[Coronita]

[quote=plm]I would never try to do this but I think theoretically it is possible but tricky since you have to charge at least fair market rent. Suppose you get a mortgage such that the interest plus depreciation of the home is equal to the rent. Then there is no income to pay taxes on but you can deduct the interest and property taxes.

I suppose you would have to sell within 2 years or stop renting for three years before selling to get the cap gains exclusion.

As an extra benefit, all repairs would be deductible as well as well as new appliances. Could write off the gardener as well. I wonder if you could rent it furnished so you can write of cable, telephone, sdg+e, and water![/quote]

This is an interesting discussion… not trying to poke holes in a negative way , just seeing how this could possibly work…..

Maybe renting to your friend and you renting from your friend?

The problem is when you sell, you would have to pay for depreciation
recapture unless you 1031 exchange it and then convert it back to a primary residence and spend more time in it relative to how long it was used as a rental such that the depreciation recapture is a percentage of use as a rental versus total usage as primary and as rental… or…you die and your spouse or heirs gets a step up and the recapture gets wiped clean.

[Coronita]

[quote=plm]My tax rate was lower as well this year even though I had more income. The main reason was no longer paying AMT and the increase in the standard deduction. AMT doesn’t allow deductions for state and property tax so I never did get hit by the 10K limit in SALT this year. Also on the tail end of my mortgage so there isn’t much interest to deduct. Standard 24K deduction much higher than what I would have gotten from itemizing.

So I think the new tax plan is lower this year unless you didn’t pay AMT last year and could have itemized a large amount of SALT and mortgage interest.

Interesting concept that the new tax rules are more advantageous to being a landlord vs being a home owner. By being a landlord taxes and mortgage are completely deducted while a homeowner would be limited by 10K SALT and mortgage deduction might not be enough to itemize.

Is it possible to rent to yourself?[/quote]

renting to yourself probably won’t work….even if you could deduct SALT, you would still need to report your rent income and it probably isn’t enough to offset the extra tax you’d paid on the rental income.. Also, you would lose the $250k/$500k cap gains exclusion if you sell it.

[Coronita]

[quote=temeculaguy]You might be the lucky winner or you might just realize the MSM has been less than honest since the majority of people benefited. I ended up about the same, perhaps slightly worse off. But my kids and step kids who do not own homes benefited greatly. I do their taxes, and those who do not itemize but were kinda on the cusp of would be buyers were the big winners, but nobody will tell you that, most polls and articles say the opposite. I still encourage those in low price and low tax states to buy, but those still in So Cal I think this may be the X factor, however I have seen no evidence yet that it impacting prices. The reality is the people that can afford So Cal homes pay enough in state taxes to use up the salt limit that property taxes are no longer deductible, self included. But no sign of that yet in prices, not sure if we will see it. The market can remain irrational longer than you can stay solvent, as the saying goes.[/quote]

Interesting… Thing thing with previous year, when I itemized, I never got the full itemized deduction anyway, because under AMT, the deductibility of SALT was already being limited for me with federal taxes. However, I always thought that even with the AMT limit, my tax would still be lower than what it is now with no AMT… I’m still trying to reconcile the difference.

For me, it no longer makes sense for me to itemize, as I have no mortgage on the primary, and the remaining mortgage is on my investment property, which goes into the expense side of that rental… And my property taxes except my primary goes to the expense side of rentals too, so that hasn’t changed.

There is one other difference. I made $0 in donations last year to charitable organizations since I was anticipating a standard deduction and because I forgot to setup a charitable trust in time last year… But my charitable contributions were not in excess of 4 digits anyway in the prior year to begin with, so I doubt that makes a significant difference.

hmmmmmmm

My tax rate might go even lower if I can qualify my rentals under QBI, lol.

What was also really weird is that when I did my kid’s taxes (as I file my kid separately due to capital gains from investments in a custodian account), TurboTax automatically qualified some of her income from REIT investments I made on her behalf as QBI… I didn’t understand that either, but since it was just a dry run estimate and I filed an extension with an overpayment on my kid’s taxes, I’ll sort that out later… But that was also weird.

