Intake_list_for_Dad.md §5.
The defaults below are pre-set to Dad's actual real-world situation — not blank zeros. Each represents an action Dad's CPA will take to legally minimize his federal income tax. Together they bring Year 1 down to ~$1,100/mo (mostly unavoidable Social Security tax) and Phase 3 down to ~$160/mo. Here's exactly what each one is doing:
1. Form 3115 catch-up depreciation (Upstairs 7 yrs / Downstairs 2 yrs / 76% basis allocation)
Dad has been renting the upstairs ~7 years and downstairs ~2 years and never claimed depreciation. The IRS lets him file Form 3115 with his 2026 return and claim ALL of that missed depreciation as one big deduction (~$328K). That deduction becomes a "Passive Activity Loss carryforward" — it sits in a pool and absorbs his rental income every year, tax-free, until exhausted (~7-8 years). This is why "Schedule E rental income tax" shows $0 in the breakdown card — the PAL is eating it. This is restricted to rental income only (IRC §469) — it can't reduce pension or Uber tax.
2. Solo 401(k) — $44,000/yr Traditional (Dad's IRS practical max)
Self-employed people can open a Solo 401(k) and contribute as both "employee" AND "employer." For Dad on ~$70K Uber Sch C net: $23,500 employee deferral + $7,500 age-50 catch-up + ~$13,000 employer profit-sharing (20% of net SE after half SE tax) = $44,000/yr. This is an above-the-line deduction — it shrinks Dad's AGI before any other math. With $44K of Uber Sch C effectively erased from taxable income, federal tax on Uber drops from ~$565/mo to ~$200/mo. This does NOT reduce SE tax (15.3%) — only federal income tax.
3. SE Health Insurance deduction — auto-applied during Uber years
Dad's $600/mo health insurance is fully above-the-line deductible because he has self-employment income (IRC §162(l)). The model applies this automatically whenever Sch C net is positive — no slider needed.
4. QBI (Section 199A) — Schedule C automatic, Schedule E off by default
The Sch C side of QBI is automatic — 20% bonus deduction on Uber net (after the above adjustments). The Sch E side requires "trade or business" status (250-hr safe harbor) which is uncertain for foreign rental — default off, CPA call to flip on. Flipping on saves ~$75K of m360 wealth.
What's LEFT after all of this (the floor you can't go below in Uber years):
Why you can't drive Year 1 to the $160/mo level of Year 4: SE tax on Uber is structural. Dad's earning ~$70K of self-employment income → 15.3% × 92.35% = ~$10K/yr of SE tax. The IRS calls this "your contribution to Social Security and Medicare." No legal lever reduces it. The only way to lower SE tax would be to drive less Uber (lower Sch C net) — but he's specifically driving these 2 years to earn the credits.
What changes if you turn things off: drag any slider to 0 to see the impact. Form 3115 sliders → 0 pushes Year 1 tax to ~$2,300/mo (rental tax kicks in). Solo 401k → 0 pushes Year 1 to ~$1,580/mo (federal tax on Uber Sch C now naked). The defaults below represent the realistic-best legal outcome.
Search terms for further research: "Form 3115 §481(a) adjustment", "Solo 401(k) employee employer contribution", "Schedule C QBI §199A", "self-employed health insurance §162(l)", "Passive Activity Loss IRC §469".
SE tax IS the Medicare + Social Security tax you'd see on a W-2 paycheck — just both halves.
On a regular paycheck you see 6.2% Social Security + 1.45% Medicare = 7.65% withheld from your side. Your employer matches with another 7.65%. Total contribution to your Social Security + Medicare account: 15.3%.
A self-employed person (you ARE the employer) pays BOTH halves himself = 15.3% total on 92.35% of net Sch C earnings. That's why SE tax feels like a bigger sticker shock — same dollar amount the IRS was always getting, just visible all in one place instead of split between employee and employer line items.
Breakdown of the 15.3%:
None of the federal-income-tax levers (Solo 401(k), SE health, QBI, depreciation) reduce SE tax. SE tax is computed on Sch C NET (gross - vehicle - other Sch C business expenses), period. The only ways to reduce SE tax: (a) lower Uber gross, or (b) increase deductible Sch C business expenses (mileage / actual vehicle costs / home office / supplies).
Half of SE tax IS deductible against federal income tax (above-the-line, IRC §164(f)). So if Dad pays $7K of SE tax, $3.5K of it indirectly reduces his federal income tax bill. Doesn't make SE tax itself go away.
