TSP + Real Estate Mix

[renny443]

I went down a similar path with an out-of-state rental because I wanted real estate to complement my retirement accounts rather than having everything tied to the same market. The part I didn’t appreciate at first was how much the tax side can change the numbers on a multi-unit property, especially when you’re comparing long-term rental income with the upfront tax benefits.

I ended up using R.E. Cost Seg to look at the depreciation side, and having a customised proposal with the projected savings and 5-year depreciation schedule made the comparison much easier. Their studies are built by CPAs and engineers, with IRS-based methodology and audit support included, so I could look at the property as an actual investment rather than just assuming the tax benefits would make the deal work.

[evilanne]

One thing on the tax side is that when you do sell a rental property, you will have tax on the long term capital gain + recapture of depreciation (taxed up to 25%)+3.8% Net Investment Income Tax (if AGI is over 200K/250K). The only way to sell & avoid depreciation recapture is to die and your beneficiaries get a stepped up basis on the property.

If you sell your personal residence, having lived in it for 2 out of the prior 5 years, you get $250K exception ($500K Married Filing Jointly) for taxes.

There are special IRS rules, where you can roll over one property into another called a 1031 exchange, delaying LTCG and depreciation)