2019 Work,Investing,Retirement Plans and Goals

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Happy Holidays!

With the new year approaching what is everyone's work,investing, and retirement plans?

Me:
Work: Take on less hours at work, enjoy time off more. Give new grads a shot at more hours.

Invest: Shovel money into the real estate or stock market?? Or is that catching a falling knife? Maybe bet big on VMMXX (cash)??

Retirement: Decide if I want to keep working for the sake of working and earning, or pull the plug and move abroad. Just 1500 monthly lives good in South America or Asia.

Happy New Year!

 

[gwarm01]

Work: Big projects coming up. I'll probably be working plenty of hours over 40/week and wishing I wasn't salaried.

Investing: DCA into VOO and some other funds then hold until 2025.

Retirement: Keep shoveling money into that 403(b).

 

[MrBonita]

VOO and ITOT for me. If the dow hits 20,000. Going to do a home equity loan and dump into VOO and ITOT. Dow will eventually hit 30,000, so might as well do the VOO and take that ride.

 

[WVUPharm2007]

I'm entering the "fully pay off mortgage" portion of my plan. Only debt I really have left. If I can get it paid off in 5 years, I'll be able to ride out the death of the pharmacy profession.

 

[greenteapanacea]

This year, I'm saving about 30% of my income by living at home (millennial stereotype?), but I do pay my parents. I'm maxing out my employer's 401k contributions. I'm trying to save as much as possible to pay for any future education for myself and my brother; of course, if the market crashes, I'll just stay at my comfy healthcare job and invest all of it into real estate and index funds. I still manage to go on a few trips.

 

[bacillus1]

I'm entering the "fully pay off mortgage" portion of my plan. Only debt I really have left. If I can get it paid off in 5 years, I'll be able to ride out the death of the pharmacy profession.

Is there a point in aggressively paying off a mortgage? The interest seems like a big tax writeoff...but I guess I'll see how it goes with the new tax law this year. I just put a grand or 2 extra into it here and there, but I could pay it off way faster if I wanted to.

 

[WVUPharm2007]

Is there a point in aggressively paying off a mortgage? The interest seems like a big tax writeoff...but I guess I'll see how it goes with the new tax law this year. I just put a grand or 2 extra into it here and there, but I could pay it off way faster if I wanted to.

If you think your job is going to be around for a long time, no, I'd agree. Ride that cheap 4% or so APR.

But we are about to go into recession...not sure my job is going to be around in 5 years...I think I'll just start to pay down that mortgage this year.

Plus, I'm already going to be putting nearly $40,000 away for retirement on my tax advantaged accounts. Diversifying with debt reduction seems like a solid idea given the amount I'm already investing.

 

[BMBiology]

If you think your job is going to be around for a long time, no, I'd agree. Ride that cheap 4% or so APR.

But we are about to go into recession...not sure my job is going to be around in 5 years...I think I'll just start to pay down that mortgage this year.

Plus, I'm already going to be putting nearly $40,000 away for retirement on my tax advantaged accounts. Diversifying with debt reduction seems like a solid idea given the amount I'm already investing.

How much more mortgage do you have left?

 

[bacillus1]

If you think your job is going to be around for a long time, no, I'd agree. Ride that cheap 4% or so APR.

But we are about to go into recession...not sure my job is going to be around in 5 years...I think I'll just start to pay down that mortgage this year.

Plus, I'm already going to be putting nearly $40,000 away for retirement on my tax advantaged accounts. Diversifying with debt reduction seems like a solid idea given the amount I'm already investing.

Ah OK. My rate is 3.25%, and I'm not really investing much other than 10% toward my 401k (plus 3.1% going toward pension), as I feel like no investments are currently safe. Not sure whether just keep it as cash or pay off the condo faster. Keeping it does have merit for if/when I go back to Philly and will need money to buy another place while either selling this one or renting it out...but we shall see. Not really feeling safe in Baltimore right now, as it's one crime after another on a weekly basis, and not just in some random neighborhood, but around where I live/work. Guess it's a toss-up at this point.

