All Forum Posts by: Will Mejia

I have a tax specialist who's amazing. He's responsive, knows the ins and outs of the game, and specializes in business owners and investors. I can provide his contact info if you'd like.

 Well sure it could be a refrigerator or other improvements that maybe you were going to do anyway, but that's not the only option. For example, my county tax bills come out in October and they are due without penalty by February 28th. My city tax bills are due by 12/31, but if that day falls on a weekend then I get the next business day without penalty. I run a trial version of my tax returns in November to see (approximately) where I'm at for the year, and then I make decisions from there - do I want to pay for my insurance for all my properties by 12/31? Or do I want to postpone it to the following year? Some years I'll double up my property taxes in a single year if I need more deductions. One year we did a cost segregation study on a newly purchased more expensive property to accelerate depreciation for a tax deferment. ETC. But there's no good way to do any of this unless you know how much tax you expect to owe. 

 This is awesome, it sounds like you have a plan! I would highly recommend speaking with a financial advisor as they bring much value besides investment management. Let me know if you need a recommendation of one.

It might be a good idea to invest in a bond short-term ETF and get 3% on your money over the next 6-8 months, a financial advisor would be able to point you in the right direction. Also, keep in mind if you will owe a substantial amount you might need to worry about the penalties and interest depending on when you make the payment. They may be nominal or they may not.

for Zero Risk to capital, move cash to your brokerage and buy USFR, paying 5.4%, must pay federal tax but no state taxes, it holds short term US treasury floating rate notes, no FDIC needed as FED can print more money to pay you off

for Mild Risk to capital, buy BKN, BlackRock municipal bond fund with 20% leverage, pays 5.5% tax free, and if 10 year bond yield falls 2% over next year, likely with rate cuts coming, then this will appreciate by about 15%

for Mild to Moderate Risk to capital, buy EDV, Vanguard 30year zero coupon US treasuries, pays about 4%, taxable and if 30year bond yield falls 2% over next year, likely with rate cuts coming, then this will appreciate by about 60%

Don't put into stocks if you need the cash in <3 to 5 years due to stock volatility

You should send the IRS their money (or best esitmate) right after you closed. Hopefully it's not in the MM with your cash.

Depending on how everything is set up, what you consider a max for retirement account contributions may only be the 20k limit whereas you can go up to ~$70k in total with other methods. It sounds like you should've talked to a CPA before the sale to help you do a little tax planning, but a bit late for that unfortunately. Also those improvements you did may only be able to be depreciated over time instead of all during this year depending on how much each one was and what they were.

As for the cash portion, keep it in savings for now, I always use 50% as a good conservative estimate when not knowing many factors about someone. That's 50% of the gain by the way, not the sales price. For the other portion, invest how you see fit really.

You can try accelerating some purchases that you would normally do next year to be this year, but there's not a ton outside of the normal stuff. (Don't buy stuff just for the sake of lowering your tax bill, it's not worth it)

@Will Mejia

For taxes: the first step is to pay an accountant specializing in real estate to estimate your tax hit. It may not be as large as you fear. No matter how much detail you share here on the forum, we will not be able to give you a reliable estimate because a lot of factors can change the result. We need to see your past tax return and ask you a bunch of questions.

For reinvesting your money: also cannot answer without having an extensive discussion one-on-one. It's like asking what the best food is. Everyone has their favorites, but it does not mean theirs work for you. For example, what if you have an allergy?

I know I did not provide any help here. I'm just cautioning you against taking any specific advice from any other online response.

This is a tough one because your situation, income, risk tolerance all come into play when recommending other tax strategies. I would say figure out your long-term financial goals and determine the best course of action with this money. I've seen too many people try to force a tax deduction or strategy but end up putting themselves in a worse position by picking a strategy that doesn't align with their goals.

If you're done with real estate altogether there are a few recommendations. If not, can you take advantage of a syndication that plans to purchase a property by the end of the year and do a cost segregation? 

If you're unsure, I would say put a minimum of 30% of the funds you received aside for taxes and use the rest to invest towards that goal you want.

If it helps set you at ease, none of our clients have ever been "killed" by the IRS, we haven't seen that dark side of them, yet. If I remember correctly your burial plot is one thing they cannot take from you, a most recent example being Nicholas Cage's plot in New Orleans. Haha Good luck!