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Old 01-28-2019, 09:03 PM   #41
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I really appreciate the input! There are some excellent ideas that had never occurred to me.
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This was my thought. Take some % and blow it on strippers...errrr fine single malt & cigars on a nice trip
We're actually talking about investing in a barrel (!!) of fine Scotch that we enjoy, but haven't figured out any way to get it delivered to us, as Hawaii requires a liquor license.
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The key is the AA that suits your risk tolerance.
We're pretty satisfied with our AA, but I don't want to limit our thinking to what we've already decided on doing. BTW, the reason I'm saying $1 million net is because the property is valued valued at just above $1.3 million, & property values are skyrocketing out here. It's also on nearly 2 acres, & the zoning makes it possible to build another 5 or 6 rentals.
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May I (strongly) suggest you liquidate the other properties as well? It will be a lot easier on your heirs to distribute liquid funds then to deal with real estate transactions, delays, collecting rents, paying bills and arranging maintenance (that you do yourself) while it is on the market, etc. Especially as your heirs are not interested in living in Hawaii, this would be done long distance at some considerable inconvenience.
Our son & his family live in Japan, in a house that they inherited. Daughter has been disinherited, but we're taking care of our grandson, who is in college on full scholarship. Other son disappeared a decade ago. So it will be our bank & lawyer who will handle the estate, no matter what we choose to do.
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If for some reason you feel the need to have real estate as part of your allocation, then by all means invest part of your retirement portfolio in REITs.
We haven't checked out REITs, so that's a great idea. Wife tossed out the idea of buying a condo or two, but I told her we should keep our rentals if she wanted to go that route.
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I would donate a bit to charity as part of my tax loss harvesting and giving
Our wills already include large chunks of money to global efforts like Rotary International, as well as U.S. & local charities. We just started discussing endowing a chair at our alma mater, too, although we're not sure about tax consequences for doing that.

Other factors: All 4 of my grandparents lived to well over 100, & my parents into their 90s, so since I'm still teaching martial arts at 72, I expect to be around for quite awhile. Wife's parents didn't last as long as her age now, so no longevity info there, although she also trains in martial arts at 65. We plan to stay in Hawaii in this house, despite the "price of Paradise" & the heavy tax rates. Big house, well laid out, on 1/3 acre, with a right-of-way to the ocean across the street.
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Old 01-29-2019, 05:01 AM   #42
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I would donate a bit to charity as part of my tax loss harvesting and giving
As part of tax loss harvesting? I don't get the association. You want to donate appreciated assets, not assets that have dropped in value. That way you don't pay the tax on the gain.

If you have any losses to harvest, those can be used to offset the gains from sales, depending on how the land sale is taxed.
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Old 01-29-2019, 09:10 AM   #43
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Just read this article, if OP wanted they could drastically cut the taxes on the sale and possibly make lots more money.

https://www.marketwatch.com/story/ho...eak-2019-01-24
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Old 01-29-2019, 09:29 AM   #44
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OP, do you mean won(gambling or other means), inherited or it plopped into your account? Does your spouse know about this windfall? Other than the tax issues, I'd have to re evaluate my situation. We're doing just fine right now, but hypothetically I'd have to decide if I wanted to be charitable or selfish.
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Old 01-29-2019, 10:24 AM   #45
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Originally Posted by Rianne View Post
OP, do you mean won(gambling or other means), inherited or it plopped into your account? Does your spouse know about this windfall? Other than the tax issues, I'd have to re evaluate my situation. We're doing just fine right now, but hypothetically I'd have to decide if I wanted to be charitable or selfish.
It's explained in the first post. Did you only read the thread title?
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Old 01-30-2019, 02:37 AM   #46
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I spent one college summer dealing blackjack in Vegas, & have never played a game of chance since then because I KNOW the odds. The stock market is as close to that as I plan to get.

Our wills already leave over $1 million to charity, but only after we're gone, although we're checking out charitable remainder trusts, as mentioned.

I can't think of any losses we've ever had that would offset gains, but I think that's a good thing.

I've thrown up my hands in disgust on QOZs in Hawaii!! Every one of them is a "low income community" that supports homeless housing, & since the state has been unable to develop any rules & regulations that fully qualify a QOZ, there's no way to buy in. Anything having to do with homelessness is an utter mess out here, with politicians changing their minds (assuming they have any) every week. No way are we going to drop our money into that morass, Sunset! But thanks for the idea.