 

[mentos]

Is there a point in aggressively paying off a mortgage? The interest seems like a big tax writeoff...but I guess I'll see how it goes with the new tax law this year. I just put a grand or 2 extra into it here and there, but I could pay it off way faster if I wanted to.

The standard deduction was increased this year so most people will not benefit from itemizing things like mortgage.

 

[BMBiology]

The standard deduction was increased this year so most people will not benefit from itemizing things like mortgage.

This is right. Standard deduction is $12,000 for singles and $24,000 for couples.

In addition, the max you can write off your property tax and state income (combined) for singles and couples is just $10,000.

So for a couple who don’t give money to charity, they would need to write off at least $14,000 in mortgage interest rate to exceed their standard deductions.

Assuming 4% interest rate and $500,000 mortgage, they are paying $20,000 in mortgage interest (this amount gets smaller every year).

So $10,000 + $20,000 = $30,000 in write off if they have a $500,000 mortgage.

Since the standard deduction for them is $24,000, the difference is $30,000 - $24,000 = $6,000. Assuming their top tax bracket is 32%, then $6,000 x 0.32 = $1920 in additional saving.

$1920 in tax saving sounds nice vs. standard deductions but you have to realize they are paying $20,000 in mortgage interest to get this saving. In addition, you have to take into account of the risk they are taking when they are putting most of their asset in their house. What if you lose their job or need to move for a job? Selling a house is not easy and it is expensive. That is why a primary residence is a liability for most people. Unfortunately, most don’t even realize it.


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[bacillus1]

This is right. Standard deduction is $12,000 for singles and $24,000 for couples.

In addition, the max you can write off your property tax and state income (combined) for singles and couples is just $10,000.

So for a couple who don’t give money to charity, they would need to write off at least $14,000 in mortgage interest rate to exceed their standard deductions.

Assuming 4% interest rate and $500,000 mortgage, they are paying $20,000 in mortgage interest (this amount gets smaller every year).

So $10,000 + $20,000 = $30,000 in write off if they have a $500,000 mortgage.

Since the standard deduction for them is $24,000, the difference is $30,000 - $24,000 = $6,000. Assuming their top tax bracket is 32%, then $6,000 x 0.32 = $1920 in additional saving.

$1920 in tax saving sounds nice vs. standard deductions but you have to realize you are paying $20,000 in mortgage interest. In addition, you also have to take into account of the risk you are taking. What if you lose your job? Selling a house is not easy and it is expensive. That is why a primary residence is a liability for most people.


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I see, glad someone did the math for me. Guess I'll be doing standard deduction. I think property ownership is beneficial in cities where renting is expensive and ownership is cheap. But usually that imbalance is there for a reason (i.e. everyone rents because no one sticks around for a long time for various reasons). This is the boat I am in right now--the financials made sense until I realized that I also don't want to stick around here for a long time.

 

[BMBiology]

I see, glad someone did the math for me. Guess I'll be doing standard deduction. I think property ownership is beneficial in cities where renting is expensive and ownership is cheap. But usually that imbalance is there for a reason (i.e. everyone rents because no one sticks around for a long time for various reasons). This is the boat I am in right now--the financials made sense until I realized that I also don't want to stick around here for a long time.

You can make a lot of money in real estate but as a landlord. Everything from mortgage interest rate to fixes is a tax write off. If you do it right, after 25-30 years, you would have more asset in your rental property than your 401 k!


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[bacillus1]

You can make a lot of money in real estate but as a landlord. Everything from mortgage interest rate to fixes is a tax write off. If you do it right, after 25-30 years, you would have more asset in your rental property than your 401 k!


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Hmm...something to think about...wonder if the 2.2% or so property tax plus $322 HOA a month would outweigh that. But that's certainly an option.

 

[mentos]

Hmm...something to think about...wonder if the 2.2% or so property tax plus $322 HOA a month would outweigh that. But that's certainly an option.

Real estate is for the long term. Ideally the rent would cover mortgage, insurance, and property taxes. Even if it doesn't, in a few years it probably will - rent goes up but mortgage is the same price (hopefully property taxes are stable). Once the mortgage is paid off, all that rent money is nice passive income. There will be bumps along the way like repairs, maintenance, maybe even squatters and evictions... But worth it in the long run.

