MFM Live: Offset Your Taxes Through Real Estate

Learn how to eliminate your taxes through real estate investing from licensed CPA Brandon Hall.
Brandon will be delivering expert knowledge when it comes to tax advantages & tax strategies for real estate investors!

Brandon Hall is a CPA and owner of The Real Estate CPA, he focuses on the real estate niche. He works with real estate investors, syndicates, and private equity funds to optimize tax positions and streamline accounting and business functions. Brandon assists investors with Tax Strategy through customized planning and Virtual Workshops. Brandon is an active real estate investor and a Principal at Naked Capital, a capital group investing in large multi-family projects and manufactured housing. Brandon’s Big 4 and personal investing experiences allow him to provide unique advice to each of his clients.

VIDEO TRANSCRIPTION

00:00
um welcome everybody my name is powell
00:02
chi
00:03
um you have joined multi-family masters
00:05
live
00:06
today we are going to be uh talking
00:08
about offsetting your taxes through real
00:10
estate
00:11
and we have a special guest with us
00:13
brandon hall of the real estate cpa to
00:15
here to answer questions too but before
00:18
we do that
00:19
uh let me just mention here that our
00:20
group is called multi-family masters
00:24
i like to say that we’re the
00:25
university’s fastest growing
00:27
multi-family meetup group
00:28
and nobody can really dispute that i
00:30
hope but uh you know i like to
00:32
i get to kick it off with that we do
00:34
have a facebook group where you can meet
00:35
and chat and start discussions and
00:37
ask questions and and kind of connect
00:39
with our whole community
00:41
uh we have about six thousand a little
00:43
over six thousand people in there
00:45
we have a meetup group that also has
00:46
about 50
00:48
i don’t know i don’t know 11 000 people
00:50
inside of our meetup.com group
00:52
um so and a number of different
00:55
things of ways you can connect with us
00:57
so you can connect with us on our
00:59
facebook on our
01:00
website as well and we have um
01:04
a number of different options for you in
01:05
terms of just connecting with people
01:07
right so that’s what our our main
01:10
goal of our of our company or our i
01:13
guess our brand is
01:14
is to connect people and educate people
01:16
all along the lines of multi-family
01:18
investing
01:19
so um let me see bethany do you have um
01:24
you have anything that you could say
01:25
also as well for uh
01:27
for our programs absolutely so we are
01:30
always on the lookout for
01:31
a local individuals who would like to
01:33
start a local multi-family masters
01:35
a chapter meetup uh looks a little
01:37
different now than it did
01:39
a lot of our chapters are doing entirely
01:41
virtual or a hybrid type
01:43
uh format for their meetups and so
01:46
please reach out to me if you have any
01:47
interest in starting a local chapter i
01:49
can hit me up on facebook i can
01:51
share my email address here in the chat
01:52
too and then also
01:54
uh we launched our mfn mastermind
01:56
program back in
01:58
um late of 2020. uh check that out go to
02:01
our website
02:01
mfn or multifamilymasters.com and the
02:03
link that says multifamily
02:05
or mfm mastermind and you can fill out a
02:08
link to apply for that
02:09
but we really seek to bridge the gap
02:11
between that head knowledge or education
02:13
about multiple investing and actually
02:14
getting started and getting your first
02:16
deal
02:17
and scaling so definitely check out that
02:19
program and fill out an inquiry form
02:22
okay awesome awesome and um
02:26
so appreciate that bethany and so you
02:28
can also bethany if you
02:29
don’t mind would you be able to put some
02:31
of those links inside of our uh
02:32
inside of the chat yeah absolutely
02:37
the facebook group if my facebook ever
02:39
loads
02:40
okay perfect perfect so just as a as a
02:43
real quick intro um i’m just going to
02:46
give you a little quick intro
02:48
about me ferris ferris will do one about
02:51
him
02:51
i don’t think garrison’s going to be
02:52
here today paris so
02:54
he he won’t be mrs garrison’s uh yeah
02:56
he’s out soon
02:58
okay sure everyone’s a little
02:58
heartbroken but you get the other two
03:00
parts of this
03:02
so very cool so my name is powell chi if
03:05
you don’t know me um i live in los
03:07
angeles i um i’m a multi-family and
03:09
self-storage investor
03:11
uh vested since 2017 bought my first
03:14
multi-family it was a 40 unit building
03:17
in indianapolis
03:19
all of my properties that i’ve invested
03:20
in i’ve been out of state
03:22
um so after after that
03:26
did another building in indianapolis as
03:28
well and then from then on did five
03:30
different syndications and
03:32
uh and now i guess most recently i’ve
03:35
closed on
03:36
a self storage deal in january and
03:39
actively looking to close more deals so
03:42
that’s a little about me how about you
03:44
ferris yeah
03:46
thanks pal so for those that don’t know
03:47
me my name is ferris musa
03:49
i have a company called disrupt equity
03:50
we basically buy and sell
03:52
multi-family apartment complexes and we
03:53
syndicate the equity um we are
03:55
vertically integrated we do have our own
03:56
management company as well and
03:58
you know we’re coming up on 2000 units
04:00
that we’ve kind of bought and sold so
04:02
definitely love the business continuing
04:03
to grow and like paul mentioned earlier
04:06
people that you meet right and really i
04:08
mean you know people that i met at
04:10
meetups like this
04:11
right really helped me propel kind of my
04:13
my growth or my
04:15
and so like pal said it’s all about
04:17
networking we are you know basically
04:19
we are going to do a presentation at the
04:21
very end what are we doing pal
04:24
we’re going to be going to breakout
04:25
rooms and we break our rooms and then
04:27
after that we’re doing the after party
04:28
right
04:29
yep then after we have the after dark
04:31
mfn
04:32
absolutely so we’ve changed people that
04:34
i’ve attended before the breakout rooms
04:36
is really an opportunity to get to
04:37
connect with a smaller group of people
04:39
right
04:39
think you know five to eight people that
04:42
one-on-one versus
04:43
you know the hundred people that are in
04:44
this channel and so
04:47
definitely look forward to that right
04:48
and you know
04:50
because like paul mentioned it’s all
04:51
about networking i said
04:53
right today our our first mfm
04:58
sorry our second right we do this every
05:01
third monday of the month
05:03
once a month and really the idea is to
05:05
bring on very relevant
05:07
very you know valuable speaker
05:10
and today’s speaker we have our friend
05:11
brandon hall we’ve had him on before
05:13
did a great you know did a great job
05:15
with it and honestly
05:17
now the the topic of today is something
05:19
i think i
05:21
i don’t know who out there loves paying
05:23
taxes i think a few people raise their
05:25
hand for that one
05:26
right and really i got into real estate
05:29
is just kind of the tech
05:31
very very powerful vehicle and you know
05:34
we figured it’d be a really good topic
05:35
for people especially this time of the
05:36
year
05:37
and i’m so you know definitely excited
05:39
to have brandon hall brandon thank you
05:40
for covering up the time i’m sure
05:43
a calm month or two for you right and so
05:46
definitely appreciate you
05:47
carving out the time and so with that
05:48
said brandon you want to go ahead and
05:50
maybe kind of introduce yourself
05:52
and kick it off yeah yeah absolutely i
05:54
appreciate you guys inviting me on again
05:56
it’s nice to see everybody i think i
05:57
actually see some familiar faces so
05:59
that’s cool
06:00
i’m brandon hall i run the real estate
06:02
cpa we are a cpa firm that services real
06:05
estate investors we provide
06:07
tax planning compliance like preparation
06:10
and accounting services
06:11
we have about 600 clients all clients
06:13
are in real estate
06:14
and we are nationwide i have a team of
06:17
like
06:18
22 or 23 people at this point so we’ve
06:21
uh we’ve grown out to be
06:23
quite a cool cool crowd we’re 100
06:25
virtual
06:26
that was pre-covered so everything was
06:28
paperless
06:29
and that that’s kind of how we’ve grown
06:31
our firm but we believe
06:32
in trying to push out content educate
06:36
the masses
06:37
get people up to speed on how
06:40
real estate tax works what are the
06:42
different things that you can be doing
06:44
today
06:45
to help you mitigate tax whenever it
06:46
comes time to preparing your tax return
06:49
at some later point
06:53
awesome is this still me yeah still you
06:55
keep going i mean it’s funny so i
06:56
actually had someone coincidentally a
06:58
good friend of mine reached out today
06:59
basically saying hey who do you who do
07:02
you do for taxes
07:03
he’s looking for someone a little bit
07:05
more knowledge specifically around real
07:06
estate and so i
07:08
i thought it was very coincidental i’m
07:09
like here’s a link to our
07:11
our webinar tonight and also here’s his
07:13
contact information so
07:14
you know i think it’s irrelevant i think
07:16
it’s something it’s important to have
07:18
the right cpa in your team right we
07:20
always talk about kind of a team i think
07:22
cpa is as critical if not more critical
07:24
than you know
07:25
pieces as well yeah yeah yeah
07:29
i mean biasly i’m gonna say that i think
07:31
that it’s important to have a tax
07:33
pro uh in your short or your small
07:36
network of
07:37
of trusted professionals um
07:40
but yeah i mean it’s it’s it’s amazing
07:43
we
07:44
we see probably 100 or so
07:47
landlords a week we review their tax
07:50
returns they’re
07:51
everybody’s trying to come on board as a
07:53
client and we just see a lot of missed
07:54
opportunities and mistakes
07:56
um and it’s nobody’s fault i mean real
07:58
estate taxation’s
07:59
really challenging it’s nuanced um
08:02
and and it can be really difficult to
08:04
get everything right even when you are
08:06
doing it full-time
08:07
as a real estate accountant so so we see
08:09
a lot of mistakes and
08:10
