Wealth Builder Newsletter: Investing in Real Estate with Your IRA

Are you looking to diversify your retirement portfolio and explore new ways to grow your savings? This month, we’re diving into the exciting world of real estate investing using your Individual Retirement Account (IRA). Here’s everything you need to know to get started and make informed decisions.

The Power of an IRA
An IRA is a powerful tool for retirement savings, offering tax advantages that can significantly boost your nest egg. Whether you choose a traditional IRA, a Roth IRA, or an IRA CD, each option provides unique benefits. For example, contributions to a traditional IRA may be tax-deductible, while a Roth IRA allows for tax-free withdrawals in retirement.

Real Estate as a Retirement Investment
Real estate can be a fantastic addition to your retirement portfolio. It offers diversification, potential for steady income, and long-term appreciation. But did you know you can use your IRA to invest in real estate? Let’s explore how.

How to Buy Real Estate with Your IRA

Step 1: Choose a Self-Directed IRA
To invest in real estate, you’ll need a self-directed IRA. Unlike traditional IRAs, these accounts allow you to invest in alternative assets like real estate. It’s crucial to find a reputable financial institution that offers self-directed IRAs and understands the complexities involved.

Step 2: Select a Custodian
A custodian will manage your self-directed IRA, ensuring all transactions comply with IRS regulations. They’ll handle the paperwork and reporting but won’t provide financial advice. It’s your responsibility to make informed investment decisions.

Step 3: Choose Your Property
Your IRA can invest in real estate, but it must be an investment property. It cannot be used for personal vacations, second homes, or family use. Ensure the property is strictly for investment purposes to avoid disqualification and tax penalties.

Step 4: Make the Purchase
Purchasing real estate with an IRA can be challenging. Since your IRA owns the property, getting a mortgage might be difficult. Many investors opt to buy properties outright, which can limit your options based on your IRA balance.

Step 5: Manage the Property
Your IRA is responsible for all property expenses, including taxes, maintenance, and repairs. While this can reduce out-of-pocket costs, it also means you need sufficient funds in your IRA to cover unexpected expenses. If you need to contribute more than the annual limit, you’ll face penalties.

Step 6: Reap the Benefits
When you sell the property, the gains go directly into your IRA, growing your retirement savings tax-free or tax-deferred. This can be a powerful way to boost your retirement fund without the typical tax implications of personal real estate investments.

Key Considerations

Tax Implications
While your IRA owns the property, you don’t get the usual tax deductions for property taxes, depreciation, or mortgage interest. However, your IRA contributions and withdrawals still enjoy the tax benefits of your chosen IRA type.

Advantages
* Diversification: Adds stability to your portfolio.
* Tax-Free Growth: Rental income and property appreciation grow within your IRA.
* Predictable Appreciation: Real estate often appreciates steadily over time.

Disadvantages
* Custodian Fees: You’ll need to pay a custodian to manage your self-directed IRA.
* No Personal Use: The property must be strictly for investment.
* Limited Tax Deductions: You can’t claim deductions on your taxes for property expenses.

Is Real Estate Investing with an IRA Right for You?
Investing in real estate with an IRA can be a lucrative strategy, but it’s not without its complexities. If you’re unsure whether this approach fits your financial goals, consider consulting a financial advisor. They can provide personalized guidance and help you navigate the intricacies of real estate IRA investing.

Tips for Success
* Research Thoroughly: Understand the rules and regulations before diving in.
* Consult Experts: Work with a financial advisor and a knowledgeable custodian.
* Stay Informed: Keep up with market trends and IRA regulations.

We hope this newsletter has given you valuable insights into the exciting world of real estate investing with your IRA. Stay tuned for more tips and strategies to help you build wealth and secure your financial future.

Happy investing,
The Wealth Builder Team

A Tour of Tales: From the Dream to the Throne – The Journey of Yusuf (عليه السلام) Dallas
From the Dream to the Throne dives deep into the life of Prophet Yusuf (عليه السلام), exploring themes of betrayal, resilience, and triumph by Allah’s grace.

