Lucky2Invest wrote: ↑Thu May 07, 2020 8:59 am
mask107 wrote: ↑Wed May 06, 2020 3:30 pm
I am not a real estate professional though and I do not have 2 million of capital to invest in RE. I only have 1.2 mill. And don't you see RE crashing soon due to recession? Seems like I would lose more money than I would save?
I realize that but for $800k I would bust my ass for the rest of the year to make myself a real estate professional. It’s an arbitrary title where you just need to show that you have put a lot (850 hrs) into real estate. My contacts said it’s never challenged, it sounds like other people have seen it challenged. But just work the 850 and you don’t need to worry about it. You don’t need to put $2mm down. Put the minimum down needed to depreciate the full tax bill in the first year, probably something like $650k.
Think of it this way. You pay the $800k it’s gone forever. Instead you buy an appreciating asset with the money you were going to pay in taxes. Yes it requires work and who knows where real estate is going but it’s certainly not going to zero which is where your $800k is going when you pay taxes.
I thought I read you didn’t have a job and were just day trading. This is a fairly simple solution to save $800k while at the same time diversifying your investments.
I think your repeated advice to the OP to buy an investment property in order to offset the current-year tax on his trading gains is impractical, uninformed, and certainly not simple.
First, the amount of tax the OP is trying to defer or offset is not $800K. He has realized gains of $800K, so the tax is closer to $300K, not $800K.
To qualify as a real estate professional, he would have to perform at least 750 hours during 2020 in the operation of a real estate activity in which he materially participates. Assuming he could buy a property and place it in service by July 1, he would then need to spend at least 6 hours a day, 5 days/week for the rest of the year on the real estate activity to qualify, and be able to document the hours. This, for a guy who knows nothing about real estate, has expressed no interest in owning/operating real estate, and has spent the last 8 years as a day-trader? I think his chances of qualifying as a RE professional for 2020 are slim and none.
In the unlikely chance he qualifies as a RE professional for 2020, how much will he benefit? For residential real estate, the land is not depreciated, and the building is depreciated on a straight-line basis over 27.5 years. There is no "accelerated depreciation" allowed. Something called "bonus depreciation" is allowed for certain types of property with a depreciation life of less than 20 years, such as machinery, equipment, landscaping, etc., and bonus depreciation eligible property can get a 100% depreciation deduction in the first year. The taxpayer could have a cost segregation analysis done to determine how much of the total purchase, or building components might qualify for bonus depreciation, but it's not likely to be a significant amount. The likely result is that his total rental loss for 2020 is relatively small - only a small fraction of the $800K capital gains from trading.
Without a job, the OP cannot get a loan to buy the property. So the OP should think long and hard before using his entire $1.2M liquid net worth to buy an investment property thinking that the investment property loss in 2020 will fully or significantly defer the the tax on his $800K trading gains realized in 2020.