and i’m just trying to help people
08:12
understand what those mistakes are and
08:14
how to have better conversations with
08:15
their own tax advisors
08:17
so that uh so that you can mitigate
08:19
those mistakes or maximize all the
08:21
opportunities that you can otherwise hit
08:22
so today what i’m going to do is it okay
08:25
if i launch into
08:26
it cool so i don’t actually have slides
08:28
prepared
08:29
um i just figured we could talk about
08:32
passive activity rules real estate
08:33
professional status
08:35
uh we’ll touch on excess business losses
08:37
i’ll tell you about one of the big
08:38
mistakes that i’ve seen since
08:40
the 2013 tangible property regs that
08:42
almost everybody misses
08:44
and then we will end with what to expect
08:47
with the biden administration coming up
08:49
you know with the the caveat that
08:51
everything is a guess
08:52
at this point but let’s start with the
08:55
passive activity rule so
08:57
um let me actually pull up i do have
08:59
some notes here cool
09:01
so the first thing to understand
09:04
actually
09:04
while i’m talking go ahead and throw
09:06
into the chat put a one
09:08
if you are buying your own rental real
09:10
estate like as a landlord put a two if
09:11
you’re investing
09:12
passively as a limited partner um
09:15
in like a syndication deal or something
09:17
like that so just go ahead and type one
09:18
if you’re a landlord you buy your own
09:20
rentals to
09:21
if you are investing passively as as a
09:24
landlord or a
09:26
as a limited partner and i saw somebody
09:28
in the chat
09:29
i think it was
09:32
rob rob block so you were talking about
09:35
uh
09:35
short-term rentals vacation properties
09:37
i’ve got something in here for you that
09:38
you want to pay attention to
09:40
okay so we’ve got a lot of landlords
09:42
we’ve got a lot of people that are
09:43
investing passively
09:44
in syndication deals very good so
09:48
let’s do this first things first
09:51
understand
09:52
every single dollar that you earn will
09:54
be put into one of two buckets past
09:56
it’s the passive bucket or the
09:58
non-passive bucket and that’s true for
09:59
every single dollar that you earn every
10:00
single dollar is either passive
10:02
or it’s non-passive so we’ve got two
10:04
buckets for income and this is different
10:05
than like portfolio income and earned
10:07
income
10:08
that’s all true too but every dollar
10:10
that you earn is either passive
10:12
or it’s going to be non-passive the
10:14
passive activity rules were implemented
10:16
in 1986
10:17
they were implemented to stop the
10:19
loophole of
10:20
high income earners investing in real
10:23
estate
10:24
to reduce their tax burden because what
10:25
people were doing is they were
10:27
you know i’d be a physician earning a
10:28
million dollars a year i’d go buy a
10:29
couple rental properties i’d use the
10:31
depreciation
10:32
to wipe my income out and i wouldn’t pay
10:34
tax or i’d pay a really low
10:35
tax compared to my total income so
10:38
congress implemented the passive
10:39
activity rules in 1986
10:41
to stop that loophole so the passive
10:44
activity rules say
10:46
if you have a passive loss that loss can
10:48
only be offset
10:50
by passive income so basically you look
10:52
at that passive bucket
10:54
passive income can offset passive losses
10:56
passive losses can offset passive income
10:58
but any excess passive loss is going to
11:01
be suspended
11:02
and carried forward until it can be used
11:04
by passive income
11:06
or until it can be offset by passive
11:07
income at some later point or until you
11:09
sell the passive activity at some later
11:11
point so you’re stuck with these passive
11:13
losses
11:14
that get suspended and they carry
11:15
forward and sometimes we see clients
11:17
with like three four five hundred
11:18
thousand dollars worth of suspended
11:20
passive losses that they’re carrying
11:21
forward on their tax return
11:23
and that’s that’s not a good thing
11:24
because at the end of the day you
11:26
want to claim those losses currently and
11:28
that’s going to be true because of the
11:30
time value of money theory
11:31
a dollar today is better than a dollar
11:34
tomorrow
11:34
uh that’s that’s a fact so if i can
11:38
claim the losses today within reason
11:41
then i want to do that rather than
11:44
having them be suspended and
11:45
you know pushing forward and kicking the
11:47
can down the road and i said within
11:48
reason because
11:49
you know if i’m in the 37 tax bracket
11:52
today i definitely want to use my
11:53
passive losses
11:54
if i’m in the 10 tax bracket i probably
11:57
i might not want to use my passive
11:58
losses i might actually want to try to
12:00
figure out
12:01
at some later point am i going to be in
12:02
a higher tax bracket and can i
12:04
strategically plan for that year to
12:06
utilize those losses
12:08
so the passive activity rules say
12:11
passive activities uh can only offset
12:14
passive activities passive income
12:16
can only offset passive losses passive
12:17
losses can only offset passive income
12:21
all rental real estate activities are
12:23
passive
12:24
unless you qualify as real estate
12:25
professionals so that’s that’s one of
12:27
the rules than the passive activity
12:29
rules so it says all rentals are passive
12:32
unless you qualify as a real estate
12:34
professional
12:35
secondly any material any trade or
12:38
business in which you don’t materially
12:39
participate
12:40
is passive so first i have to look at
12:44
all my rental activities
12:45
every single rental that i own is
12:47
passive unless i qualify as a real
12:49
estate professional right so that’s step
12:51
one
12:51
step number two any trade or business in
12:54
which i don’t materially participate
12:56
is also passive so
12:59
this is the passive activity rules for
13:02
landlords what it did is it said
13:05
1986 after that you buy a new rental
13:08
property
13:08
you do a cost segregation study you get
13:10
this big loss
13:11
and it’s a passive loss because all
13:14
rental activities are by default passive
13:16
unless you qualify as a real estate
13:18
professional so
13:20
it essentially just stopped this
13:21
loophole it stuck
13:23
landlords with a lot of passive losses
13:25
that they were unable to use because
13:27
rental real estate is typically going to
13:29
produce a passive loss
13:30
a tax loss even in years of operating
13:33
income
13:34
and that’s because of that depreciation
13:36
so i can have a rental that produces
13:39
three thousand dollars of cash flow so
13:41
cash flow that actually hit my pocket
13:43
but i can tell the irs that i lost two
13:45
thousand bucks
13:46
uh and and that difference is is
13:48
generally due to depreciation
13:50
so because of depreciation rental real
13:52
estate even in profitable years
13:54
can produce tax losses those tax losses
13:56
thanks to the passive activity rules
13:58
are by default passive unless i qualify
14:01
as a real estate
14:02
professional and again the second piece
14:04
of that is
14:05
any trade or business in which i don’t
14:06
materially participate in
14:08
is also passive so here’s the thing a
14:11
lot of people will say well i’ll
14:12
qualify as a real estate professional
14:14
and then i’ll be good but what they
14:16
forget is when you qualify as a real
14:17
estate professional you still have to
14:19
hit that second
14:20
that second piece which is any trade or
14:22
business that you don’t materially
14:23
participate in
14:24
is still passive so even if i’m a real
14:27
estate professional on my rentals or for
14:29
my rentals i still have to show that i
14:31
materially participated in my rentals
14:33
to make them non-passive and the entire
14:36
idea here
14:37
is to move my passive losses from that
14:40
passive bucket
14:41
and move it into the non-passive bucket
14:43
i want to move it into the non-passive
14:45
bucket
14:46
so that i can offset my w-2 income my
14:48
business income
14:49
my portfolio income like if you traded
14:51
game stock
14:53
gamestop stock recently right well
14:54
that’s all non-passive that’s portfolio
14:57
income
14:57
it’s considered non-passive income my
15:00
passive loss is for my rentals
15:02
they can’t offset that type of income
15:03
unless i can recharacterize it
15:06
move it into that non-passive bucket and
15:08
a way to do that is to qualify
15:10
as a real estate professional there’s a
15:11
few other ways to do it as well you can
15:13
earn less than 150
15:14
000 and you get a passive activity loss
15:16
allowance or you can just
15:17
sell your rental activities and you’ll
15:20
be able to unlock any passive losses but
15:21
what we’re going to focus on
15:23
for the next few minutes is qualifying
15:25
as a real estate professional because
15:26
again if you can qualify as a real
15:27
estate professional
15:28
you get over the hurdle that all of my
15:31
rentals are by default
15:33
passive right so all my rentals are
15:36
passive they’re stuck in that passive
15:38
bucket
15:39
passive losses can only offset passive
15:40
income excess passive losses get
15:42
suspended and carry forward
15:43
not ideal so what do i want to try to do
15:46
probably qualify as a real estate
15:47
professional if your situation
15:48
dictates that so qualifying as a real
15:51
estate professional
15:52
you have to spend 750 hours
15:55
personal service hours in a real
15:57
property trade or business or business
15:59
is
16:00
aggregate 750 personal service hours and
16:02
real property trades or businesses in
16:04
which you materially participate
16:06
that’s test number one test number two
16:08
is that you spend more time in real
16:10
estate
16:10
in those real property trades or
16:11
businesses than you do anywhere else
16:13
so let’s talk about test number two
16:15
first more time in real estate than
16:16
anywhere else if you have a full-time
16:18
job
16:19
2000 hours you have to spend an
16:21
additional 2001 hours
16:23
working in real estate that’s 4001 total
16:27
working hours for the year
16:29
there’s a few hundred tax court cases on
16:31
real estate professional status
16:32
to my knowledge around 20 or so folks
16:36
like like 20 of those tax court cases
16:38