 

[bacillus1]

Real estate is for the long term. Ideally the rent would cover mortgage, insurance, and property taxes. Even if it doesn't, in a few years it probably will - rent goes up but mortgage is the same price (hopefully property taxes are stable). Once the mortgage is paid off, all that rent money is nice passive income. There will be bumps along the way like repairs, maintenance, maybe even squatters and evictions... But worth it in the long run.

Good thought. I think I can get rent for about 100-150 bucks more a month than mortgage+tax+insurance+HOA. Just that it's an old place and will likely need repairs soon. I guess I'll have to think about it when the time comes to move. I have already put $5500 or so into repairs, and my AC freon has started leaking a bit, so I'm sure it will break in a year or 2. Then I have to deal with the whole R22 debacle, and who knows if my furnace can run on the newer freon. Because of how my condo is built, I got a quote for about $10-12k to replace the whole system. The furnace is from 2006, so hopefully it can run on the new freon...

 

[BMBiology]

Good thought. I think I can get rent for about 100-150 bucks more a month than mortgage+tax+insurance+HOA. Just that it's an old place and will likely need repairs soon. I guess I'll have to think about it when the time comes to move. I have already put $5500 or so into repairs, and my AC freon has started leaking a bit, so I'm sure the AC will break in a year or 2. Then I have to deal with the whole R22 debacle, and who knows if my furnace can run on the newer freon. Because of how my condo is built, I got a quote for about $10-12k to replace the whole system. The furnace is from 2006, so hopefully it can run on the new freon...

Doesn’t sound like a good rental property! In addition to maintenance cost (10% of rent), you also need to pay for vacancy cost (10%), property manager, lawn maintenance cost.

Although timing is crucial, people who purchased a home in Baltimore in 2010 have not made a cent:

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[WVUPharm2007]

How much more mortgage do you have left?

Like $200k.

 

[bacillus1]

Doesn’t sound like a good rental property! In addition to maintenance cost (10% of rent), you also need to pay for vacancy cost (10%), property manager, lawn maintenance cost.

Although timing is crucial, people who purchased a home in Baltimore in 2010 have not made a cent:

View attachment 244995


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I bought it in Sep 2017 so making out a bit better than the 2007-2010 folks (I actually bought my place for about 65k less than the value was in 2007). But yeah I agree, value isn't really going up much.

 

[BMBiology]

I bought it in Sep 2017 so making out a bit better than the 2007-2010 folks (I actually bought my place for about 65k less than the value was in 2007). But yeah I agree, value isn't really going up much.

People are still leaving cities like Baltimore, Chicago, Detroit. Mass migration. Once your family and friends leave, what is the point of staying? It is time to pack up and go to greener pastures.


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[ChalupaBatman86]

You can make a lot of money in real estate but as a landlord. Everything from mortgage interest rate to fixes is a tax write off. If you do it right, after 25-30 years, you would have more asset in your rental property than your 401 k!


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Most RPH can’t write off any of this. I assume most of you have household adjusted gross income over 150k. It does come into play as a carryover loss when you sell the property. From IRS website:

A special rule lets you deduct up to $25,000 of losses from rental real estate in which you actively participate. The $25,000 deduction is phased out when your modified adjusted gross income is from $100,000 to $150,000, resulting in no deduction above $150,000 (for a married filing joint return).


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[BMBiology]

Most RPH can’t write off any of this. I assume most of you have household adjusted gross income over 150k. It does come into play as a carryover loss when you sell the property. From IRS website:

A special rule lets you deduct up to $25,000 of losses from rental real estate in which you actively participate. The $25,000 deduction is phased out when your modified adjusted gross income is from $100,000 to $150,000, resulting in no deduction above $150,000 (for a married filing joint return).


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You are not writing it off as a loss. Cost of mortgage, property tax, maintenance cost = rental income. Your tenants are paying for your house while you don’t pay any taxes and you are capturing the house appreciation.