What SE tax BUYS: it pays into Dad's Social Security account → Social Security credits (see next collapsible). Credits → SS retirement benefit + premium-free Medicare Part A. The tax isn't pure expense — you're literally buying future benefits.
Search terms: "Self-employment tax IRC §1401", "Schedule SE", "Social Security wage base 2026", "Additional Medicare Tax §3101(b)(2)", "half SE tax deduction IRC §164(f)".
Two things require 40 lifetime "credits" (a.k.a. "quarters of coverage" / QCs):
How credits are earned: 1 credit per ~$1,890 of earnings in 2026 (was $1,810 in 2025). MAX 4 credits per year, regardless of how much you earn. To max out a year you need just $7,560 of W-2 wages or Sch C net SE earnings. Both count the same.
Dad's situation (confirmed): 32 credits today. Needs 8 more = 2 full years of any work where US Social Security tax / SE tax is paid. The current 70 hrs/wk Phase 1 + 50 hrs/wk Phase 2 plan easily maxes out 4 credits/yr × 2 years = 8 credits → 40 total by end of Y2.
Why his Bermuda career didn't count: Dad used Foreign Earned Income Exclusion (FEIE) on his Bermuda salary during his working decades — FEIE excludes income from both US federal income tax AND US Social Security tax. So Bermuda years earned zero US credits. His existing 32 credits came from earlier US work (college-era jobs etc.).
The model already handles the financial impact: Dad's current $600/mo "health insurance" line includes the ~$285/mo Part A premium he pays now (because 32 credits, not 40). At healthStep=31 (default m31, ~7mo after Uber Phase 2 ends — enough time for SSA to process the new credit count), health drops to $300/mo = standard Medicare Part B + Medigap + Part D without the Part A premium. The ~$285/mo savings × 25+ years of remaining life = ~$85K+ of preserved value, just from finishing the 8 credits.
What happens past 40 credits: SE tax keeps applying to all SE income (you don't stop paying). Going to 41, 42, ... 100 credits doesn't give you better Medicare (Part A is binary). It DOES slightly bump your eventual SS retirement check — the SS benefit formula uses your highest 35 years of indexed earnings, so additional earning years can replace lower-earning years and raise the payout a bit.
Practical action: verify Dad's current credit count by signing in at ssa.gov/myaccount — the statement shows total credits earned to date. The model assumes 32 → 40 over the Uber years; if SSA shows fewer than 32, healthStep needs to push later. If SSA shows more, healthStep can come earlier.
Search terms: "Social Security credits 2026 amount per credit", "quarters of coverage QC", "premium-free Medicare Part A 40 credits", "Social Security wage base FEIE foreign earned income exclusion", "ssa.gov/myaccount earnings statement", "Part A Premium 30-39 credits", "windfall elimination provision WEP" (relevant for those with both US + foreign pensions).
Solo 401(k) is a retirement account specifically for people who are self-employed with no employees (just themselves and optionally a spouse). Dad's Uber driving counts as self-employment income for IRS purposes, so he qualifies. The IRS calls Dad both the "employee" and the "employer" of his one-person business, so he gets to make TWO contributions per year:
(1) Employee deferral — up to $23,500 (2026 limit) + $7,500 age-50+ catch-up = $31,000 max for Dad.
(2) Employer profit-sharing — up to 25% of his net self-employment earnings (after the deductible half of SE tax). For Dad's ~$70K Sch C net, that's ~$14K.
Traditional vs Roth: Traditional = deduct the contribution now (lowers federal tax this year), pay tax later when withdrawn. Roth = no deduction now, but withdrawals are 100% tax-free forever. Traditional is usually better for high-bracket years like Dad's Uber years; Roth is better for low-bracket years or if you expect to be in a higher bracket in retirement.
RMD ("Required Minimum Distribution"): the IRS forces Traditional 401(k) holders to start withdrawing a minimum amount each year starting at age 73 (m76 for Dad). The annual minimum = balance ÷ Uniform Lifetime divisor (age 73 = 26.5, declining each year). Roth Solo 401(k) is exempt from RMDs (SECURE Act 2.0, 2024+).
How the model handles it: contributions are gated by positive Sch C net (Phase 3 with SE-negative auto-throttles to $0). Balance compounds at its own rate (slider, default 9%). RMDs auto-fire from m76 if Traditional. Withdrawals add to Dad's taxable income; contributions reduce it.