Meh, I’ll figure this out later….I’m off to L.A. to do an amusement park staycation for the next few days….

[Coronita]

I don’t know.. but it certainly feels like we are on the cusp of run-up in the stock market, led once again by tech companies, similar to 1999-2000… I say this because I see the same games tech/media companies playing now that tech companies played back then…a lot of them are running, not walking to Wall Street investment bankers to slam through the IPO floodgates while the going is good…Lyft and Uber are just the beginning … Pinterest just filed, IHeartMedia just filled.
AirBnb and Slack probably will file. Maybe Vbro, Robinhood, WeWork….

I also see a bunch of companies using the next set of buzzwords to go public or get involved with M&A : “AI” and “Analytics” and “Cloud” …
PagerDuty leads this IPO marching band. And they killed it in their debut.
https://markets.businessinsider.com/news/stocks/initial-public-offering-pagerduty-tech-unicorn-nyse-2019-4-1028104039

My current private company rebranded all it’s work under those glorified buzzwords in its attempt to secure more funding from VCs..
My colleague’s company, Sumo Logic looks like they are aligning to go the IPO route too…$230 million funded , on Series F (late stage ) , with the typical high profile VC backers: Sequoia Capital, Accel , Grey Lock Partners, etc

List is growing …

https://www.nasdaq.com/markets/ipos/activity.aspx?tab=upcoming

https://www.nasdaq.com/markets/ipos/activity.aspx?tab=filings

The way I look at is, the folks that are involved the go-no-go decisions on these blockbuster IPOs are not stupid… They aren’t going to file to launch if they think the market conditions are bad…. And everyone involved in IPO , including the underwriters, all have a vested interest to launch at the best time that all their analysts, researchers, etc think it is…Because there is a shitload of money involved in this …From banking underwriting fees, to corporate insiders and early investors that want to cash in… You can say one company filing for an IPO as a fluke and doesn’t suggest anything, but when you see many high profile companies reaching the same conclusion and doing the exact same thing, that’s not a coincidence.. it’s no different than all these big REITs building a shitload of rental homes in SD anticipating a sharp demand for rentals, like we see now…Someone(s) with a lot of money spent a lot of money and time analyzing and figured out now was a “good enough” time to do economic activity X.

So, follow the unicorns..And there’s more unicorns to come ….And many of them arent profitable , but who cares…. neither is Lyft or Uber…Once the initial higher quality IPOs launches you’ll see a followup of IPOs from less-than-stellar companies, followed by bunch of extremely shitty companies getting on the bandwagon. Using an old motto from old school IPO days, “…it’s all about the revenue and subscriber growth…The greater the loss, the more glorious it is….”

But hey, there will always be retailer stock buyers that insists on making insiders instant millionaires by buying shares post-IPO while pre-IPO insidersof all size and shape desperately dump as many vested shares possible once any sort of lockup period expires…so that those unicorn capital gains achieved by insiders can be put into more predictable/stable investments for the long haul..such as CDs and a basket of Vanguard index funds….lol…

[Coronita]

for reference..

https://investor.vanguard.com/mutual-funds/profile/performance/VSMAX

https://investor.vanguard.com/mutual-funds/profile/performance/vimax

https://investor.vanguard.com/mutual-funds/profile/performance/vlcax

pretty damn convincing to have a slow small investment drip regularly contribution plan over a long period of time.

For most people trying to go for the big bang one time hat trick investment approach, you will give up a lot of opportunity in between with your ill-timing…. If you really could beat the long term returns consistently with a meaningful sized amount of money, you would be running a hedge fund, imho.

[Coronita]

There will always be people who think the world is ending regardless of which adminstration is in office. Some people felt the previous administration was doom and gloom. Some people probably feel the same thing with this one too. Imho, just about the worst thing one could.do is make significant financals decisions based on your feelings toward the imcumbent government.. Been there done that ….AN talked some.sense into me about that..

