Say you want $80,000 per year and and are risk adverse out 5 years.  Then you need to always keep $400,000 of cash equivalents in hand.

2.   Any major projects set aside funds for that. RV, travel, etc

3.  Next is midterm 5 to 10 years

4.   Next is long term. You want to be more aggressive.  Otherwise inflation will eat up your savings.  Plus you need to set aside retirement home funding.

5.   Now look at your assets and see which support both in magnitude and timing those objectives.  Also how you want to or don’t want to manage.  

Respectfully, looking to keep the conversation focused on means to invest that minimizes tax brackets/obligations. Near term, projects, mid-term - all that is covered...let's focus of how to invest say 500-1m from sales of properties, or ways to 1031 out investment properties. Reserve funds, living expenses etc. all covered for sake of the topic on tax advantaged ways to invest. 

Quote from @Chris Martin:

@Pixel Rogue I went down a different investment path, leveraging Form 3800 ITC (Investment Tax Credit) favored development. The ITC numbers, basically, provide in year one 30% ITC and the accelerated bonus depreciation deduction provides a roughly 70% equipment write-off. For instance, a $400,000 investment (excluding land and other non-contributing expenses) in a solar farm (probably works for wind farms too but I'm not in that space) allows for $120,000 for the ITC General tax credit and $280,000 loss via bonus depreciation. These carry-forward if not used. For any given year, electricity production is taxable, but I offset that income with the bonus depreciation loss carry-forward and ITC carry-forward for 20 years. 

New rules, apparently, under the iRA (Inflation Reduction Act) will allow developers to sell Renewable Energy Tax Credits to other taxpayers. Historically I've kept all ITCs for myself (I am selfish) but that may change if I start doing more development. 

Just a thought.

There is an option to invest in impoverished areas, similar to a 1031 and the longer the time frame the better the deduction. 10 years and out.

Quote from @Henry Clark:

Consider rotating through your properties and doing the 2 out of 5 year tax free gains.  $500k max for married couple. Could do 2 homes in 5 years another 1 year in your next home.

If one were to sell them outright, this would be a consideration. Is there a related advantage if using 1031 exchanges on the sales? One of the rentals is a quad that we've had for over 15 years, so candidate for a 1031 to primary home but not as a raw sale. One of the investments (single family condo) was purchased through a 1031 which we had for nearly 20 years prior to its purchase, not likely not a candidate to live in for 2 years. The others, however, are single family condos (in llcs,) owned roughly 5 years.

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To address the other points of the response, yes all good advice and think we have a good handle on the future needs. The primary item not yet resolved is specific to planning now which will obtain a low tax bracket/obligation when it comes time to retire. Say we move every 2-3 years to sell off investments, that is helpful on the tax of the sale BUT...what then? Put those funds into MM or CD and you are paying tax on its earnings.. Say there was 1m in 5% CDs, we are looking at 50k - putting us in higher tax brackets and all that getting taxed. Put that same 1m in a muni, for example, which might only earn 3%, yet that 30 is tax advantaged.

Looking for a grand plan to the effect of: 1031 exchange investment to future primary home..renting that out for a few years before moving in. The acquired property would be in LLC managed by a trust. Sell our primary home (where do we invest those funds to keep tax obligations minimal?) Move other investment real estate into said trust. 1031 the investment properties into real estate funds/reits/dsts (that accept 1031s) - all managed by the trust. The investment fund concept present the same concern, monthly/quarterly/annual statements that push us into a higher bracket. I am sure there are better options.

Building a tax advantaged retirement plan...best ways to invest extra funds + smart exit strategy from rentals.. We may decide to return early...