📅Date: Saturday, Feb 8th
🕘Time: 6PM - 10PM (Begins after Maghrib)
📍Location: ICF Multipurpose Hall
Join 🔶Mufti Abdul Wahab Waheed (@Mufti Abdul Wahab) and 🔶Shaykh Salah Mahmoud (Salah Mahmoud) for this inspiring and reflective seminar.

Register now: miftaah.org/yusuf

Jazakum Allahu khairun to all our Community Sponsors for your support:

🔶McKinney Islamic Association
🔶Islamic Center of Aubrey
🔶ISRA Foundation
🔶 UNT MSA
🔶 Islamic Center of Prosper Celina Youth

❗Limited Seats Remain ❗

Business Owners - Unlock the Benefits of Section 179

If you're a business owner looking to reduce your tax burden while reinvesting in your company, it's time to take advantage of Section 179—a powerful tax deduction that allows businesses to expense qualifying equipment and software purchases in the year they’re acquired. Whether you're planning to purchase machinery, vehicles, or software, this tax deduction can be a strategic tool to boost your bottom line.

An Example of Section 179 in Action Let’s say you purchase a 2024 GLS 450 Mercedes for $100,000 and use it for business purposes. Here’s how the deduction would break down under Section 179:

Step 1: Full Deduction
Section 179 allows you to deduct up to $25,000 for SUVs over 6,000 lbs but under 14,000 lbs. Since the GLS 450 qualifies, you can take the full $25,000 deduction immediately.
Step 2: Apply Bonus Depreciation
Bonus Depreciation, currently set at 60% for 2024, allows you to deduct an additional percentage of the remaining balance ($100,000 - $25,000 = $75,00.
Bonus Depreciation = 60% of $75,000 = $45,000.
Step 3: Total Deduction
Section 179 Deduction: $25,000
Bonus Depreciation: $45,000
Total Deduction for 2024: $70,000
This means you can deduct $70,000 from your taxable income in 2024 for the purchase of the GLS 450.

How This Saves You Money Let’s assume your business is in the 35% tax bracket.

Here’s how much you’d save in taxes:
* Total Deduction: $70,000
* Tax Savings: $70,000 x 35% = $24,500 saved in taxes

So, while the vehicle costs $100,000, your effective out-of-pocket cost (after tax savings) is reduced to $75,500.

Let’s dive into what Section 179 is, who qualifies, and how to maximize its benefits for 2024.

What is Section 179?
Section 179 of the IRS tax code lets businesses deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year. Instead of spreading out deductions over several years through depreciation, Section 179 allows you to write off the entire cost in the year the purchase is made.

For example, if you buy equipment for $50,000, you can deduct the full amount from your taxable income in 2024, rather than splitting the deduction over five years. This can free up cash flow to reinvest in your business immediately.

Key Limits for 2024
* Maximum Deduction: $1,220,000
* Spending Cap: $3,050,000 (the deduction begins to phase out dollar-for-dollar after this limit).
* Full Phase-Out Threshold: $4,270,000 (businesses spending above this limit are no longer eligible for Section 179).
These limits make Section 179 particularly valuable for small and medium-sized businesses, ensuring they can deduct equipment costs and maintain liquidity.

Who Qualifies for Section 179?
If your business purchases, finances, or leases equipment during 2024, you’re likely eligible for Section 179, provided the following conditions are met:
1. The equipment/software is used for business purposes more than 50% of the time.
2. The equipment/software is placed into service between January 1, 2024, and December 31, 2024.
3. Your total spending on qualifying equipment is below $3,050,000.

What Qualifies Under Section 179? Most tangible business assets are eligible, including:
* Equipment and Machinery: Items used for business operations.
* Vehicles: Certain business-use vehicles (check IRS rules for specific limitations).
* Software: "Off-the-shelf" software used for business purposes.
For a comprehensive list, check out Section 179 Qualifying Equipment resources.