In the past, every time I try to fck with my passive investments, it always ended up doing worse in the long term than if I left it alone. The 4 main categories of account I have are 529k,401k, After tax Vanguard index fund basket, and a self managed trading account. And their performance over a long period of time has always been from best to worst in that order.. simply because those accounts are in the order of difficulty to fck around with.

The 529k account is the most restrictive because you can only elect changes to your investments twice per year and you are limited severely by the types of funds you can invest in. Since 2006, it’s been the best performing account for me for that reason. The 401k accounts would have been better (due to the lower fee structure) if I didn’t generally fvk with it too by trying to time the market and trying to borrow against it when I didn’t need to.. I thought it would be good to take some money off the table, and a self loan wuth 4% interest paid to myself sounded like a great idea….Certainly it would be better than leaving it in that Fidelity Contrafund longer to get that extra 27% gain….doh …. And the after tax vanguard account has an issue simply that capital gains distributions can’t compound as well as all those other account types, though some index funds Vanguard offers a more tax efficient flavor (tax managed small cap, mid cap, etc)… The self trading accounts are hit or miss. short term fine, long term not so fine…

I’ve just got use to deferring $7000 each month between my 401k, 529k, after tax vanguard account, and leave my speculation account on life support to no longer feed that gambling addiction lol… That deferral was much higher before, but I’m sorry, I like to enjoy life more these days. I always max out my 401k to get whatever matching there is… if any… And lately I’ve been putting a lot more in the 529k versus the after tax vanguard, simply because of the new tax law changes for the 529k. Theoretically you can contribute I think up to $500k to one 529k…and distributing it shouldn’t be a problem for me since you can use it now for K-12 private schools , which my pedigreed raised nieces and nephews are attending anyway… I figure I can get a lot more capital gains tax free versus a traditional after tax index account… and the funds are basically the same…

Don’t fk around with your 401k/529k/or passive index funds….Just do that biweekly or monthly automatic deposit, and forget about it.

[Coronita]

[quote=The-Shoveler]IMO you are going out on a limb if you predict there will not be a recession.

Conventional wisdom say it is time (cycles etc..).
You have to be unconventional to say there will not be one IMO.[/quote]

Not gonna try to predict one way or the other. Just gonna take advantage of any opportunities one way or the other..

So far, so good this year. Knock on wood.

Just sent in my loan payoff amount for my remaining $29k “bridge loan” I borrowed against my HELOC earlier this year to complete a property exchange, before rates creep up to 5.25%. Im back down to one outstanding loan on everything, fixed rate less, than $40k left… heh heh

Fortunately for me, funding for the entire amount came from 3 weeks of unexpected gain in AMD share price as last week selling some 1/17/2020 expiring $25 strike price AMD call option at $7.9/contract purchased at $3. Pure luck.

I’ll take it and run, not walk, to the bank. Thank you AMD short sellers that got totally short squeezed and worked over for the past 3 weeks. ha ha .

Dr Lisa Su…
MAGA: Making AMD Great Again.

lol

[Coronita]

I am on vacation skiing before the season ends. Unfortunately, this means I won’t be doing my taxes on time. Looks like October extension for me. I think what I’ll do is before October, I’ll file as I normally do, and then I’ll file an amendment with QBI later, after I talk to an accountant.

From what I can tell, the homes don’t need to be held in any specific entity, like a corp, LLC, etc… Can someone confirm this from a CPA? If not, I’ll ask when I go in…
There’s a couple of other questions I wanted clarification on related to the new tax law changes…. For one, I’m.sitting with a lot capital gains in a 529k account that I want to take distributions now for my nieces and nephews attending k-12 private school, and wanted to confirm one more time I can gift that tuition to them and their parents gift my kid back below the estate tax threshold.

oh, and for the first time in a long time, I don’t owe taxes, I think I get a refund. I don’t know what changed…. maybe my taxes went down this year…..weird

[Coronita]

[quote=henrysd]The bar for treating rental income as QBI seems to be quite high for those with regular job not in real estate fields. I got this from TurboTax site:
https://ttlc.intuit.com/questions/4557531-can-i-get-the-qbi-deduction-on-rental-income

