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Swannie's avatar
1dEdited

Interested in hearing your take on tax avoidance (not evasion!) via real estate investing. My IG feed is literally flooded with ads telling me i can reduce my tax liability enough to buy a couple super cars a year. Sounds sketch.

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Andre Nader's avatar

There is so much sketch. Even the legit strategies tend to conveniently ignore the hassle that tends to be involved.

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Sandeep Potdar's avatar

A CPA once told me, "There are only 2 real professions to pay the least taxes - 1. Real Estate or 2. Businessman". I wasn't totally convinced. But he convinced two of my closest friends - their wives are now licensed real-estate professionals "managing" their own rental properties!

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Andre Nader's avatar

I would rather just have enough money where I don’t need to do things I don’t enjoy just to save money on taxes.

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Matt Bierwirth's avatar

My rule of thumb with the IRS is that if it seems too good to be true, it likely is. Someone has probably already tried it and been smacked down!

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Sandeep Potdar's avatar

+1

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Sandeep Potdar's avatar

Thanks for summarizing, Andre. Yes, most of the OBBB is dead on arrival for most of the FAANG FIRE crowd. Especially if you're itemizing. That SALT deduction everyone's talking about won't apply for folks earning $600k, as you rightly pointed out. Same goes for the new car interest deduction. The Child Tax Credit never really applied to most of us anyway and still won't. Charitable Contributions are the only exception here. I think I've been able to deduct these as part of my itemization. Now you can only deduct charitable contributions that exceed 0.5% of your AGI, if itemizing. And the maximum tax benefit from a charitable deduction is capped at 35% of the donation’s value, even if you are in a higher tax bracket. Carryforwarding will be allowed for up to 5 years but subject to the same limitations each year so it'd be a recursion! 1% remittance tax, including on US citizens, is double taxation because these transfers will be from post-tax funds anyway. And it appears that debit/credit cards are exempt so one may as well send a no foreign transaction fees card over to avoid this tax so it just defeats the intended purpose of this tax.

So yes, this Bill/Act is only good on paper for most of us in the FAANG FIRE community. The only good thing it does is make the current tax regime permanent thus giving us some predictablity. And thankfully, it doesn't kill the Backdoor/Megabackdoor Roth conversions!

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Ken's avatar

What’s the change with AMT? I thought most who make over $300k hit AMT so the SALT cap raise doesn’t make that much of an impact?

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Andre Nader's avatar

AMT has been less of an issue since the original TCJA was passed. AMT exemptions have now been made permanent with OBBB ($500k single, $1M married), so still not a huge concern for most.

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Ken's avatar

Oh I see those are the amounts for AMT to trigger?

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Scott Purcell's avatar

Curious your take on why you aren’t that into opportunity zone investments? Seems like folks could use that to offset some capital gains tax and diversify their investments if they are planning for something like 7-10 year time horizon.

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Robert's avatar

Thanks for boiling this all down - a really great read. I'm mostly happy about the Charitable Deduction, as I usually take the Standard Deduction but usually have a few thousand in donations each year.

Wrt to your point about healthcare -- I wonder if there will be a rise in FIRE subscribers who work extremely part time jobs, purely for the healthcare benefits. Something I'll have to crunch the numbers on when I get closer to retiring.

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Sandeep Potdar's avatar

Barista-FIRE? Why, when ACA Marketplace offers decent sub-$2000 plans? I mean, I would just include that in my plan right from the start. Wouldn't you?

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