The annuity idea was one that I favored, but my wife made the unilateral decision to pull out all the money from her one pension, rather than going that route.
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Old 01-30-2019, 09:55 AM   #47
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It's explained in the first post. Did you only read the thread title?
Yes, the title. Then a couple of responses regarding what would be done with the $M. I stand corrected.
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Old 01-30-2019, 11:09 AM   #48
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OP-

I have a friend here in SF who’s in a similar situation & has been analyzing several alternatives. I know the old saying is, “Don’t let the tax tail wag the investment dog” but, in your situation (with a $1.3M property completely depreciated) it seems that the potential taxes (CG + Depreciation Recapture) is the dog.

Here are some of the options my friend has considered:

1. CRT (big tax break, lots of payout options, both amount & timing)
2. Structured Sale (taxes deferred)
3. 1031 Exchange (doesn’t have to be a physical property so, you may consider this)
4. QOZ (doesn’t have to be where you live...Hawaii)

I have a rental property which we will do something with in the next decade but, it’s worth substantially less than yours & my tax liabilities are much smaller (less appreciation). So, my taxes are not quite the driving factor that yours are. But, in your shoes, I’d hire a good CPA & explore the options above plus others. Avoiding a 6-figure tax hit is worth some analysis and effort in my book. Even if you don’t need the extra $$$ from the tax savings, you heirs and/or charities would benefit.
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Old 01-30-2019, 02:24 PM   #49
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Originally Posted by Huston55 View Post
OP-

I have a friend here in SF who’s in a similar situation & has been analyzing several alternatives. I know the old saying is, “Don’t let the tax tail wag the investment dog” but, in your situation (with a $1.3M property completely depreciated) it seems that the potential taxes (CG + Depreciation Recapture) is the dog.

Here are some of the options my friend has considered:

1. CRT (big tax break, lots of payout options, both amount & timing)
2. Structured Sale (taxes deferred)
3. 1031 Exchange (doesn’t have to be a physical property so, you may consider this)
4. QOZ (doesn’t have to be where you live...Hawaii)

...
1 CRT - Charitable Remainder Trust? need to read how they work.
2 Structured sale - carrying a contract? we may do this on one place
3 1031 - doesn't have to be a physical property. Que?
4 QOZ agree, but not finding hard numbers on cost and return. Big benefit from my perspective is one can invest all or a portion of the sale price, thus possibly delaying the capital gains portion of a sale while being able to spend or use the remainder. But will taxes be lower in 5,7, or 10 years?
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Old 01-30-2019, 02:37 PM   #50
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First and foremost, get a good solid read on what your after-tax proceeds will be after depreciation recapture and state income taxes... it may be a lot more than you think... a poster a few days ago was looking at about 40% IIRC... so that 1.0 million may only be 0.8 million.

Second, as other advise, I would put it into a balanced portfolio.

Third, if sounds like you have way more than you'll ever spend so you may want to start thinking of what you want your legacy to be either with family or the community and start shaping your estate plan accordingly.
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Old 01-30-2019, 03:30 PM   #51
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1 CRT - Charitable Remainder Trust? need to read how they work.
2 Structured sale - carrying a contract? we may do this on one place
3 1031 - doesn't have to be a physical property. Que?
4 QOZ agree, but not finding hard numbers on cost and return. Big benefit from my perspective is one can invest all or a portion of the sale price, thus possibly delaying the capital gains portion of a sale while being able to spend or use the remainder. But will taxes be lower in 5,7, or 10 years?
1. Yes, Charitable Remainder Trust. Basically, you donate the appreciated asset (property), the cap gains are avoided since the CRT is a charitable org, you get a sizable tax break and, you get a structured income stream.

2. Sounds like you know about these.
ETA: Rereading your post, you seem to be referring to personally carrying the note. That is not a ‘Structured Sale’, which is described in the link below:
https://en.m.wikipedia.org/wiki/Structured_sale

3. Correct, doesn’t have to be a physical property.
https://www.realized1031.com/blog/ro...operty-to-reit

4. I think these are relatively new so, may not be much earnings/expense history. But, here’s a good link with a great graphic.
https://www.forbes.com/sites/janetno.../#235187bd6ee3
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Old 01-30-2019, 03:44 PM   #52
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If I had a million dollar.. isn't that a song?

