Financial Wheels Turning About REITs and PTPs

Last night, I was reviewing my tax return. My taxes were done by our CPA a couple days before April 15. Unfortunately, with remote work, we had some miscommunication. Thus, he filed my taxes before I spotted that he left out my crypto transa...

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Last night, I was reviewing my tax return. My taxes were done by our CPA a couple days before April 15. Unfortunately, with remote work, we had some miscommunication. Thus, he filed my taxes before I spotted that he left out my crypto transactions. Now we have to file an amended return. While reviewing my tax return for other omissions, I saw that REIT income is included on line 6 of Form 8995, along with Publicly Traded Partnerships.

It's likely that this has alway been there; but, I never paid attention. However, this got my hamster wheel turning. I have always liked REITs because they pay dividends. The ones I favor pay dividends every month. I've also occasionally bought shares in partnerships, not realizing the trouble they are for tax prep.

I find it interesting that these items are listed on the Qualified Business Income page. I've always considered these types of distributions to be a type of dividend like you would get from a stock. In retrospect, it makes sense that these are business distributions.

This makes me consider altering my investment thinking. Business income is preferable to ordinary income as it offers more options for deductions related to earning income. For example, I did some Uber and Lyft driving early in 2019. I was able to deduct fees, mileage, and items I purchased for my customers, such as water bottles. I was reluctant to try to use a home office deduction as most of my business is done in the car. However, investing and bookkeeping can be done in a portion of the home. I also sell stuff on eBay from time to time. So, I could legitimately take the home office deduction.

Depending how much I receive in distributions each year, I could count on some relatively steady business income, which would be offset by the home office deduction. I never took the deduction before because I couldn't rely on my side-hustle income. Operating at a loss several years in a row is frowned upon. At that point, it's a hobby rather than a business.

However, with steady business income from REIT and PTP distributions, I could afford to experiment more with business ideas and deduct those costs.

There is another benefit to loading up on REITs and PTPs in my brokerage account. The benefit is that some brokerages allow you to use your holdings as collateral for low interest loans. In this respect, the more shares I own, the more income I get and the more credit I have. I'd be building my own bank that pays me distributions. AND, I could offset that income with business deductions.

I am currently investing my money into cryptocurrencies along the same thinking, except that Crypto.com currently does not offer credit in the Unites States. I think eventually they will. However, I could transfer holdings to Celsius.network to use as collateral for loans. The difference is that as a hodler, I would only realize a profit through capital gains, which would not typically amount to much until I am older and selling off positions. Also, crypto is a bit of a mess when it comes to taxes. The tax prep sites don't distinguish between my buys and interest earned. That lack of clarity worries me about crypto.

Things look bearish for real estate and the stock market. This makes a lot of companies a bargain buy in a few months when the true damage of the economy takes hold. Today's poor performers have the potential to grow back. Through capital appreciation, my credit line would grow as well. In that respect, I wouldn't necessarily be waiting for stock prices to rise anytime soon, though it would be fine with me. I could use the distributions and credit to help me meet business goals elsewhere in the meantime.

Before I get too excited, however. I need to check if these types of stocks qualify for a line of credit. I'd have to rethink things to find the advantage, otherwise.