Section 179 vs. Bonus Depreciation
Section 179 and Bonus Depreciation are similar but have key differences:
* Section 179 allows both new and used equipment to qualify.
* Bonus Depreciation, currently set at 60% for 2024, applies to new and used equipment but is primarily beneficial for larger businesses spending over $3,050,000.
* Typically, Section 179 is taken first, followed by Bonus Depreciation, unless a business operates at a net loss and needs to carry forward the depreciation.

How to Maximize Section 179
1. Plan Purchases Strategically: If you’re planning to upgrade equipment or software, aim to place it into service before December 31, 2024, to qualify for this year’s deduction.
2. Track Business Use: Make sure the equipment is used more than 50% for business purposes.
3. Keep Detailed Records: Maintain receipts and documentation to calculate the deduction and substantiate your claim.
4. Consider Financing Options: Even if you finance your purchase, you can deduct the entire purchase price under Section 179.
5. Combine with Bonus Depreciation: If your total equipment spending exceeds Section 179’s limits, use Bonus Depreciation to maximize tax benefits.

Why Section 179 is a Game-Changer
Section 179 isn’t just a tax benefit—it’s an investment in your business. It incentivizes you to purchase essential tools, machinery, and software that help your company grow. By reducing your tax liability, you can allocate more resources toward expanding operations, hiring staff, or exploring new opportunities.

Final Thoughts
Section 179 is one of the most impactful tax breaks available to small and medium-sized businesses. If you’re considering new equipment or software purchases this year, now is the time to act. Remember, every business is unique, so it’s always a good idea to consult with a tax professional to ensure you’re maximizing your benefits.

Take advantage of Section 179 and set your business up for success in 2024!

Assalamualekum All, As you may be aware, at the beginning of 2024 a new federal law went into effect which effects most entities in the US called the Corporate Transparency Act (the “CTA”). The CTA requires certain information with respect to each Beneficial Owner of an entity to file certain information with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). For any entities formed before January 1, 2024, such information is required to be filed before December 31, 2024. For entities formed this year, this information is required to filed within 90 days of formation. For more detailed information about the CTA and what is required to be filed, please see the attached memo I received from an attorney friend. Failure to file will result in steep penalties and possible criminal penalties.

The BOI E-Filing System can be found here: https://boiefiling.fincen.gov/. You can do the filing yourself, it took me 10 minutes to complete the process. Make sure you save the transcript. Hope this helps.

Wasim Khan
Paradigm Business Brokers

Abu Dhar (may Allah be pleased with him) narrated that the Messenger of Allah (peace be upon him) said: “Whoever, after Fajr prayer, while remaining seated in the posture of prayer and before speaking to anyone, says ten times:

اللّٰهُ لَا إِلٰهَ إِلَّا هُوَ وَحْدَهُ لَا شَرِيْكَ لَهُ، لَهُ الْمُلْكُ وَلَهُ الْحَمْدُ يُحْيِي وَيُمِيْتُ وَهُوَ عَلٰى كُلِّ شَيْءٍ قَدِيْرٌ

(None is worthy of worship but Allah, He is alone, He has no partner, His is the Kingdom, for Him is all the Praise, He alone gives life, and He alone gives death, and He has power over everything.)

then ten virtues are recorded for him, ten sins are erased, his rank is raised by ten degrees, and he is protected from every undesirable thing and from Shaitan (Satan) for that day. He will not be taken to account for any sin except polytheism.”

In another narration, the words:
بِيَدِهِ الْخَيْرُ (“In Whose Hand is all that is good”)
are in place of:
يُحْيِي وَيُمِيتُ (“He alone gives life and He alone gives death”).

It is also narrated that whoever says this phrase after the Asr prayer receives the reward as if he has worshipped for the whole night, and whoever says it after Fajr receives the reward for the entire day.

Reference: Tirmidhi, ’Amalul Yaumi wal Lailah by Nasai