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[Momus]

You are not writing it off as a loss. Cost of mortgage, property tax, maintenance cost = rental income. Your tenants are paying for your house while you don’t pay any taxes and you are capturing the house appreciation.


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For any single/married pharmacist making 150k (marriage penalty BS), you can't deduct your loss. So, that really leaves you with house appreciation and pay down of mortgage. It's not bad, but not the best. IRS will want your profit if you have any and you can't claim any loss. Effing crooks.

There is no tax deduction owning rental properties beside from those 2 benefits. I really doubt house in CA is going at the rate we are going in the next 10 yrs. Aside from Chinese investors, no one has money to buy them.

 

[BMBiology]

For any single/married pharmacist making 150k (marriage penalty BS), you can't deduct your loss. So, that really leaves you with house appreciation and pay down of mortgage. It's not bad, but not the best. IRS will want your profit if you have any and you can't claim any loss. Effing crooks.

There is no tax deduction owning rental properties beside from those 2 benefits. I really doubt house in CA is going at the rate we are going in the next 10 yrs. Aside from Chinese investors, no one has money to buy them.

Again, you are not claiming any loss.

People can’t afford to buy = rent goes up. That is good for you as a landlord.

Even when the housing market was bottoming out in 2010-2012, rent price was either flat or it went up:

It is about location, location, location and knowing what to buy.


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[ChalupaBatman86]

Again, you are not claiming any loss.

People can’t afford to buy = rent goes up. That is good for you as a landlord.

Even when the housing market was bottoming out in 2010-2012, rent price was either flat or it went up:

View attachment 245001

It is about location, location, location and knowing what to buy.


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Not saying it isn’t potentially a good investment. I know plenty of people who have gotten rich if they time it right. It is a great tax write off if you make 90k per year. Not so much if you make 150k+.

But the high income person does better when you sell it. The lower income person who depreciates it every year could end up with a big tax bill. If you bought for 200k, Took 8k depreciation every year x 5 years and then sell it, you pay capital gains on any net proceeds over 160k.

The higher income person carries those losses (instead of deducting every year) and can write them off against any gains when they sell. If they sell at a “loss” they can write off the losses against their taxable income. Pretty sure you will see this on Trump’s tax return if he ever releases them.

So far the stock market has been a much better investment for me. And your stocks don’t call you at 2am about an overflowing toilet.


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[grizzlesgrizzlies]

With the new year approaching what is everyone's work,investing, and retirement plans?

Investing: max out 401k, max out roth, maybe throw some hail mary money at btc
Retirement: hoping to pay off mortgage this year and put excess into vanguard

My 3 step plan is as follows:
1.) Invest/save enough to be able to pay for additional schooling/living expenses if/when pharmacy is done
2.) Invest/save enough to be able to RPh part-time
3.) FIRE

 

[BMBiology]

So far the stock market has been a much better investment for me. And your stocks don’t call you at 2am about an overflowing toilet.


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Fair enough. You can hire a property manager.

I am not saying real estate investing is a sure thing. If the risk is low, then there won’t be much upside.

You have to know what you are doing. You have to form a good team. Real estate investing is a skill. Not everyone can do it. Not everyone should do it.


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[pezdispenser]

You are not writing it off as a loss. Cost of mortgage, property tax, maintenance cost = rental income. Your tenants are paying for your house while you don’t pay any taxes and you are capturing the house appreciation.

For any single/married pharmacist making 150k (marriage penalty BS), you can't deduct your loss. So, that really leaves you with house appreciation and pay down of mortgage. It's not bad, but not the best. IRS will want your profit if you have any and you can't claim any loss. Effing crooks.

There is no tax deduction owning rental properties beside from those 2 benefits. I really doubt house in CA is going at the rate we are going in the next 10 yrs. Aside from Chinese investors, no one has money to buy them.

You can also deduct depreciation of the value of the property (not the land) over 27.5 years. This will create a tax loss for almost everyone. e.g. $200k house / 27.5 = $7,272 depreciation.