[quote]Generally, this means each rental real estate enterprise (a rental property or group of similar rental properties, including K-1 rental income) must satisfy these requirements:

1. Each enterprise has its own books and records to track income and expenses;
2. At least 250 hours of rental services are performed per year per enterprise; and
3. (Starting with tax year 2019) Contemporaneous records of services performed are kept which includes who performed the service, description of service, the date of the service, and how long it took (who, what, when, and how long).[/quote][/quote]

I don’t think these bars are high at all. They are certainly lower than the bars set to claim you are a real estate professional that allows you to pass through your rental income losses completely to offset income from other sources… That , the IRS stipulates you must spend at least more than 50% of your time to managing your real estate plus other stringent tests.

The bulk of QBI seems to be documenting you actually spent more than 250 hours with handling your real estate. That’s roughly 12% of a normal person’s 40hr/week job.

One might not spend 250 hours on one property, but I am fairly confident that I spent well more than that across all my properties..

For each property, you should already be tracking expenses anyway, and for tax purposes , you should be tracking mileage and time spent dealing with all sorts of things…. I think the only thing is how do you define your REEE? Do you define a seperate REEE for each property, all properties, or some combination there of?

Also, there doesn’t appear to be any requirement that you need to hold the property in specific entities like an scorp, ccorp, LLC, at least not from what I read so far….

[Coronita]

Based on the QBI REEE safe harbor rules I think I could elect to treat my rental income as QBI.

But are any of you planning to do this that already ran it by a CPA/accountant? I have some basic questions on how you would go about doing this.

Dumb questions are…

1. Do the properties need to be in any sort of holding entity like a LLC, scorp, etc ..or can they simply be held in your name or your trust’s name.

2. my preliminary understanding is you can treat all your property as one REEE or each property separately as REEE.

3. For a property that has a net loss after depreciation deductions, is it better to exclude this property as an REEE or include it? Which has a better tax outcome.

4. For a property not specified as a REEE for QBI this year, can I simply add it the following year assuming I meet the safe harbor rules for all my properties….

5.What are the rules for removing a propoerty from your REEE to have them not considered under QBI in years after….is it allowed.

[Coronita]

Not that do this but from #4, …If I am reading this correct, if you run an AirBnb/Vrno business, income taxed at a cap of 20% under QBI ????

In general, I think the IRS recently released a safe harbor for real estate enterprise

Does Your Rental Real Estate Qualify for the 20% QBI Deduction?

[Coronita]

Find out if her total cashflow is really net positive…. Aside from mortgage, how much is her property tax, hoa, insurance… Is that more or less than $700/month.

Second, she needs to be honest with herself if she wants to be a landlord and especially a landlord that doesn’t live in SD. Some people don’t want to deal with being a landlord. If that’s the case, then she needs to find a good property manager. People like to focus on how much money one can potentially earn. My suggestion is consider how much pain in the ass you can tolerate. Example: I had 3 plumbing breaks on 3 separate condos over the past 8 months. I don’t mind and I’m use to dealing with it, regardless if it’s my fault or the condo next to me’s fault. Is your friend someone that is afard to deal with PITA things?

For the sake of your friendship, don’t volunteer to be her full time property manager, unless you are a real estate person yourself. No good will come of this. You won’t be happy in the long run, and if you don’t do that well, she won’t be either. Friendships more important than that. Being short term help =ok, being long term property manager can be a PITA.

Lastly, if she sells her home, she can get up to $250k in capital gains tax free. If she has no plans of moving back to SD, it might make sense to do it. $250k, she can do a lot with that in NM.

I remember back in 2005/6, I was considering buying homes in Albuquerque too. The prices there in better parts of two were around $200kish too and the rent I think was around $1500/month…I wasn’t ready to be a remote landlord… I guess you need to ask yourself if you are..

[Coronita]

[quote=The-Shoveler]I have to go with gzz

We are no where near an over supply of housing like we had in 2008 after years of over building.

Note: And no, I am not saying I think we are going into a downturn.