are people with full-time jobs
16:40
that tried to qualify as a real estate
16:41
professional not one of them
16:43
one so nobody has proved to the irs and
16:46
well to the tax court nobody’s proved to
16:47
the tax court yet
16:48
that i can have a full-time job and i
16:51
can also qualify as a real estate
16:52
professional
16:53
so it’s just it’s just hard for them to
16:55
to wrap their mind around
16:57
if you have a part-time job let’s say i
16:58
work 1200 hours during the year
17:01
and then i spend an additional 1201
17:04
hours in real estate now i’m working 2
17:06
401 hours
17:07
total that’s a little bit more doable
17:09
right so part-time job
17:11
i might be able to hit that that second
17:13
test but that second test is just
17:14
important remember i’ve got to spend
17:15
more time in real estate
17:17
than i do anywhere else sometimes people
17:18
ask me we work with a lot of physicians
17:20
so sometimes they’ll ask me well
17:22
i’m on one week and i’m off the next
17:23
week and i work 12 hour shifts while i’m
17:25
on the one week and then when i’m off
17:27
the next week i just do real estate
17:29
it’s great it doesn’t matter your shifts
17:31
doesn’t matter you know
17:32
the the timing of your work it doesn’t
17:34
matter what matters is
17:35
how many working hours you had at your
17:37
job during the year or at your business
17:39
during the year
17:41
compared to the total number of real
17:43
estate hours that you’re working
17:44
during the year so that test trips a lot
17:48
of people up but let’s assume
17:49
that that you can meet that test let’s
17:51
assume that you can spend more time in
17:53
real estate
17:54
than any any other business or activity
17:56
that you’re participating in
17:58
then the first test that 750 hour test
18:01
that’s the test that you really need to
18:02
focus on you’ve got to hit a minimum 750
18:05
personal service hours
18:06
in a real property trader business in
18:07
which you materially participate so if
18:09
you can hit both of those tests 750
18:11
hours in a real property trader business
18:13
once you materially
18:14
participate in more than half your time
18:16
more time in real estate than anywhere
18:17
else you meet both those two tests
18:19
your real estate professional and it
18:20
means absolutely nothing for your
18:22
rentals
18:23
all you did was you got over the default
18:26
rule
18:26
that your rentals are passive you get
18:28
the opportunity
18:29
to prove that you materially
18:32
participated in your rental real estate
18:33
activities
18:34
so you got to qualify as a real estate
18:35
professional then you have to
18:38
also prove that you materially
18:40
participated
18:42
in your rental real estate activities
18:44
material participation there’s seven
18:46
tests to material participation the
18:48
three that we we see most often
18:50
uh from easiest to hardest easiest you
18:53
your participation constitutes
18:55
substantially
18:56
all of the participation in the activity
18:59
during the year what does substantially
19:00
all mean
19:01
no idea uh generally there’s a 30
19:04
threshold that’s used for materiality
19:05
throughout various pieces of code
19:07
so we feel pretty comfortable that if
19:09
you worked 70 hours and somebody else
19:11
works 30 hours on your rental property
19:13
you’ve completed substantially all of
19:15
the participation
19:17
there are tax court cases where people
19:18
have worked 40 50 hours on their rental
19:21
properties and they have been deemed to
19:23
to be they have been deemed to have been
19:25
materially participating because they
19:27
completed substantially all the work
19:29
now what does substantially all mean
19:30
well i can’t have a property manager
19:33
i have to do it all myself that’s that’s
19:35
what kicks a lot of people out a lot of
19:36
people have property managers
19:38
you have a property manager there’s no
19:39
way you can be hitting that
19:41
substantially all test because
19:43
the property manager is completing
19:44
substantially all the work so you you
19:46
have to get you get kicked out of that
19:47
test
19:48
so then you move to the next test the
19:49
next easiest test to hit
19:51
that test is 100 hours in in more than
19:54
any one other individual
19:56
and we take individual to also mean
19:57
companies like a property management
19:59
company
20:00
so let’s say um let’s say let’s say i
20:03
buy a rental
20:05
and and i have a contractor that comes
20:07
out and works on it
20:08
and it’s a big rehab project huge rehab
20:11
project so the contractor spends 105
20:12
hours on the property during the year
20:14
well i’m going to self-manage it i do
20:16
everything else i need to spend 106
20:19
hours
20:20
i need to spend 100 hours and more than
20:22
any other person
20:23
so 106 hours because that contractor
20:25
spent 105 hours
20:26
so if i can do that i’m materially
20:28
participating if i can’t hit
20:30
substantially all
20:31
then the next test is 100 hours more
20:33
than anyone else and let’s say powell
20:34
and i are partners we’re not but let’s
20:36
just assume that we are
20:37
powell knows because he knows these
20:39
material participation material
20:40
participation rules
20:41
so he knows that he’s got to work 100
20:43
hours and more than me
20:45
in the in that partnership right to be
20:47
materially participating
20:49
and i know because i’m a cpa and i
20:51
understand this stuff that i’ve got to
20:52
work 100 hours more than him so what are
20:53
we going to do i’m going to work 101
20:54
hours
20:55
and he’s going to go okay i got to work
20:56
102 hours right and then i’m going to go
20:59
well i can’t get beat i’m going to work
21:00
103 hours and we just stair step it
21:03
right all the way up
21:04
until we hit 500 hours and that’s that
21:06
third test 500 hours so if you hit 500
21:08
hours
21:09
it’s a safe harbor you’re deemed to be
21:11
materially participating
21:13
now there’s a lot of confusion around
21:16
the material participation test compared
21:18
to the real estate professional tests a
21:19
lot of people say
21:20
you can spend 500 hours materially
21:22
participating and then 250 hours of
21:24
anything else
21:25
now why would they say that well 500
21:27
hours of material participation
21:29
that’s the material participation test
21:30
one of the seven material participation
21:32
tests
21:33
750 hours for real estate professional
21:36
status
21:37
so they think that there’s two separate
21:38
types of hours they think there’s
21:39
material participation hours
21:41
and then they think there’s real estate
21:42
professional hours so they’ll say
21:44
instead of saying spend
21:45
750 personal service hours in a real
21:48
property trade or business in which you
21:49
materially participate
21:51
they’ll say spend 500 hours in your real
21:54
estate investing and then spend 250
21:56
hours
21:57
of anything else could be education can
21:58
be research can be investor level hours
22:01
and that’s wrong it’s not correct
22:03
because it’s 750
22:05
personal service hours in a real
22:07
property trader business in which you
22:09
materially participate
22:12
the material participation for real
22:13
estate professional status is every
22:15
single hour
22:16
now why the 500 hour thing gets messed
22:19
up here’s why
22:20
so i can be a real estate agent for 600
22:24
hours
22:25
then i can spend 150 hours managing my
22:28
rentals
22:29
collectively i hit the 750 hour test for
22:32
real estate professional status
22:34
i’m a real estate professional but i
22:37
might not be materially participating in
22:39
my rentals
22:41
because i only spent 150 hours so
22:43
hopefully i hit the 100 hours more than
22:44
anybody else test but i definitely
22:46
didn’t hit 500 hours
22:47
so i might not be materially
22:49
participating in my rentals even though
22:50
i’m a real estate professional
22:52
we run into this all the time with real
22:53
estate agents builders flippers
22:55
developers
22:56
people that are not running real estate
22:58
portfolios full time it’s a big problem
23:00
because you’ll you’ll go hey i spent 2
23:03
000 hours this year brokering
23:05
i’m a real estate professional and i go
23:07
yeah you are you are a real estate
23:09
professional congratulations
23:10
still means absolutely nothing compared
23:12
when we’re talking about your rentals
23:13
rentals are still passive you have to
23:15
materially participate in your rentals
23:17
that’s where the 500 hour test it’s
23:18
really important
23:20
not to confuse the two it’s not it’s not
23:22
saying
23:23
i can spend 500 hours of my rentals and
23:24
then do 250 hours of whatever else
23:26
that’s not what it is
23:28
i’ve got to spend 750 total hours
23:31
materially participating in real
23:32
property trades or businesses
23:34
now there’s 11 real property trades or
23:36
businesses
23:37
uh it’s it’s i’m not going to name them
23:40
all because i’m going to forget them but
23:41
we’ve got
23:41
development redevelopment leasing
23:43
brokerage
23:45
rentals management acquisitions
23:48
so basically like if you’re if you’re
23:50
actually doing something with
23:52
a property then you’re good to go
23:55
you are you are you have a real property
23:56
trader business and you can aggregate
23:58
all of your real property trades or
23:59
businesses together for the purposes of
24:01
testing that 750 hour test for real
24:03
estate professional status
24:05
but when we’re talking about our rentals
24:07
when we’re talking about material
24:08
participation
24:09
that 500 hour test the 100 hours more
24:12
than anyone else
24:12
substantially all that’s material
24:14
participation we’re talking about that
24:16
we’re looking at each activity
24:17
separately
24:19
so that’s each rental separately or it’s
24:21
each business separately
24:23
so i can spend 100 hours being a real
24:25
estate agent i may or may not be
24:27
materially participating i mean you
24:28
probably are
24:29
but maybe you’re not um i could spend a
24:32
hundred hours managing
24:32
managing my property i may or may not be
24:35
materially participating
24:37
so you have to look at for material
24:38
participation you look at each rental
24:40
separately
24:41
you do have the ability to make an