Search terms for research: "Solo 401(k) 2026 limits", "IRC §401(k)", "SECURE Act 2.0 RMD age 73", "Solo 401(k) Roth option", "self-employed retirement plan comparison".
QBI = "Qualified Business Income." Section 199A of the tax code lets self-employed people (including Sch C and certain Sch E filers) deduct an EXTRA 20% of their qualified business income from federal taxable income. Pure bonus deduction — no money out, just paperwork.
Schedule C (Dad's Uber): AUTOMATICALLY qualifies. The model applies this without any toggle — Phase 1+2 Uber income gets 20% off after the deductible items (half SE tax, SE health insurance, retirement contributions) are subtracted from the QBI base, per IRS Pub 535.
Schedule E (Dad's rental): qualification is UNCERTAIN for foreign rental property. To qualify, the rental must rise to the level of a "trade or business" — IRS gave a 250-hour-per-year safe harbor (Rev. Proc. 2019-38) for landlords who actively manage. Dad's rental has a corporate tenant (Arch Re) and an active landlord — probably qualifies, but foreign rental adds complications. Default toggle = OFF (conservative). When CPA confirms qualification, flip to ON — adds ~$54-87K of m360 wealth via lower lifetime tax.
Search terms: "Section 199A QBI deduction", "Rev. Proc. 2019-38 safe harbor rental real estate", "QBI deduction foreign rental property", "trade or business rental for §199A".
Depreciation is the IRS's way of letting a landlord write off the building part (not the land) of a rental property over time. For foreign residential rental (Bermuda), the IRS uses 30-year ADS (Alternative Depreciation System) straight-line — you deduct 1/30 of the structure basis each year against rental income. On Dad's $1.7M structure basis that's ~$56K/yr of automatic deductions.
The trap: the IRS treats your basis as if you HAD claimed depreciation, whether you actually did or not ("depreciation allowed or allowable" — IRC §1016(a)(2)). When you sell, they recapture all that hypothetical depreciation at 25% tax. So if you skip claiming for years, you still owe tax on it later — pure loss.
The fix: Form 3115 ("Application for Change in Accounting Method") + a §481(a) adjustment. Your CPA files this once and you get to CLAIM all the missed years of depreciation as a single huge deduction in the current tax year. For Dad: upstairs ~7 yrs missed × $43K/yr + downstairs ~2 yrs × $13.6K/yr = ~$328K of one-time deduction in 2026.
What happens to that giant deduction: it becomes a Passive Activity Loss (PAL) carryforward because Dad's MAGI is well above $150K (passes the $25K rental loss allowance phaseout). The PAL gets used up gradually, sheltering ~$38K/yr of positive rental income tax-free for ~7-8 years. After that, Sch E tax resumes at the normal level.
Basis allocation by unit: upstairs and downstairs have different rental start dates (~7yr upstairs, ~2yr downstairs per Dad), so the catchup must be split by unit. The basis allocation defaults to 76% upstairs / 24% downstairs based on rent ratio ($11K / $14.4K). CPA may refine based on ARV split or a cost-segregation study.
Search terms: "Form 3115 §481(a) adjustment", "ADS 30-year foreign residential rental depreciation", "IRS Pub 527 foreign rental", "passive activity loss carryforward MAGI $150K phaseout", "depreciation allowed or allowable IRC 1016".
When Dad spends $40K on the Bermuda house, the IRS classifies that spending two ways:
(1) Repairs / maintenance — restore the property to its previous condition. Painting, fixing a broken pipe, replacing a worn carpet with a similar one, patching the roof. These are immediately deductible against rental income in the year spent. Full write-off.
(2) Capital improvements — add value, prolong useful life, or adapt to new use. New roof (vs. patching), addition, structural reinforcement, full kitchen remodel. These must be capitalized — added to the property's depreciable basis and written off over 30 yrs ADS. So a $40K improvement gives Dad ~$1,333/yr of extra depreciation for 30 years, instead of one $40K deduction.
Reality: most house spending is a MIX. A roof job is part repair (tearing off the old) + part improvement (new architectural shingles vs. plain shingles = improvement). Painting is 100% repair. A new HVAC system is mostly capital. The 50% default assumes a typical mix.
Model handling: the $40K-every-5-years drawdown × deductiblePct gets smoothed across the cycle ($40K × 50% / 60mo = $333/mo smoothed deduction) and flows through Sch E. The full $40K cash hit still comes out of House Fund when it fires.