How Rental Property Depreciation Works

Not saying it isn’t potentially a good investment. I know plenty of people who have gotten rich if they time it right. It is a great tax write off if you make 90k per year. Not so much if you make 150k+.

But the high income person does better when you sell it. The lower income person who depreciates it every year could end up with a big tax bill. If you bought for 200k, Took 8k depreciation every year x 5 years and then sell it, you pay capital gains on any net proceeds over 160k.

The higher income person carries those losses (instead of deducting every year) and can write them off against any gains when they sell. If they sell at a “loss” they can write off the losses against their taxable income. Pretty sure you will see this on Trump’s tax return if he ever releases them.

The special rule with a $100-150k income phase out allows you to deduct up to $25k in rental losses from your other non-passive income (e.g. salary), but your usage of the term 'depreciation' is incorrect. In fact if you sell the rental, any depreciation is recaptured and taxed at your ordinary income tax rate.
Depreciation's Tax Break Has Consequences for Real Estate Investors

You can avoid depreciation recapture by what's known as a 1031 exchange into another rental property.
Property Depreciation: Why It Could Come Back to Bite You

 

[BMBiology]

Don’t mess with pezdispenser when it comes to taxes !


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[Dr Wario]

You can also deduct depreciation of the value of the property (not the land) over 27.5 years. This will create a tax loss for almost everyone. e.g. $200k house / 27.5 = $7,272 depreciation.

How Rental Property Depreciation Works

The special rule with a $100-150k income phase out allows you to deduct up to $25k in rental losses from your other non-passive income (e.g. salary), but your usage of the term 'depreciation' is incorrect. In fact if you sell the rental, any depreciation is recaptured and taxed at your ordinary income tax rate.
Depreciation's Tax Break Has Consequences for Real Estate Investors

You can avoid depreciation recapture by what's known as a 1031 exchange into another rental property.
Property Depreciation: Why It Could Come Back to Bite You

Thank you for writing this for me, that misinformation was making my fingers curl up ready for some serious button mashing on the keyboard.

 

[Momus]

But the high income person does better when you sell it. The lower income person who depreciates it every year could end up with a big tax bill. If you bought for 200k, Took 8k depreciation every year x 5 years and then sell it, you pay capital gains on any net proceeds over 160k.

The higher income person carries those losses (instead of deducting every year) and can write them off against any gains when they sell. If they sell at a “loss” they can write off the losses against their taxable income. Pretty sure you will see this on Trump’s tax return if he ever releases them.

So far the stock market has been a much better investment for me. And your stocks don’t call you at 2am about an overflowing toilet.


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You can also deduct depreciation of the value of the property (not the land) over 27.5 years. This will create a tax loss for almost everyone. e.g. $200k house / 27.5 = $7,272 depreciation.

How Rental Property Depreciation Works

The special rule with a $100-150k income phase out allows you to deduct up to $25k in rental losses from your other non-passive income (e.g. salary), but your usage of the term 'depreciation' is incorrect. In fact if you sell the rental, any depreciation is recaptured and taxed at your ordinary income tax rate.
Depreciation's Tax Break Has Consequences for Real Estate Investors

You can avoid depreciation recapture by what's known as a 1031 exchange into another rental property.
Property Depreciation: Why It Could Come Back to Bite You

You can only deduct building value for depreciation, not land. So, it might be less than what you think. In some cases (CA), land worth more than the building. When we were talking about losses, we already took account depreciation. RENT - (Property tax + mortgage interest + ins + improvement/depreciation + maintenance/repairs) = loss/profit.

You can't deduct passive losses from non passive income. So, rphs making 150k can't do this... You can't deduct these losses to your SALARY. Any money you put into the property, you can not deduct the loss that year, that loss is just going to be out of your pocket every single year... unless you put in 750 hours/year and work as a real estate agent. You can carry over your loss until you sell however. You can carry forward the disallowed losses and offset the capital gains from the sale. There are 2 types of tax at work here when you sell at a profit a year later which most people might have missed: long term capital gain tax and depreciation recapture tax. The depreciation you take will reduce your cost basis of the property increasing your profit. Whether you take depreciation loss or not, IRS treats it AS IF you take that depreciation. So if you think you will be slick and don't want to count the depreciation loss every year because you know long term cap gain is lower, you can't avoid it. IRS still treat it as if you take it. It will be recapture (added again) at 25% tax rate (which is often higher than long term capital gain tax 15%) when you sell the property at a profit. Then, the remaining profit is taxed at LTCG tax. Example.