24:43
aggregation election that groups all of
24:45
your rental activities together into one
24:48
the reason that you do that is so that
24:49
you can look at the entire group of
24:50
rentals
24:51
for the purposes of the material
24:52
participation test think about it like
24:54
this i have 10 rentals
24:56
i want to hit 500 hours of material
24:58
participation on all 10 of those rentals
25:00
what does that mean that’s a 5 000 hour
25:02
working year
25:03
pretty darn tough so what i do instead
25:05
is i group all my rental activities
25:07
together into ones now all 10 rentals
25:10
make up one activity for the purposes
25:13
of material participation so now i just
25:16
have to spend 500 hours across the
25:17
entire portfolio
25:19
and i will i will be deemed to have been
25:21
materially participating
25:22
in every single rental
25:25
again why is this important why is this
25:28
important
25:30
because i want the ability
25:33
to run a cost segregation study to
25:36
claim bonus depreciation and be able to
25:40
take that loss
25:41
if i buy a hundred thousand dollar home
25:43
and i run a cost segregate let’s not do
25:44
that let’s say i buy a million dollar
25:46
property
25:46
i run a cost segregation study i’m gonna
25:49
get
25:50
250 k in bonus depreciation that year
25:53
with the way that the laws are written
25:54
today and that’s going to create
25:57
a 250 k or so tax loss
26:00
well that tax loss is passive so i can’t
26:03
offset my spouse’s w-2 income or my
26:05
spouse’s business income
26:07
i can’t i’ll set my w-2 income or my
26:09
business income it’s passive
26:11
because all my my w-2 income business
26:13
income my spouse is w2 income business
26:14
income that’s all non-passive so i’ve
26:16
got to re-characterize that bucket got
26:17
to move the bucket
26:19
and the way to do that is you qualify as
26:21
a real estate professional and you
26:22
materially participate in your rental
26:23
portfolio
26:25
now the tests again for real estate
26:28
professional status 750 personal service
26:31
hours in a real property trader business
26:32
in which you materially participate
26:34
in more than half your time more time in
26:35
real estate than anywhere else we talked
26:36
about real property trades or businesses
26:38
we talked about material participation
26:39
let’s talk about what a personal service
26:41
hour means
26:42
a personal service hour is not an
26:44
investor hour
26:45
it’s not an education hour it’s not a
26:48
research hour and it’s typically not
26:49
travel time
26:51
so if you think that you can you can log
26:54
hours like listening to podcasts
26:57
networking
26:58
right here right going to uh the bigger
27:00
pockets conference and meeting all your
27:02
friends
27:02
if you think that those hours count
27:04
towards towards being a real estate
27:05
professional
27:06
they don’t um there’s many tax court
27:09
cases that
27:10
that support this there’s half a poor
27:12
verse commissioner
27:13
uh where in half report the taxpayer
27:16
was going to a bunch of seminars they
27:18
were doing a bunch of research
27:20
and the tax court basically said sorry
27:21
none of that time counts
27:23
the litmus test for whether whether or
27:26
not the time is going to count is
27:28
does your hour affect the day-to-day
27:30
operations of the rental
27:32
so if i can log hours like a lot of
27:34
people say oh well you can do a lot of
27:35
bookkeeping hours
27:37
does that impact my rentals ability to
27:40
collect rents or pay bills
27:41
the answer is probably not maybe but
27:44
probably not
27:45
so what hours do count property manager
27:48
hours
27:49
hours spent negotiating with tenants
27:51
structuring leases
27:52
marketing advertising doing repairs
27:54
doing rehabs
27:56
uh managing the property managing the
27:58
contractors at the property
28:00
coordinating everything like like being
28:01
a property manager if you’re a property
28:03
manager you’re running
28:05
you’re you’re you don’t have a property
28:06
manager on your rentals then the time
28:08
that you spend
28:09
is going to count towards real estate
28:10
professional status nine times out of
28:12
ten
28:13
but the education time doesn’t count the
28:15
research time doesn’t count
28:17
and the investor hours are not going to
28:18
count the investor hours will
28:20
count if you manage the day-to-day
28:24
so if you are the property manager you
28:26
do manage the day-to-day operations then
28:28
your investor level hours
28:30
will count the investor level hours are
28:32
like reviewing financials doing the
28:34
bookkeeping
28:35
paying bills tax returns negotiating
28:38
financing
28:39
that’s investor level hours if you’re
28:41
managing the day-to-day operations of
28:43
the rentals those hours will count
28:46
so personal service hours 750 personal
28:48
service hours in real property trades or
28:50
businesses you can look across
28:51
all all real property trades and
28:53
businesses there’s 11 of them defined in
28:55
the code
28:56
750 real 750 personal service hours in
28:59
real property trades with businesses
29:00
which materially participate
29:02
and more time in real estate than
29:04
anywhere else you’re a real estate
29:05
professional
29:07
uh this stuff’s relatively black and
29:09
white it’s it’s surprisingly not that
29:11
gray
29:12
and it’s not that great because it’s
29:13
like the second most litigated piece of
29:15
the entire tax good
29:17
so it’s definitely not something you
29:18
want to fool around with we’ve helped
29:20
with a lot of irs audits the number one
29:22
thing that people lose on is research
29:24
hours
29:24
believe it or not every single time
29:27
auditor comes in and says sorry
29:28
research hours don’t count your log
29:31
consisted primarily of research hours we
29:33
don’t buy it
29:34
the other thing that the auditors have
29:36
been getting people on
29:37
i mean it’s it’s apparent in tax court
29:39
cases but we didn’t really realize it
29:40
until we started
29:41
helping out with audits how apparent it
29:44
is
29:44
um if you create a time log
29:48
during audit you’re pretty much toast
29:52
so you have to create a time log now and
29:55
start logging your time today
29:57
and it doesn’t have to be fancy i mean
29:58
it can be a google spreadsheet you can
30:00
also use your google calendar
30:02
or if you use outlook god god bless you
30:04
but you can use outlook
30:06
any sort of calendar app something like
30:08
that you can you can
30:09
document it you just have to do it now
30:11
um the irs will push back
30:13
on on any sort of log that they think
30:15
was done retroactively and they’ll tear
30:17
it apart too i mean they’ll dive into it
30:19
and just call everything out and you
30:20
just you just won’t stand a chance
30:22
so keep a time log you date it what
30:24
property does it apply to what category
30:27
is it
30:27
even if it is education and research
30:30
hours log it anyway
30:31
uh just know that you’re gonna have to
30:33
back it out whenever it comes to the
30:34
final
30:34
that final count of the hours that you
30:36
spent and take notes
30:38
i always say to take notes take really
30:40
good notes
30:42
like like so good that five years from
30:44
now if you have to take the stand
30:46
in tax court you can recall it that
30:48
that’s the level of notes you you uh you
30:50
want to take
30:52
don’t do the whole like i’m going to
30:54
send emails on my spouse’s behalf
30:55
because my spouse doesn’t want to
30:57
invest in real estate that gets blown up
30:59
in an audit
31:00
so don’t do that um you know
31:04
if you’re going to do this do it legit
31:06
do it straight narrow
31:07
keep keep it straight narrow because it
31:08
is a it’s a highly litigated piece of
31:10
the code
31:11
that said i will say the one piece of
31:15
gray
31:15
area or the one gray area that that i
31:18
think still exists
31:20
um as it pertains to
31:24
real estate professional status is
31:25
travel time i know i said that travel
31:27
time doesn’t count
31:28
and that is it typically does not count
31:31
in the irs audit technique guides the
31:33
irs has audit technique guides that they
31:35
hand auditors basically like a field
31:37
guide here’s how you step through and
31:38
audit somebody i mean if you want to
31:39
know
31:40
how the irs is going to audit you you
31:42
can literally google irs audit technique
31:44
guide
31:45
passive activity losses and it’ll pop
31:46
right up it’s a pdf
31:48
you can go through it you can see
31:49
everything i’m talking about to verify
31:51
it
31:52
all cited tax court cases pieces of the
31:54
code everything
31:55
so that’ll show you you know how they
31:57
how they audit you
31:59
um and there there’s a few i actually i
32:01
don’t have the quotes in front of me but
32:02
there’s a few quotes that
32:04
that are interesting like you know a
32:06
rental property doesn’t require a lot of
32:08
management you know
32:09
we don’t we we know that that’s not true
32:11
because we all invest in real estate
32:12
but that’s the frame of reference that
32:14
they have whenever they’re coming to
32:15
audit you so that’s that’s how important
32:16
it is to make sure that you really
32:17
bulletproof your documentation
32:19
but travel time in that audit technique
32:21
guide
32:22
they say very clearly travel time does
32:24
not count and they kind of leave it at
32:25
that
32:26
but there have been tax court cases
32:28
there’s one where uh
32:29
it was labor’s commissioner the taxpayer
32:32
had a bunch of local rentals and was
32:35
self-managing the local rentals and
32:37
would travel to them
32:38
like like drive to them daily and
32:41
when the taxpayer went up to tax court
32:44
they were like 100 hours short of the
32:46
750 hour requirement and the tax court
32:48
let the taxpayer go back
32:50
and recalculate with the travel time
32:53
included so they’d excluded the travel
32:54
time
32:55
to to and from their rentals but there’s
32:57
other tax court cases one recently
32:59
lucero versus commissioner in september
33:01
2020
33:02
lucero had short-term rentals and would
33:05
travel to them six to eight times per
33:06
year to do maintenance and clean up work
33:08
and repairs
33:09
and the tax court said sorry that travel
