Then when take distributions at retirement you will pay ordinary income tax at that time again.

If you had sought out professional investment advice in regards to the effects of taxation on your investment from a suitably qualified CPA then you would probably not be having this problem.I hope other investors who read this thread appreciate the complexity the taxation implications can be on an investment and seek independent advice before purchasing/investing.

The way I see it, taxation is my charitable contribution to society.

If you take out money to fix up your current home you are subject to taxation on the amount.

Unless you're an accountant or attorney I wouldn't recommend any kind of entity.I'll offer up this thread in which I posted about how LLCs can be taxed.https://www.biggerpockets.com/forums/12/topics/76052-simple-taxation-questions

Read about the difference between taxation choices, i.e. disregarded entity versus S-Corp.

Generally speaking, the impact of this tax on your returns is minimal, and you are going to receive a higher cash-on-cash return using leverage, but you certainly want to be aware of the burden of this taxation going in.If you establish a self directed IRA with a custodian (Trust Company), you will need to submit requests for all expense payments - including the mortgage - and pay processing and/or asset based fees depending on the institution.If you establish a checkbook IRA LLC, then you control the checkbook and do not require 3rd party processing.  

My original question was about the taxation strategy and the unique place for (large) real-estate investment optimization.

This is normally both at the state and federal level.If you contribute $5,000 to a 529 plan and the plan grows to $6,000.The IRS will not tax the $1,000 that the plan grew so long as you use it for college related items.However, if you don't, they will include that as taxable income.I don't consider this double taxation as the $1,000 increase was not originally taxed.

Hi BP community,Really wanted to get some feedback from anyone that has made the jump from full-time job to full-time real estate investor (before having the passive income) or anyone that just may have something to say about this.Some background - I spent the last 4 years working in the field of real estate taxation as a CPA.