Search terms: "IRS Pub 527 repairs vs improvements", "tangible property regulations Reg 1.263(a)-3", "BAR test betterment adaptation restoration", "Schedule E repair expense vs capitalized improvement".
SBLOC = Securities-Based Line of Credit. A line of credit from your brokerage (Fidelity, Schwab, etc.) collateralized by your tier-2 stock portfolio. You don't sell the stocks — they stay invested and keep compounding at the growthRate. The brokerage lets you borrow up to a percentage of the portfolio's value (the LTV cap, typically 50% for diversified stocks).
Why this is strategically interesting:
The risks:
When SBLOC makes sense for Dad: late-life (m240+ = age 86+) when he wants extra discretionary spending money or needs cash for a big purchase, and doesn't want to liquidate tier-2 stocks (which would trigger capital gains tax AND stop the compounding). The model defaults SBLOC to OFF — turn on only if you want to model that strategy.
Tax-deductibility of interest: SBLOC interest is generally NOT tax-deductible (since it's a personal-use loan, not investment-interest under §163(d)). The model does not deduct it.
Search terms: "Securities Based Line of Credit", "SBLOC vs margin loan", "asset-backed line of credit brokerage", "tax treatment of SBLOC interest", "SBLOC margin call risk", "buy-borrow-die strategy basis step-up".
The "tier-2" growth pool in Dad's model represents money invested in stock index funds (S&P 500 / VTI / VOO). The model's growthRate slider sets total return (e.g., 9%/yr).
That total return is actually two things:
(1) Qualified dividends — roughly 2%/yr for the S&P 500. These are CASH payouts from the companies you own (Apple, Microsoft, etc.). The IRS taxes these annually as "qualified dividends" at the preferential long-term capital gains rate: 0% (taxable income below ~$47K single), 15% (most middle-bracket), or 20% (taxable income above ~$520K). Even though index funds AUTOMATICALLY reinvest dividends, you still owe tax on them every year — the IRS gets paid from somewhere else (your other cash).
(2) Price appreciation — roughly 7%/yr for the S&P 500. This is the value of your shares going UP. The IRS does NOT tax this until you SELL the shares (then it's capital gains, again at preferential rates: 0%/15%/20%). If you never sell, you never owe tax on appreciation (and if your heirs inherit, they get a basis step-up — they only owe tax on growth AFTER they inherit).
Why this matters for the model: the model previously treated tier-2 as 100% tax-deferred (just appreciation). That's optimistic — qualified dividends DO leak ~2%/yr × 15% = 0.3%/yr of drag every year. The slider lets you model it realistically.
"Buy-borrow-die" strategy: some wealth-management circles advocate NEVER selling tier-2 stocks. Instead, take loans against them (Securities-Based Line of Credit / SBLOC) when you need cash in retirement. You pay interest (~7%/yr) but no capital gains tax. At your eventual estate, heirs get basis step-up and the unrealized gains escape tax entirely. Not currently modeled — flagged as future enhancement.
Search terms: "qualified dividend tax rate 2026", "long-term capital gains brackets 2026", "S&P 500 dividend yield historical", "Net Investment Income Tax NIIT 3.8%", "step-up in basis IRC §1014", "securities-based line of credit SBLOC".
Phase2_Stress_Test_Findings_2026-05-15.md for full analysis.
Each month, for each "fundable" bucket (House, Personal, M&I, Trip):
The bucket's existing balance always compounds at 4% regardless, so it slowly creeps above the threshold via interest. That's fine and realistic — it just means a little extra liquidity above the floor.
Drawdowns only pull from the conservative tier. If Dad takes $500/mo of House drawdown, that comes out of the conservative House balance — the growth pool stays untouched. This mirrors how you'd actually manage it: spend from the liquid pile, leave the long-horizon stuff invested.
VRF and Opp Fund are exempt from two-tier routing. VRF must stay liquid (cars get bought outright). Opp Fund is already the speculative bucket — it doesn't need a second speculative layer.
| Month | House | Personal | M&I | Trip | VRF | Opportunity | Solo 401(k) | Total + 401k |
|---|
| Month | Rent | Pension | Uber | Car biz | Tier-1 int (4%) |
Tier-2 int (growth) |
Total /mo |
|---|
dad-uber-scenarios.pages.dev, so the m24 column here matches that tool's "TRUE net wealth" (minus vehicle loan / asset adjustment, which is dropped at m25 here).