 

[lord999]

Work:
In the proverbial sinecure dungeon again, so spending most of my time at the office (when I actually have to go in) reading policy briefs and talking with my colleagues at FRTIB and DoD about the Seinfeldian nothing while in a job where the hours do not matter. Even when I get reactivated, I like it enough that even with the ups and downs that I'd like to keep it. When I'm not in the office, I am teching up on protocol and middleware management because siloed system interface development is the one growth industry in scientific computing.

Investment:
Besides the annual Mayo Executive checkup (which FEHB fully covers), all my money in TSP has been in government bonds as I always made more money working than investing and fear the market. The investments are personal, my actuarial eye sees no relatively safe opportunity and that we are in for another late 70s stagflation due to our monetary misalignment with the current business cycle. If I were into international travel, I'd do it now as I'm not sure the infrastructure is going to be there in the near-term future (Russia, China, for example). We will be getting 10 caskets (120 imperial and 97 after the angel's share per casket) of scotch from Dailuaine in two months to celebrate our tenth, but we probably intend to drink only a third of one over the course of the year, I suppose we could sell the rest of the 10-year-old for cash in a pinch. In hindsight, we should have bought more and factored it as merchants (my wife really cares for good Scotch and I care for cheap whiskey, so we've always bought at least a casket a year).

Retirement:
I put in my VA 40-1330 two months ago with normal messaging, and know approximately where I'll be buried. Does that count 🙂? Don't have to worry about it, I already qualify for Discontinued Service immediately and will be eligible for the special program with the White House Flag if I choose to put in the paperwork for USH approval two years from now. Retirement from the pension system is more than what a GS-11/10 tops out at here, so I'll be fine unless money collapses, and then I think my gardening and other hobby work (joining in addition to consulting) will keep me afloat. I could possibly be an alcohol merchant, but that'd take work, and I don't enjoy drinking.

 

[WVUPharm2007]

Fair enough. You can hire a property manager.

I am not saying real estate investing is a sure thing. If the risk is low, then there won’t be much upside.

You have to know what you are doing. You have to form a good team. Real estate investing is a skill. Not everyone can do it. Not everyone should do it.


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You could also just do a REIT.

 

[BMBiology]

You could also just do a REIT.

You make money in real estate because of leverage


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[lord999]

You could also just do a REIT.

That is, if you are fairly confident that scumbag banks don't sneak in junk risk into A mortgages like last time. That was the BS part of the pre 2008 REITS, where banks got away with fraudulently packaging poor risk mortgages into REITs (that's Countrywide's worst sin). The converse problem of owning your own though is that you inevitably have to deal with the government, and if you wonder why property developers have such influence at City Hall, you should read about the stakes.

You make money in real estate because of leverage


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And, in the death of money situations, it's actually more about getting a portion of someones else's productivity. It is relatively inflation proof unless taxes catch up faster. The two businesses that worked in Weimar were landlord (especially of multiunit and farms) and uniformed support (either as a uniformed member or in an industry like Krupp that supported the uniformed). The other business that would have worked, but there were no local versions was energy. It's a depressing contemplation.

 

[WVUPharm2007]

That is, if you are fairly confident that scumbag banks don't sneak in junk risk into A mortgages like last time. That was the BS part of the pre 2008 REITS, where banks got away with fraudulently packaging poor risk mortgages into REITs (that's Countrywide's worst sin). The converse problem of owning your own though is that you inevitably have to deal with the government, and if you wonder why property developers have such influence at City Hall, you should read about the stakes.

I'd be interested in equity REITs, not mortgage REITs.

 

[mentos]

Hmm...something to think about...wonder if the 2.2% or so property tax plus $322 HOA a month would outweigh that. But that's certainly an option.