33:11
time doesn’t count
33:12
so there’s not really clear guidance on
33:14
what travel time does count
33:16
and does not count our understanding or
33:18
our position
33:20
is that if the travel is local and
33:22
you’re self managing your rentals then
33:24
it counts labor’s commissioner is a good
33:26
citation for that
33:27
and if your travels further away where
33:29
you’re visiting infrequently the travel
33:31
time is not going to count
33:32
for real estate professional status
33:34
doesn’t mean it still can’t be a
33:35
business expense
33:37
it could still be a business expense it
33:40
just might
33:40
not count towards real estate
33:42
professional status so two separate
33:44
pieces of the code
33:46
a little confusing but keep that in mind
33:49
all right i want to talk about
33:52
rentals that are not rentals
33:55
now this is something that um that we
33:58
have learned
34:00
i think beginning of 2020. so airbnb
34:03
over the past you know seven years
34:07
really i mean it’s been around longer
34:09
but really past seven years
34:11
a lot of people have been acquiring
34:12
airbnbs and we have this problem i’m
34:15
gonna say problem tax problem
34:17
of short-term rentals how are short-term
34:19
rentals taxed
34:20
uh how do they get included in this
34:22
entire discussion
34:24
and early 2020 we had this like
34:26
onslaught
34:27
of people with short-term rentals for
34:28
whatever reason i actually don’t know
34:30
why that was but we had to start really
34:32
digging into short-term rentals and i
34:34
wrote an article back in like
34:35
2017 about short-term rentals which we
34:37
subsequently realized was not totally
34:39
correct
34:41
because it’s a relatively complex piece
34:43
of of the tax code
34:45
but short-term rentals if your rental
34:48
activity um sorry i’m not going to use
34:50
rental activity
34:51
if your average customer stay
34:55
is seven days or less
34:58
average customer stay is seven days or
35:00
less meaning i stay at your property for
35:03
six days
35:04
pal stays at your property for eight
35:05
days collectively 14 days two tenants
35:08
seven days or less on average right
35:10
so if your average stay is seven days or
35:12
less you do not have a rental activity
35:15
under section 469
35:18
and remember the beginning of this
35:20
entire thing
35:22
we said section 469 the passive activity
35:24
rules that that’s what that is the
35:25
passive activity rule say
35:27
all rentals are by default passive all
35:29
rental activities
35:31
are by default passive unless you
35:32
qualify as a real estate professional
35:33
but then we have this treasury
35:34
regulation
35:36
that says if your average customer
35:39
period of stay is seven days or less
35:40
then you don’t have a rental activity
35:43
so what that means is i don’t have to be
35:45
a real estate professional
35:47
to take my losses on my short-term
35:49
rental activity i just have to
35:51
materially participate
35:53
because i don’t have a rental activity
35:55
and the passive activity activity will
35:56
say all rental activities
35:58
are automatically passive unless you’re
36:00
a real estate professional this
36:02
was confirmed in lucero versus
36:04
commissioner september 2020 that tax
36:06
court case that i was just talking about
36:08
uh it was actually also confirmed back
36:10
in i believe 2014 where the irs came out
36:12
and they said oops
36:13
we were looking at this incorrectly
36:15
because there were two tax court cases
36:17
one i believe was in
36:18
2001 and another in 2011 where the tax
36:21
court actually ruled
36:23
incorrectly they had an incorrect
36:24
interpretation of the code
36:26
ruled against the taxpayer when they
36:27
should not have ruled against the
36:28
taxpayer
36:29
irs later walked it back i believe that
36:31
was in 2014.
36:33
so a short-term rental an airbnb vrbo
36:35
it’s not a rental activity
36:37
under the passive activity loss rule
36:39
sounds weird to say but that’s how it
36:40
works
36:42
uh and if anybody is interested because
36:45
people go
36:46
oh my cpa doesn’t agree
36:49
i’m going to send you the code section
36:52
in the chat
36:54
where it’s located so there you go so i
36:57
just sent that out to everybody
36:58
you can if you have a short-term rental
37:00
you can go to your your
37:02
tax accountant and say hey i was just on
37:04
a presentation
37:05
these guys are saying that my short-term
37:07
rental i don’t have to be a real estate
37:08
professional
37:09
to make the losses non-passive so how
37:12
can we get this done
37:14
so just because i don’t have to be a
37:15
real estate professional doesn’t mean
37:17
that it’s automatically good to go i
37:18
mean i still have to show that i
37:20
materially participated in the
37:21
short-term rentals now we’re going back
37:23
to those seven tests
37:24
the first three i complete substantially
37:27
all the activity
37:28
or all the participation in the activity
37:30
i complete 100 hours and more than
37:31
anyone else
37:32
or i spend 500 hours so i’ve got to hit
37:35
one of those three
37:36
tests for that short term rental
37:37
activity but if i could do that
37:40
then i have a non-passive activity
37:43
cabins
37:43
beach homes they typically go for about
37:47
the bonus depreciation on those is
37:49
typically about 18
37:50
or so of the purchase price the cool
37:53
thing about this is that i can have a
37:55
full-time job
37:56
i can buy short-term rentals and i can
37:58
self-manage them
38:00
and as long as i do this in a smart way
38:02
i can show that i materially
38:03
participated and i can write the losses
38:05
off against my w-2 income
38:07
as non-passive losses i don’t have to be
38:09
a real estate professional
38:10
real estate professional status is what
38:12
blocks me from having a full-time job
38:13
investing in real estate and claiming my
38:15
rental losses but this
38:17
is a way around that uh and lucero
38:20
versus commissioner in september 2020
38:22
um that’s exactly what what they were
38:24
trying to do
38:27
uh so that that’s a good one and
38:30
on top of that your short term rentals
38:34
are typically going to be schedule e
38:35
property they’re not going to be
38:36
scheduled c
38:37
property the only time they’re going to
38:38
be schedule c property are when you are
38:40
providing substantial services to the
38:42
tenants
38:43
while they stay there so if i come rent
38:45
your beach home you show up with
38:46
breakfast you’re
38:48
changing the linens daily or you hire it
38:50
out you know i get fresh linens every
38:51
single day
38:53
the place is cleaned every single day
38:55
there’s tour guides and that type of
38:57
thing
38:57
now you’re providing substantial
38:59
services it’s an actual b and b activity
39:01
now you’re on schedule c now you’re
39:03
subject to self-employment taxes and all
39:04
that good jazz
39:06
um so so that’s when you’re on schedule
39:09
c
39:09
most people don’t don’t do that most
39:13
people clean the unit
39:14
after the tenant leaves and if that’s
39:17
the case you’re not providing
39:18
substantial services to the tenants
39:19
while they’re there so
39:21
it’s a schedule e activity so you can be
39:23
on schedule e
39:25
where where you have a quote unquote
39:29
rental activity but not a section 469
39:31
rental activity so it’s schedule e
39:33
but then it’s also non-passive losses
39:36
if you’re materially participating so
39:38
really cool kind of work around there on
39:40
the short-term rentals
39:41
short-term rentals are are typically
39:42
going to be 39-year property so most
39:45
rental real estate’s depreciated over 27
39:47
and a half
39:47
years but short-term rentals are
39:50
typically
39:51
39-year property and that comes from the
39:53
old transient basis rules
39:55
that say that if you’re dwelling you if
39:57
if 80
39:58
of the gross receipts are from dwelling
39:59
units you have a residential property
40:01
but if more than 50 of the dwelling
40:04
units are rented out on a transient
40:06
basis that’s to a series of tenants that
40:08
stay less than 30 days
40:10
then you have a non-residential property
40:12
non-residential properties are treated
40:14
are depreciative over 39 years
40:16
most short-term rentals are going to
40:18
fall within that
40:20
the transient basis rules were actually
40:21
removed from the code but then i think
40:23
it was
40:24
20 it was either 2011 or 2013 there was
40:27
a
40:27
an irs i think it was either a ccm or a
40:30
memorandum that
40:31
cited the old transient basis rule so um
40:34
people have been citing that as a result
40:37
uh
40:38
basically like the code still lives on
40:39
even though it technically doesn’t exist
40:40
anymore
40:42
so uh so be aware of that now
40:45
since it’s being depreciated over 39
40:46
years the non-residential property
40:48
that also exposes it to or i shouldn’t
40:51
say expose that also
40:52
gives you the opportunity to tap into
40:55
various pieces
40:56
of the code that change with the 2017
40:58
tax cuts and jobs act
41:00
2017 tax cuts and jobs act says that
41:03
non-residential property
41:05
you can use section 179 on roofs hvac
41:08
units fire protection systems
41:09
and like two other things you can also
41:11
100 bonus depreciate qualified
41:13
improvement property qualified
41:14
improvement property is anything
41:16
any sort of interior improvement that’s
41:18
not structural
41:20
so all of a sudden my 39-year property
41:23
airbnb
41:24
doesn’t sound that bad because i can i
41:26
can tap into these other things
41:33
all right i’m gonna keep moving i see a
41:36
lot of questions and i’ll come back
41:38
to those in a second okay two
41:41
two 20 21 tax changes that i want to
41:44
make you aware of the first
41:46
uh 100 business meals are now
41:51
available open for business you can now
41:54
100 percent deduct
41:55
the cost of business meals previously it
41:57
was 50 is 50
41:59
so if i took somebody out to lunch and i
42:01
spent a hundred dollars i could only
42:03
deduct
42:03
50 the tax savings there might be 20
42:06
bucks
42:07
but now i can deduct the full 100
42:10
and tax savings have doubled effectively
42:13
so it’s less costly to take
42:14
people out to business lunches that 100
42:18