Seriously, since we are already FI, I would probably invest the new money in a higher equity than normal, and consider it part of our legacy. 20 to 30 year timeline.
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Old 01-30-2019, 04:46 PM   #53
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1, upgrade to a better zip code , one where gunshots in the night are rare.

2, hire a live in housekeeper / cook .

3 buy a CPO (certainly previously owned) used Tesla Model X

4 Buy an Airplane ( have owned boats and an RV, need to complete the trifecta of waste )
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Old 01-30-2019, 06:46 PM   #54
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1) Upgrade the condo to a house
2) Invest the rest in VOO or VTI.
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Old 01-31-2019, 09:31 PM   #55
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1) Upgrade the condo to a house
2) Invest the rest in VOO or VTI.
If we were going to reinvest in real estate, we'd just keep our rental property. And we're already invested in both VOO & VTI - pretty decent returns.

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1, upgrade to a better zip code, one where gunshots in the night are rare.
2, hire a live in housekeeper/cook .
3 buy a CPO (certainly previously owned) used Tesla Model X
4 Buy an Airplane (have owned boats and an RV, need to complete the trifecta of waste)
We already live in very-rural Oahu, where gunshots are nice & rare. I already love to cook, so why give that up to a cook/chef? Wife drives an S-class Mercedes, & I have my sports car. I'd love to buy an airplane, as I was an F-4 combat pilot in Nam, but there just aren't enought places to fly it. Wife does want to buy a 2-seater ultralight plane with pontoons, & we're looking for somewhere close to store it. Never argue with a woman who wants the same toys that you do!

Our legacy...hmm. I'm sure that the kids would love to have our money, but since that's the only reason that they ever contact us these days, charitable donations are appealing to us more & more, especially since that will generally bypass Uncle Sam.
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Old 02-01-2019, 02:48 AM   #56
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Of course there will be capitol gains to pay I would think, but still a nice amount to invest.
The bigger problem is recapture of past depreciation-taxed as ordinary income.
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Old 02-01-2019, 08:19 AM   #57
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How much are you going to lose when the depreciation is re-captured by IRS? Have you bounced this off your CPA?

Not to be critical, just curious for ideas since we often consider doing the same thing, but are put off by the taxes.
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The bigger problem is recapture of past depreciation-taxed as ordinary income.
I think the OP’s CGs will be much larger than depreciation recapture because, they bought the property 30 yrs ago (likely low 6-figures). So, most of the tax hit will be LTCGs.

However, on the subject of rental property depreciation recapture, I’m also in a similar situation (significant depreciation recapture) and am very interested in ways to avoid it upon sale, if anyone happens to know of any.
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Old 02-01-2019, 08:38 AM   #58
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Nice..you can generate an additional $25-30K per year dividends off that $1M. VMMXX or brokered CDs is what I'd do, unless you "need" additional growth in your portfolio.
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Old 02-01-2019, 07:16 PM   #59
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they bought the property 30 yrs ago (likely low 6-figures). So, most of the tax hit will be LTCGs.
Yes, purchase price was $395K, & LTCGs are what we're planning on. There are also some tax advantages because we've rented one of the two units to Section 8 renters the entire time we've owned the property.

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Nice..you can generate an additional $25-30K per year dividends off that $1M.
What frustrates me is that we're already bringing in $36K/year by renting the property to tenants who have been there for more than a decade, while it continues to rapidly appreciate in value! Just wish my wife would realize what a gold mine it really is....

Major decision time! Just got a call that our CPA was killed by a drunk driver last night, & we now have to interview for a new one, after 28 years! Need to get all of our extensive paperwork from her one-person shop, which should be interesting. May be time to go to one one of the big boy accounting firms, with their big fees.
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Old 02-02-2019, 07:13 AM   #60
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I have a lottery ticket in my pocket right now for a drawing tonight. If I should win a million dollars in that drawing, I would pay the taxes and then fold it into our nest egg alongside the money that we already have. I would continue along living my life as I do now.
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