We are looking to build a retirement that minimizes tax obligation, lowest future tax bracket. Here is what we have, and/or are planning:
• Retirement savings are Roth across the board. We max opportunities annually. If this doubles in 10 years, all good here.
• We will likely do a 1031 of an investment property to a primary forever home, renting it out for the first few years
• Funds from sale of primary home, likely municipal bonds as best tax advantaged options? - might be able to this to 1m w/savings.
 (what other options here, that keep from paying future taxes)
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Investment properties (looking forward to less landlord/maintenance hats, less tenants.) 
- Considering creating a company to manage each of the investment properties, charging a monthly fee which is then active income that can be transferred to tax sheltered investment (ie Roth) (as this exit plan will take a while)
- Thinking of 1031s to crowdsourced investment opportunities that accept 1031s, then in a few years convert to REITS then cash out. 
- Another option but not caring for what I'm learning, DST...low rates of return and seem secretive in how they are established..and private.
- Thinking of setting up a trust, and assigning the trust as president/member of each LLC.
  (would that work, no need for change stop financing, transfer fees etc?

Appreciate any responses, especially from those who are not seeking new clients or promoting a book.

Maybe using the wrong term on trust. Trust as in setting up an entity that manages assets that are placed in the trust (properties, investments etc.) Me or my wife would run those assets. At any point we could assign another family member to manage those assets w/o traditional tax implications associated w/transfers, probates etc.

Looking to downsize home and reduce the 'landlord' title by 80% (as in hold onto a small easy investment property or two.)
Looking for options for 1031's w/o title of landlord. Not thrilled w/DSTs. See some crowdsourced options that support 1031s.

Related note (which might be a thread in and of its own) ~ Revocable Trust.

When this moment happens, 1031 exchange to long-term home, does a revocable trust need to be in place in FIRST? 
Looking to setup a revocable trust to manage real estate assets.If the 1031 acquired would be set up as an LLC, in theory could the ownership of each LLC could be changed to the name of the trust? No need to sell it to the trust w/related transfer taxes etc?

Quote from @Dave Foster:

So if you have some properties with little taken depreciation these will be better candidates for conversion.  Use the highly depreciated properties to 1031 into your passive 1031-compliant vehicles.

One property is highly depreciated (apx. 17 years) - seems most 1031's exchanges are, by nature, passive.
Something not clicking....

The conversion would be through a 1031 either way, right? So find that ideal home.... purchase it through 1031 exchange...rent it out for a few years...the convert. The ideal home would be downsizing, and the 1031 requires equal or greater than (anything left over than subject to tax exposure.)  Of the properties, the quad held for 17+ years now would be a clear candidate (albeit fair amount of depreciation,) and a condo (purchased in 2019)  which itself was purchased through a 1031 (where the relinquished property was owned for apx. 17 years...which I expect may have attached depreciation baggage.)  

• We actually have an SE401k from a few years back.
• No, one can not use SE401k to purchase your own property.

A better orginaized articulation of the plan.

SE401k
Open SE401k, move Roth funds to Roth SE401k and purchase an investment property. Would prefer to use an existing property for this purpose so sell from LLC to SE401k if viable. Income generated would go back into SE401k until official retirement age.
(if we retire early, could this income be used to supplement expenses w/o being treated as early distribution? How is this tracked? More to learn.)

PURCHASE LONG TERM HOME
1031 exchange from A (and/or B.) Rent out for minimum of 2 years...likely longer then convert to primary residence. Purchase as LLC.

INVESTMENT VEHICLE
1031 exchange to investment vehicle (ie. DST) from (A and/or) B, then convert to REIT. Not impressed in what I've seen so far for this option

MOVE & SELL
Rent our our home and move into a remaining unit every 2 or so years. 
We are not loving this plan as 2 years goes by pretty fast...disruptive to keep moving, and this plan would take 8-10 years if aggressive and smooth. Savings might not be worth it as by then we'd have these properties 5+ years.
Properties C, D, E, F. We could drop these through 1031into investment vehicle (above) as an option.

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Property A:  4 unit, 15 + years lot of depreciation taken. Personal name.
Property B: Purchased via 1031 4 yrs, relinquished owned 15+ yrs LLC
Property C:  Purchased 4 yrs, in LLC
Property D:  Purchased 3 yrs, in LLC
Property E:  Purchased 3 yrs, in LLC
Property F:  Purchased <2 yrs, in LLC