business meal deduction is in place for
42:20
2021 and 2022
42:22
only it’s temporary and it’s going to go
42:24
back to 50 after that
42:26
the purpose is to revitalize the
42:28
restaurant industry over the next
42:30
two years so take advantage of that
42:31
while it exists the other one is
42:33
excess business losses so excess
42:35
business losses
42:36
it was a new code section that was added
42:38
with the 2017 tax cuts and jobs act and
42:40
it was kicked down
42:41
it it was uh was delayed the cares act
42:45
pushed it to 2021 so starting in 2021
42:48
you have excess business loss
42:49
limitations you can
42:51
only claim if you’re married filing
42:54
joint a 500k
42:55
excess business loss what’s an excess
42:57
business loss
42:58
if i have business income of one dollar
43:02
from my cpa firm and then i have
43:05
business losses from my rental real
43:07
estate of two dollars
43:09
so i have a two dollar loss my excess
43:11
loss
43:12
is one dollar right two dollars for my
43:14
rental real estate one dollar for my cpa
43:16
firm
43:16
negative two positive one so my excess
43:20
loss
43:20
is one dollar that’s now capped at five
43:23
hundred thousand dollars so who does
43:24
this hurt it hurts real estate
43:25
professionals it hurts people that are
43:27
buying
43:28
two million dollar buildings they’re
43:29
getting a six hundred thousand dollar
43:30
bonus depreciation allocation
43:32
they’re claiming a six hundred thousand
43:34
dollar tax loss well now if they don’t
43:36
have any business income they can’t
43:37
claim that full six hundred thousand
43:38
dollar tax loss they can only claim 500k
43:41
that’s who it’s hurting but be aware of
43:42
that if you’re getting any any big deals
43:45
um especially if you’re going to be
43:46
allocated a large portion of the tax law
43:48
so if you’re buying your own deals
43:50
you just need to be careful you need a
43:53
plan for
43:54
that up front so just be aware of that
43:58
all right i’m gonna hit i got like
44:02
two more slides and oh sorry i got
44:06
yeah two more slides and then i’ll do
44:07
questions real quick do i have enough
44:08
time pal
44:09
yeah we’ll and we’ll help you we’ll kind
44:11
of we got we got a bunch of the
44:12
questions that we’ve uh
44:13
we’ve already got a list for everything
44:15
awesome cool all right
44:17
upcoming tax changes with biden uh so
44:20
all of this
44:20
is a who knows we’re all guessing but
44:23
these are just things that his
44:24
either he has put into a plan that’s a
44:27
little more formal
44:28
or uh that he has mentioned during
44:30
speeches or that his administration has
44:32
mentioned during speeches
44:33
all right so the big one or the big
44:36
three
44:36
the top tax rate is going to go from 37
44:39
to 39.6 if you’re earning more than 620
44:42
000 so you’re gonna be earning a lot of
44:43
money to hit that top tax rate
44:46
the other one the second one is that
44:48
long-term capital gains this is one
44:49
that’s getting a lot of a lot of
44:50
attention
44:51
long-term capital gain rates are going
44:53
to go from 20 to 39.6
44:56
if you’re earning more than a million
44:57
dollars i believe that’s taxable income
44:59
so if your taxable income is more than a
45:01
million dollars
45:02
now your long-term cap gains are 39.6
45:05
the third one is the social security
45:07
payroll tax
45:08
being added back in if you’re earning
45:10
over 400 000
45:11
in wages so right now you pay social
45:13
security and medicare
45:15
a total of five 7.65 your employer pays
45:18
the other seven point six five percent
45:20
if you’re unlucky enough to be
45:21
self-employed you pay a full fifteen
45:23
point three percent
45:24
you get to play the employer and the
45:26
employee half of the
45:27
of the fica taxes um you pay social
45:31
security and medicare up to
45:32
i think it’s about 137 000 in wages
45:36
or self-employment earnings after that
45:38
you only pay
45:39
the medicare tax 2.9 for self-employed
45:42
half of that if you’re an employee 1.45
45:45
percent if you’re an employee
45:46
so on every dollar over that 137 k
45:49
threshold
45:50
you only pay the medicare tax 1.45
45:53
percent
45:54
what the byte administrator want by the
45:56
administration wants to do is they want
45:58
to add
45:59
that social security tax back in for
46:01
every dollar in excess of four hundred
46:03
thousand dollars so for the first 137.5
46:06
you’ll pay social security and medicare
46:07
tax that full 15.3 percent
46:09
half that if you’re an employee 137 to
46:12
400
46:13
you only pay 2.9 percent again half that
46:15
if you’re an employee
46:16
400 and above you pay the full 15.3
46:19
again
46:20
uh this could very effectively create um
46:24
or i shouldn’t say very effectively
46:25
because i’m about to say the same thing
46:26
but
46:27
basically if you’re earning above 400
46:29
000 you might be facing like a 60
46:31
marginal tax rate um depending on
46:34
what state you live in so between fed
46:36
and state taxes you can very easily be
46:38
paying 60 65
46:39
once you factor in those self-employment
46:41
taxes too so i i
46:43
expect to see some you know deferred
46:45
comp plans coming in
46:46
coming or getting more attention in the
46:49
coming years
46:50
those are the three things that i expect
46:52
to see happen
46:53
they’ve been talked about they’ve been
46:55
talked about with positivity
46:57
from the administration they seem to
46:59
have a lot of support i expect to see
47:01
those things happen
47:02
i don’t know when but um and they might
47:06
not happen
47:06
exactly the way that i described them
47:08
but i do i do expect to see some sort of
47:10
scale there
47:11
the other three things that have been
47:13
talked about a lot eliminating the
47:14
twenty percent pasture deduction if
47:16
you’re earning more than four hundred
47:17
thousand dollars the 2017 tax cuts and
47:19
jobs act added that twenty percent
47:20
password deduction for business owners
47:22
and the biden administration wants to
47:24
eliminate that if you’re earning more
47:25
than 400k
47:26
that that has potential to pass at some
47:29
point
47:30
the second one is potentially
47:31
eliminating the stepped-up basis so
47:33
right now
47:34
if i buy a property for 100k and it
47:38
appreciates to 500
47:39
000 over time and then i die
47:42
my son inherits it right now my son
47:46
inherits it at a value of five
47:52
right now my son inherits it at a value
47:54
of 500k his basis gets stepped up
47:56
so he can either sell it at 500k and pay
47:59
zero tax because his basis is also 500k
48:02
or he can start depreciating it at 500k
48:04
and have it as a rental property
48:06
the biden administration has talked
48:08
about getting rid of the stepped-up
48:09
basis so same scenario i buy a property
48:11
for 100k today
48:12
i die when it’s worth 500k my son
48:15
inherits it
48:16
he inherits it at my basis 100k so he’s
48:19
got a gain of four hundred thousand
48:20
dollars assuming the property hasn’t
48:21
been depreciated in the past
48:23
so that could be um it’s that’s
48:25
effectively a wealth tax
48:28
uh i mean it’s a death tax but it’s it’s
48:30
also effectively wealth tax
48:32
it’s been talked about a lot but biden
48:34
is a moderate and i don’t know that he
48:36
would actually go for something like
48:37
that so
48:38
it’ll be it’ll be interesting to see how
48:40
that plays out
48:41
the last one is the 1031 exchange
48:42
everybody’s talking about and worried
48:44
about the 1031 exchange disappearing
48:46
um the 1031 exchange has been on the
48:48
chopping block for a long time
48:50
the way that this stuff works is you
48:52
know a congressman is going to say
48:54
i i want this thing passed and this
48:56
thing is going to
48:58
cost us x billion dollars in um
49:02
um x billion dollars and so we need to
49:05
create revenue so
49:07
we we have we have a team of tax
49:08
attorneys that just literally go through
49:10
the code and try to figure out
49:11
how do we create revenue well a 1031
49:13
eliminating the 1031 exchange
49:15
is a great way to create revenue so
49:17
that’s why it always comes back up
49:18
on the chopping block but i don’t think
49:20
that it’s going to be effect impacted
49:23
um mainly because there have been
49:25
studies in the past that show that
49:26
attended
49:27
the 1031 exchange does benefit the
49:29
economy
49:30
more than it wouldn’t if it didn’t exist
49:33
so
49:34
i think that we’ll be okay there all
49:36
right
49:37
last but not least the number one tax
49:39
deduction
49:41
that we’ve seen investors miss and quite
49:43
frankly we’ve missed it with our own
49:44
clients too
49:45
is called the partial asset disposition
49:49
this was implemented with the 2013
49:50
tangible property regulations partial
49:52
asset dispositions basically the way
49:53
that it works
49:54
is if i buy a rental property today for
49:56
a hundred thousand dollars
49:59
the roof is worth let’s call it six k
50:02
six thousand bucks that’s true with or
50:05
without a cost segregation study by the
50:06
way because if i buy a hundred thousand
50:08
dollar property
50:09
i’m not just buying the building i buy
50:11
all the components that make the
50:12
building up and they all have value
50:14
whether or not i get a cost segregation
50:16
study done that statement is true
50:18
so i can find the value of every
50:20
component
50:21
it’s a little bit more difficult without
50:23
a cost segregation study
50:25
but that’s true that that’s how it works
50:28
so i buy this property and let’s say
50:29
that the roof’s worth six thousand
50:30
dollars
50:31
two years go by and i say i need to buy
50:33
a new roof so i buy a new roof i get it
50:35
i get it put on it cost me 10 grand
50:38
because i’m putting on 50-year shingles
50:39
you know going for the the good stuff
50:41
so 50-year shingles new roof gonna last
50:43
me a long time ten thousand dollars
50:45
most people don’t write the cost off of
50:48
the old roof
50:49
that six thousand dollar old roof they
50:51
don’t write it off so what what ends up
50:53
happening
50:54
well they’re depreciating the ten
50:56
thousand dollars new roof
50:57
and they’re also depreciating the six
50:59
thousand dollar old roof that no longer
51:01
exists
51:02
