Anderson Business Advisors Podcast How To Use Your 401(k) Or IRA To Invest In Real Estate
Nov 14, 2023
01:16:09
In today’s Tax Tuesday episode, tax experts Toby Mathis, Esq., and returning guest Jeff Webb, CPA, the CFO of Anderson Business Advisors, discuss some interesting tax questions including questions around gifting your home or property to your children while you’re still alive (tip: don’t do it), passive vs. active income on rental properties, and how/when you’re able to use a loan from your investment accounts to purchase real estate.
Submit your tax question to taxtuesday@andersonadvisors.
Highlights/Topics:- "Could I still qualify for the Qualified Business Income Deduction for rental activities even if they do not have the real estate professional status?" – Qualified Business Income Deduction, 199A. Could you still qualify for QBI for rental activities even if you don't have real estate professional status? The answer is yes.
- "I have a question about incurring expenses and paying them with my personal credit card. How do I recoup that money that was used for my business but charged to my personal credit card? My LLC is less than a year old." The simple answer is yes, you can pay for stuff with a personal credit card and deduct it in your entity.
- "Suppose a Florida LLC has a piece of land bought three years ago and hired a construction company to build a single house when the house is sold." Can I allocate part of the profit to the sale of the land, long-term capital gain, and the other part to ordinary income?" - You've now converted it into inventory that you're selling, so no. As a matter of fact, it doesn't play off against ordinary income, it is ordinary income. The entire sale of this property is ordinary income.
- "How do I use my 401(k) or IRA to invest in real estate?" - If it's an IRA, you need a self-directed IRA, where you're pretty much the custodian.
- "My husband's father wants to sign his house over to us. My husband's sister also owns 65% of the property." What tax advantages are there for us, his dad, and his sister? And what tax issues does it raise for us? Should we start an LLC or some other structures?" - I'm not a fan of signing over a principal residence to my children. If Dad gives it to you before he passes, he just made it all taxable.
- "What is the best way to use funds from my S-corp to pay taxes? Since the corporation taxes flow through to my personal taxes, I understand I need to pay my personal taxes for my personal account, but the money is really in the business account. Can I use a distribution? And is there a dollar amount limit for such a transaction?" – if you're profitable and distributing money, you really need to pay some kind of salary.
- "If I elect to aggregate rental properties into one activity, for example, managing, operating single-family homes as rentals and limited partnership interest in a multi-family syndication. What happens if years down the road, one of the assets is sold from the aggregate group? What are the tax and legal implications?" - If I sell a property that I've aggregated with other properties, just treat it like any other sale of property.
- "Is it tax-wise to pass on single-family rental home properties before my death to my kids? We have plenty of income, and passing on a few of them to our two kids might even lower our tax bracket. Each rental property is in a separate LLC, and we've owned them for 7–8 years now." - Based on the way we answered the previous question about gifting, I think it's a bad idea, especially if you had it for seven or eight years.
- "If I elect to aggregate rental properties into one activity, for example, managing, operating single family homes as rentals, limited partnership interest in a multifamily syndication, and electing all of my investment real estate as one activity,” which you can do, it's called an aggregation election, “what happens if years down the road, one of the assets is sold from the aggregate group? What are the tax and legal implications?" - you wouldn't aggregate into those circumstances. If you’re going to be selling it soon, but you don't lose the loss carry forward, you use it against passive income.
- "We have two newly opened short-term rental Airbnbs. We want to do cost segregation and do bonus depreciation for the 2023 tax year. We're logging our time for the 500 hours rule. I heard that a small business should be taxed as S-corps to save on self-employment taxes, but others say don't put Airbnbs in an S-corp because they're passive. What to believe?" - Short-term rentals are a trade or business. If you are materially participating in them, then it's active ordinary income or loss.
- Send us your questions, and check out the event schedule listed in the resources section.
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