$3864/year for HOA! I personally wouldn't buy anything that has HOA, besides the political BS (you need their permission to paint, change your landscaping or build a shed or something) it's an uncontrollable fee that can go up at anytime. It's like paying property tax twice.

 

[WVUPharm2007]

$3864/year for HOA! I personally wouldn't buy anything that has HOA, besides the political BS (you need their permission to paint, change your landscaping or build a shed or something) it's an uncontrollable fee that can go up at anytime. It's like paying property tax twice.

No HOA was at the top of my list when house hunting. Literally #1.

 

[bacillus1]

$3864/year for HOA! I personally wouldn't buy anything that has HOA, besides the political BS (you need their permission to paint, change your landscaping or build a shed or something) it's an uncontrollable fee that can go up at anytime. It's like paying property tax twice.

That's standard when living in a high-rise condo, and I do really like the place. On the plus side, no lawn to mow or snow to shovel, water included, and insurance is much lower. Also we have a guy who repairs stuff, and says he charges 35 bucks an hour, but so far has done 2 free small repairs for me that I had no idea how to do. I am the least handy person on the face of the Earth, and it would be difficult for me to handle a whole house. Another plus is the amazing view I get from my 19th-floor windows. It does make me mad though that parking is not included in that HOA, so I park on the street where 10 cars were literally set on fire this week.

With the price of the place being so low, I decided that that HOA wasn't so bad. Also if I ever get out of here, the purchase price was very low so I won't lose much (of course other than the buying closing costs, which are mainly in fixed dollar amounts and not the percent of the purchase price like the selling closing costs are). But yes, because of that HOA, doesn't make it that great of a place to keep and rent out.

 

[nextyearrx]

Will invest in Uber stocks in future!!

 

[sakigt]

Work: Not much to do. Got my BCCCP. I do want to learn Spanish this year so in a related fashion I hope to be somewhat conversational at work this time next year
Investing: Not much. Too much debt. Plan is to pay as much as possible off. Focused on the unsecured then the cars. If I can get out of these student loans a year early (2021 Spring) well be in great shape.

 

[UGAZ]

2019 goals : 250K + from my jobs (one full time + 1 per diem) + 100K goal from my day trading. I will revisit this page in 2020 and either laugh at myself for aiming too high, or smile with a winning champagne bottle. We will see.

 

[Momus]

You can only deduct building value for depreciation, not land. So, it might be less than what you think. In some cases (CA), land worth more than the building. When we were talking about losses, we already took account depreciation. RENT - (Property tax + mortgage interest + ins + improvement/depreciation + maintenance/repairs) = loss/profit.

You can't deduct passive losses from non passive income. So, rphs making 150k can't do this... You can't deduct these losses to your SALARY. Any money you put into the property, you can not deduct the loss that year, that loss is just going to be out of your pocket every single year... unless you put in 750 hours/year and work as a real estate agent. You can carry over your loss until you sell however. You can carry forward the disallowed losses and offset the capital gains from the sale. There are 2 types of tax at work here when you sell at a profit a year later which most people might have missed: long term capital gain tax and depreciation recapture tax. The depreciation you take will reduce your cost basis of the property increasing your profit. Whether you take depreciation loss or not, IRS treats it AS IF you take that depreciation. So if you think you will be slick and don't want to count the depreciation loss every year because you know long term cap gain is lower, you can't avoid it. IRS still treat it as if you take it. It will be recapture (added again) at 25% tax rate (which is often higher than long term capital gain tax 15%) when you sell the property at a profit. Then, the remaining profit is taxed at LTCG tax. Example.

Then, you pay the remaining profit (- the accumulated loss you can't take) at LTCG tax. Example. [/QUOTE]

Scenario :
100k property, you take 20k depreciation in 5 years (This number is a made up number). Sell in 5 years. 150k selling price.
Loss = (RENT income - (depreciation + property tax + mortgage interest + ins + repairs + mileage)) = let's assume 10k loss total in 5 years.