so now they’re depreciating sixteen
51:03
thousand dollars worth of roofs
51:05
and this is hard to see because if if i
51:08
haven’t done a cost segregation study i
51:10
look at my tax returns and it says
51:12
building 80 000 land 20 000 total price
51:15
is 100k
51:16
new roof added two years later for 10
51:19
grand
51:21
right so i don’t have that roof that old
51:23
roof identified to actually ride off
51:25
but if you thought about it in a
51:26
different way um
51:28
it would make a lot more sense so
51:30
instead of saying my building is 80k my
51:32
land is 20k
51:33
i would say my building’s 74 my roof is
51:35
six my land is 20. so then when i go put
51:37
a new roof on
51:38
i should probably get rid i should
51:40
probably scratch out that old roof that
51:41
no longer exists
51:43
that’s a partial asset disposition
51:45
basically says you get to claim
51:47
you get to take a loss now you get to
51:49
write off the cost basically take a loss
51:51
for the property that you’ve ripped out
51:54
um the irs is coming after people taking
51:56
partial asset dispositions shouldn’t
51:58
stop you from taking them because it’s
51:59
definitely part of the code it’s uh
52:01
it’s something that is available to you
52:04
anytime you’re doing any sort of rehab
52:05
improvements anything like that make
52:07
sure that you touch base with your
52:09
cpa and just ask them can i claim a
52:11
partial acid disposition there’s a lot
52:13
of complex rules around it
52:14
sometimes you can sometimes you can’t
52:16
sometimes you have to use different
52:17
calculations for
52:18
different types of assets um so or
52:21
different types of improvements
52:22
different types of repairs
52:23
so don’t go do it yourself because these
52:26
are very complex rules
52:28
all you need to remember is any year
52:31
that i do a an improvement
52:34
a big capex project anything like that
52:37
i’m gonna go ask my cpa if i can take a
52:39
partial asset disposition that’s all you
52:41
have to do
52:42
i encourage all of our clients to do it
52:44
too because we’re human we make mistakes
52:46
and we don’t do enough due diligence in
52:47
the middle of tax season that’s that’s
52:48
going to be true for everybody
52:50
so help your cpa out and just ask them
52:52
can i take a partial asset disposition
52:55
and you will be pleasantly surprised
52:58
with the additional
52:59
deductions that you’re able to claim the
53:01
other thing that partial asset
53:02
dispositions really help with
53:03
you know when you go to sell a property
53:05
if i don’t do a 1031 exchange or
53:06
anything like that
53:07
i go to sell a property i have to pay
53:09
depreciation recapture tax on the
53:11
depreciation i’ve claimed or could have
53:12
claimed
53:13
but if i get if i write the asset off if
53:16
i dispose of it
53:17
via a partial acid disposition it
53:18
doesn’t get factored back in at the end
53:21
so it’s a it’s a double whammy you get
53:23
the you get the
53:24
benefit today you also get it later and
53:27
that is it
53:28
so thank you so much for letting me come
53:30
and talk to you guys i really appreciate
53:32
it
53:32
uh you can contact me in a number of
53:35
different ways you can hit us up at the
53:36
realestatecpa.com that’s
53:39
www.therealestatecpa.com
53:40
you can email me at brandon.haul
53:45
at hallcpallc.com and i’ll throw that in
53:48
the chat too
53:49
and then we’ve got a tax and legal
53:50
summit coming up if you’re interested in
53:52
taking a look at that’s an online event
53:54
totally free www.taxandlegalsummit.com
53:59
thank you brandon thank you
54:04
um i feel like every time i listen to
54:06
one of these i always think i know it
54:07
all and then i pick up on something new
54:09
so
54:10
i guess there’s a secret cover a lot of
54:12
ground in that 50 minutes yeah
54:14
my head kind of hurts a little bit and i
54:15
knew chunk of that so
54:17
i mean tremendous information i know
54:19
there was a ton of questions
54:21
i know bethany was kind of collecting
54:23
them so we’ll let her
54:24
kind of go through and the ones right i
54:27
don’t want it to drag out too long for
54:28
you brandon
54:29
but would have totally appreciated stick
54:30
around and answer some questions and
54:32
then for those that are listening right
54:33
we’ll hop on to our breakout rooms
54:35
right as i mentioned the breakout rooms
54:36
is basically a chance to network
54:38
hopefully branding is sticking around
54:39
maybe we’ll get a little bit one-on-one
54:40
with him and
54:41
a chance to ask more questions and for
54:43
those that have
54:45
come live right we do this the third
54:46
monday of every month next month we are
54:48
going to be talking about new
54:49
construction with new construction panel
54:51
so i’d love to see you all there but
54:54
with that said
54:55
bethany you want to go ahead and kind of
54:57
take the stage and then go ahead and ask
54:58
the questions
54:59
sure before before we go before you go
55:01
real quick bethany
55:02
so brandon uh we’re probably going to go
55:04
to breakout rooms in about
55:06
15 minutes so maybe if you could try to
55:08
some of these questions might be long
55:10
but if you could just give them maybe
55:11
the one or two minute answer and then if
55:13
you need more information for those of
55:14
you who are
55:15
asking for more information you
55:16
definitely have brandon’s information
55:18
there
55:18
and um i know i remember last time
55:21
brandon you also gave us uh
55:23
like a white paper that you had i don’t
55:24
know if that’s something that you still
55:25
have that
55:26
or that you could make available to
55:29
people as well
55:29
so yeah yeah that white paper is
55:33
it’s actually on our website it’s
55:34
publicly available um
55:36
if you go to the realestatecpa.com hover
55:38
over education
55:40
we actually have a couple white papers
55:41
but i think that the one you’re talking
55:42
about is the ultimate guide to real
55:43
estate professional stuff yeah
55:44
everything that i talked about
55:46
yeah everything i talked about whenever
55:47
i do these presentations people always
55:48
like pepper me with like
55:50
all education research and all that
55:51
stuff but that guide has all the
55:53
citations
55:54
um and and everything to back up what
55:56
i’m saying
55:57
perfect perfect go ahead bethany
56:00
okay awesome brandon thank you so much
56:02
as always for all the value brought
56:04
tonight
56:04
um so one question uh that we did have
56:07
uh from nelson lee uh does looking for
56:10
real estate to purchase count as hours
56:12
towards being a real estate professional
56:14
and then also um tangent with that what
56:16
does qualify as research hours
56:18
yeah so so that that’s a good question
56:23
and that depends if you
56:26
if you are underwriting a property
56:28
you’re visiting the
56:29
property to scope it out you know during
56:32
inspection or
56:33
you’re you’re walking contractors
56:35
through the property you close on it
56:37
then we would argue that those hours do
56:39
count the hours that you spent there
56:41
but if you’re researching property if
56:42
you’re underwriting a bunch of different
56:44
properties
56:44
and you’re let’s say you do that 100
56:46
times and you close on one
56:48
um there’s nothing that has specifically
56:50
addressed that
56:51
yet in the tax court but i
56:54
i would venture a guess to say that that
56:56
research time is not gonna
56:58
that will be considered research time
56:59
and it’s not going to actually count
57:02
uh there was a tax court case where a
57:04
gentleman
57:05
had a proper had had a local portfolio
57:08
and he spent a ton of time going to
57:10
auctions
57:11
for foreclosure properties and
57:12
researching those foreclosure properties
57:14
and running numbers and tax court
57:15
disallowed all that time
57:17
so if you close on the property you have
57:19
a much better shot of substantiating the
57:21
hours
57:22
okay awesome it’s a great question from
57:24
omid uh does managing or promoting the
57:26
property on social media account
57:28
as uh real estate work basically we yeah
57:32
we would consider that advertising it
57:34
depends though you know i mean every
57:35
once in a while we get somebody that’s
57:36
like well i have a blog a real estate
57:37
blog that i
57:38
that i write all the time that that
57:40
funnels leads to my
57:42
my real estate listing and that’s gonna
57:43
be a stretch so
57:46
um yeah i mean if you’re like writing
57:47
the facebook ad to go and post it then
57:49
yeah that’s all part of advertising
57:52
awesome okay uh are the tax laws this
57:55
question from j
57:56
amin are the tax laws just as favorable
57:58
for self storage and mobile homes or is
58:00
there a
58:01
tax advantage of one particular asset
58:03
class over the other
58:05
so with tax they all kind of work
58:08
together in different ways at different
58:09
times
58:10
if you’re investing in mobile home parks
58:13
uh you can
58:14
very likely get a 70 allocation to first
58:17
year bonus depreciation with a cost
58:18
segregation study so i buy a 100 million
58:20
100
58:21
100 million dollar mobile home park
58:22
that’d be impressive buy a million
58:24
dollar mobile home park
58:25
i can take potentially seven hundred
58:27
thousand dollars of bonus depreciation
58:29
and that can be big time the problem is
58:31
that in the future that mobile home park
58:33
i’ve taken all that depreciation so
58:35
what’s it going to do it’s going to
58:36
produce
58:36
passive income that’s taxable that i
58:39
can’t shelter because i’ve already taken
58:41
all the depreciation
58:42
so and that might not be a bad thing
58:44
maybe maybe that mobile home park
58:46
produces 100k of
58:48
passive income and i go and throw a
58:50
hundred thousand dollars into a limited
58:51
partnership syndication
58:53
that’s going to do a cost like studying
58:54
they pass a 90 000 passive loss back and
58:56
now i’m offsetting my mobile home parks
58:58
passive income so it’s not a bad thing
59:00
to have passive income it’s just
59:02
part of the part of the planning the
59:03
overall portfolio
59:05
gotcha okay uh next question from daisy
59:08
serrano
59:09
if married and one person is the real
59:12