Housing in previous recessions

It’s somewhat counter-intuitive, but recessions don’t necessarily mean bad things for the housing market. In fact, they usually don’t.

ATTOM Data Solutions, a leading real estate data provider,
looked at home prices during the five recessions since 1980 and found that only twice—in 1990 and 2008—did home prices come down during the recession,
and in 1990 it was by less than a percent. During the other three, prices actually went up.[/quote]

+1

Macroeconomic issues do not necessarily translate into microeconomic San Diego specific concerns. I would even say economic concerns in Northern California tech concentrated industry do not directly translate into SoCal and specifically concerned….

I’d like to use the great DotCom implosion as an example. When the Bay Area tech industry collapsed around 2001, there was a lot of unemployed tech workers in the Bay Area, an oversupply in the local markets, and there was a dent in the economy and real estate markets up there. 2001 in SD was hardly a recession-fested doom and gloom economy locally. In fact 2001 one was also known as a the great migration when many tech workers relocated to LA County and SD. During the Housing Bubble implosion that gripped SoCal, things weren’t nearly as impacted up in the Bay Area during the same period, because during that time the tech industry was more or less recovered and things were back to more or less the norm up there, where things traded based on one’s stock options and RSUs.

I think people are trying way to hard to connect macroeconomic things to what happens in the local economy and the local real estate market. Haven’t we learned, for example, that housing in say Seattle or SD or NorCal has very little to do with what goes on say in Upstate New York or DC? It seems folks are still underestimating the strength of the local SD markets, in that it’s not necessarily the strongest in tech, or finance, or tourism, or defense industry, or biotech. But because there is this mix, any cratering in one or more sectors is probably going to much more softer felt than in other geographical locations that have a unusually high concentration of one industry. All these talks about more tech companies moving more work into SD is good news from the local economy, because it’s just augmenting the sort of diversity we already have. If it all, tech was sort of the weak link down here.

Yes, housing has become unaffordable for some. For some, unfortunately, their wages, compensations, what have you have not kept up with home prices.
BTW:
https://www.marketwatch.com/story/existing-home-sales-roar-back-in-february-touching-an-11-month-high-2019-03-22

Northeast home sales looks like it’s tapering off when other West, Southwest, Midwest looks different.

[Coronita]

Side question: does anyone else think that in SD there is a lack of available housing to rent?

I’m asking because I recently listed a condo at what I thought was at market price , and I’ve gotten like 19 responses in the last 48 hours, all asking if they could go see the place in a hurry.

I don’t think my asking price is low or below market so it was kinda surprising. I asked a few folks why are they looking to move, and many of them said they have no choice…The homes they currently live in, the owners want to sell and are not planning to renew their leases. And the ones that are continuing to lease are raising rent prices by quite a bit. I’m wondering if there’s a shortage of rentals.

[Coronita]

I no longer a believer that most people have the financial acumen to time the market well, either buying stuff the low end or selling at the high. A lot of this is sheer damn luck.

As such, financial strategies meant to capitalize on single one time events, imho, are doomed to fail for most people for two reasons

1. You could predict wrong on the outcome of the one time Hail Mary event that may or may not happen the way you think, no matter how smart you think you are.

2. In waiting for that one time event and doing nothing in the meantime, you are giving up a lot of opportunity that could add up and cost you a fortune over time.

A good example of this was my stupid decision to sell a good percentage of my stocks right before Mr. Trump became President Trump thinking his election was going to crater the economy for a long long time. I was correct for about 1 week, and then the markets bounced right back as if it was a non event… Fortunately I got right back into it my investments and kept a consistent buy and hold for the long term and regular monthly drip drip drip contribution to index funds both pre and post tax contributions…and those long term, small decision that didn’t count on a big bang event ended up being some of the better decisions. Of course there were optimizations to those decisions that were made to take advantage of short term changes….For example, moving more money invested the damr index funds into 529 college savings plan when the administration changed the tax law for 529 plans and investing less in after tax investment plans into the same index funds to saving on capital gains taxes. But that was about it.

[Author]

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