$100k property - 20k depreciation = 80k cost basis of the property

Sold for 150k.
150k = 80k cost basis + 20k depreciation recapture tax at your tax bracket up to 25% max + 50k long term cap gain
50k long term cap gain - 10k total loss in 5 years you can't take because you make more than 150k/household = 40k remaining capital gain
Tax due 15% of 40k long term cap gain tax = $6000
Tax due 25% of 20k depreciation recapture tax = $5000
Total tax = $11,000 tax

Out of $40k left over, give $11k to uncle sam, $29k profit.

You have to be a real estate agent to work 750h/yr to deduct your rental loss the same year. That's a lot of hours. Imagine working Monday to Friday, every day doing real estate for 3h/day to make that 750h number. If you have a property manager, it doesn't help your case. There is absolutely no way you can achieve this. It's very hard for a pharmacist to meet IRS requirement to deduct the loss at the same year. You need to be having at least 5+ properties to be able to document you spend 3 hours every day to work on real estate. Unless of course, you are already a real estate professional...

That's the negative. You will make profit in the future if you keep the property long term. It could be in year 8 before you start having positive cash flow with increasing rent. In that moment, you can apply your accumulated carry over loss and you won't have to pay any of your profit to uncle sam for a while.

 

[BMBiology]

^ even your made up numbers show how profitable real estate is. If you put down 20% on 100 k property (20 k) and make $29 k profit, that is 145% profit in 5 years.

The secret is buying the right house at the right price so you get a positive cash flow. That takes skill.


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[Momus]

^ even your made up numbers show how profitable real estate is. If you put down 20% on 100 k property (20 k) and make $29 k profit, that is 145% profit in 5 years.

The secret is buying the right house at the right price so you get a positive cash flow. That takes skill.

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Not the point of my example. I'm not predicting it will continue to go up forever (it may). Leverage is a double edged sword, it works both way for profit or loss.

My example is just to illustrate how tax works for someone making 150k over AGI since you all think you can buy them for tax loss deduction. You can't deduct sh1t until you sell them (hopefully at a profit) or you start having a positive cash flow.

In metro CA, right now if you only put 20% down with 30 yr fixed mortgage, it's impossible to buy SFR (multi unit property maybe) and get a positive cash flow. Your PITI monthly payment alone will almost equal to or exceed rent, not including maintenence, vacancy. If you count depreciation (and you have to since IRS will just add that in later), you will be well over into the negative. If you want positive cash flow now, look at Riverside, San Bernandino, or Imperial Valley, you will more likely find a property with positive cash flow there.

 

[BMBiology]

Then don’t buy in metro CA. It is an investment. Where you buy doesn’t matter as long as the numbers make sense.

In addition, there are ways to delay or avoid the IRS from recapturing the depreciation as Pez had posted. Look it up!


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[Momus]

Then don’t buy in metro CA. It is an investment. Where you buy doesn’t matter as long as the numbers make sense.

In addition, there are ways to delay or avoid the IRS from recapturing the depreciation as Pez had posted. Look it up!


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We all know about 1031 exchange -_-; any serious investor who does his due diligence should already come across this.

Good luck on your 165k "hard assets" purchase. Don't need to be cloak and dagger if you just buy one now!

 

[BMBiology]

We all know about 1031 exchange -_-; any serious investor who does his due diligence should already come across this.

Good luck on your 165k "hard assets" purchase. Don't need to be cloak and dagger if you just buy one now!

Your post seems a bit naive to me. You probably don’t have much experience with real estate investment and that is OK. Most people don’t!


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[Momus]

Your post seems a bit naive to me. You probably don’t have much experience with real estate investment and that is OK. Most people don’t!


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Still don't wanna admit you just bought a rental, huh? Calling someone naive after I do all the tax work when you don't know it lol...

 

[BMBiology]

Still don't wanna admit you just bought a rental, huh? Calling someone naive after I do all the tax work when you don't know it lol...

What taxes? I have already told you there are ways to delay or prevent them. No point in making a big deal about them especially when you know how the game is being played. Only you think it is a big deal because you don’t have any real experience with real estate investing.

I have been in the housing market since late 2011. Positive cash flow all day, every day!


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