estate professional can the tax
59:13
advantages also apply to the non-real
59:15
estate professional
59:16
partner yes yep so
59:20
so one spouse has to qualify as a real
59:21
estate professional completely on their
59:23
own
59:24
and if they do that and then both
59:26
spouses collectively can materially
59:28
participate
59:29
which is cool so if my spouse wants to
59:31
just be a real estate agent full time
59:33
and doesn’t want to touch the rentals
59:34
she can go do that she can qualify as a
59:36
real estate professional by being a real
59:38
estate agent
59:39
then i can manage the rentals well she
59:41
hit real estate agent her real estate
59:42
professional status completely on her
59:44
own so we’re good there
59:45
and then she gets to count my time for
59:46
material participation in the rentals
59:48
as long as you do that you’re good to go
59:50
you can work together
59:51
gotcha awesome okay uh next question
59:55
from nelson lee if you travel out of
59:57
state to manage a rental property does
59:59
that travel back and forth count
60:02
well that that’s the that’s the big
60:04
question mark right so so we know that
60:05
if you have
60:06
local properties and you’re you’re
60:08
traveling locally then you’re good
60:10
we also know that if you are
60:11
infrequently visiting out of state
60:14
properties or just properties that are a
60:16
long way away from you long way being
60:18
you know a two-hour drive
60:19
then you might not be good is there an
60:22
in-between i’m sure that there is
60:24
and we’ll know what that looks like i’m
60:25
sure over the next five years or so
60:28
okay okay wait real quick hey brandon
60:31
can i follow up on the uh
60:32
question before the uh if one person is
60:35
married the other person
60:36
is a real estate professional um you
60:38
mentioned that
60:39
material participating so one partner
60:42
could materially participate and
60:43
basically cover the full
60:45
uh 500 hours what if that person has a
60:48
w-2 job does that person
60:50
is a disqualified disqualified or can
60:52
that person still have a w-2 job
60:53
and do the 500 hours material that’s a
60:57
great question
60:57
and this is where the difference of the
60:59
real estate professional tests and the
61:01
material participation tests come into
61:02
play
61:03
because there’s no rule with the
61:05
material participation test that says
61:06
that you
61:07
you have to spend more time materially
61:09
participating
61:10
in like real estate than anywhere else
61:12
that’s only on the real estate
61:13
professional test
61:14
so if a spouse hits the real estate
61:16
professional test
61:17
they’re a real estate professional i can
61:20
i can work
61:20
full-time in my cpa from full-time right
61:22
like i spend 3000 hours a year working
61:24
at my cpa firm so full-time and a half
61:26
at my cpa firm but i can still find time
61:29
to manage the rentals and if i’m
61:30
self-managing and i do everything myself
61:33
my spouse can count all my time for
61:34
material participation purposes
61:36
okay all right thank you does that
61:39
answer your question
61:41
okay cool okay
61:44
let’s see we have we’re doing about 10
61:46
more minutes for q
61:47
a right pal for breakout rooms
61:51
yes yes awesome okay uh next question
61:54
from omid if you have a w-2 corporate
61:56
job can you classify for a real estate
61:58
professional if you hit the 750 hours
62:03
can you repeat that i’m sorry if you
62:05
have a w-2 corporate job
62:07
can you classify as being a real estate
62:09
professional if you hit the 750 hours
62:13
um if you have a full-time corporate job
62:16
that’s
62:17
that’s where that second statutory test
62:18
comes into play where you spend more
62:20
time in real estate than anywhere else
62:22
so you would have to be able to show
62:24
that you spent more time working in your
62:27
real estate business than you did your
62:28
your w-2 job
62:30
you’d have to track time like your time
62:33
log would have to show
62:34
how much time i spent on my w-2 job and
62:35
this is also true for part-time if
62:37
you’re
62:37
part-time anything you need to track
62:39
time in all of your activities not just
62:41
real estate that’s the trick with that
62:43
time
62:43
log so i would have to track time in my
62:45
w-2 job i would also have to track time
62:48
over here running that rental real
62:50
estate portfolio or or just
62:51
whatever real property trade or business
62:53
i’m running if i spend more time in my
62:55
real property trader business
62:56
i’m good to go but also
63:00
note that you will most likely be
63:02
audited and most likely taking the tax
63:04
court because the auditor’s never going
63:05
to believe that you spent more time
63:07
in real estate than your full-time w-2
63:09
job so just be ready to uh
63:11
to put up a fight can’t i’m not going to
63:13
say that it can’t be done because i’m an
63:15
optimist
63:16
it just hasn’t been done yet
63:20
awesome going along with that question
63:23
is there a particular
63:25
format or program for a time log
63:28
spreadsheet that you’d recommend or just
63:30
something simple like an excel
63:32
spreadsheet yeah
63:33
good good question we always say
63:35
whatever is going to get you coming back
63:37
to the table on a daily basis to record
63:39
your time
63:40
so if that’s spreadsheets it can be
63:42
google sheets we have a lot of clients
63:43
that use google sheets because they can
63:44
put it right on their phone
63:46
um so figure out what works you can use
63:49
calendars you can use
63:50
actual time keeping tools like there’s
63:52
one like toggle t-o-g-g-l
63:55
that a lot of people have used with
63:57
success so
63:58
figure out what works for you but the
64:00
key is is just
64:01
every day i’m putting something down on
64:03
what i did
64:04
to document it perfect okay
64:08
uh next question from jefferson gan for
64:11
a limited partner
64:12
that is purely passive and also not a
64:14
real estate professional
64:16
what would you say would be the best way
64:17
to lower tax burden
64:19
aside from a cost segregation study
64:22
yeah so that that’s a loaded question uh
64:25
typically it’s very difficult to do
64:27
if all you’re doing is investing in a
64:29
limited partnership
64:31
um you’re going to get the passive
64:32
losses back from that
64:34
that syndication when they do the cost
64:36
segregation study and those
64:37
passive losses are going to be suspended
64:38
and selling your books
64:40
now what we have done with some success
64:42
i say some because it’s difficult to do
64:45
is help our clients think through the
64:47
timing of the investments that they’re
64:48
making
64:49
so if i make an lp investment today and
64:52
i know that this whole period is
64:53
expected to be four or five years
64:54
i know that come year four or five i
64:56
should have the next 100 000
64:58
ready to go to make the next investment
65:00
because when this investment that i make
65:02
today
65:02
liquidates it’s going to come back with
65:03
a big gain and i’m going to want to
65:05
offset that gain by investing in the
65:07
next limited partnership
65:08
so it’s more of like a timing thing and
65:10
just trying to get my portfolio to
65:12
offset each other
65:13
uh for tax purposes over time but
65:15
there’s there’s some other issues with
65:17
that too like basis erosion that that
65:19
happens when i keep
65:20
recycling my money and getting all the
65:22
bonus depreciation and stuff like that
65:24
so you got to watch out for that as you
65:25
continue scaling it up
65:27
but that’s definitely something that you
65:28
can do it’s just a matter of kind of
65:30
talking it out with your cpa and
65:31
understanding
65:32
when are these properties expected to
65:33
liquidate so that i can have a game plan
65:35
in that
65:36
year to hopefully mitigate that passive
65:38
income that’s coming back to me
65:40
okay awesome thank you uh next question
65:43
from jay
65:43
amin any thoughts on investing in
65:45
multi-family syndications as a limited
65:47
partner through a self-directed ira
65:50
uh better tax advantages or just a
65:52
headache using a custodian that charges
65:54
uh too many fees yeah i mean look
65:58
i think that if you want to use
65:59
retirement accounts to invest in real
66:00
estate go for it
66:02
and this is not financial advice i’m not
66:03
a financial advisor
66:05
me personally i don’t know that i would
66:07
use a retirement account to invest
66:08
in multi-family assets or single-family
66:11
assets because those assets are already
66:13
relatively tax sheltered
66:15
what i would use my retirement accounts
66:17
for is to invest in like hard money
66:19
lending
66:20
private lending because i’m going to
66:22
earn interest income and interest income
66:23
is really difficult to shelter
66:25
if it’s not in a retirement account so
66:27
why not
66:28
why not get the interest income debt
66:30
debt exposure is good
66:32
so why not do that de-risk myself across
66:36
my entire
66:37
portfolio and get the interest income
66:39
kicking back
66:41
if you invest in a multi-family
66:44
syndicate or any type of syndicate any
66:45
type of real estate syndicate
66:47
with a self-directed ira you’re gonna
66:49
have to worry about ubti
66:51
unrelated unrelated business taxable
66:53
income
66:54
unrelated business taxable income well
66:56
rental real estate
66:57
rental rents from rental real estate are
67:00
not subject to ubti
67:02
what happens with a self-directed ira is
67:05
that
67:05
self-directed iras are subject to udfi
67:08
that’s unrelated debt financed income
67:11
so basically if i use my self-directed
67:12
ira to buy a property and that property
67:15
is leveraged
67:16
with debt then some portion of the rents
67:20
are automatically going to be subject to
67:22
ubti so i might pay some tax
67:25
a solo 401k is not subject to udfi
67:28
so if you can use a solo 401k to invest
67:32
in syndicates because then you don’t
67:33
have anything to worry about you don’t
67:34
have ubti
67:35
udfi nothing if you are using a
67:38
self-directed ira
67:39
uh in our experience i just know like i
67:42
can’t point to any specific data
67:44
but in our experience it seems to lop
67:46
off about one percent of the total irr
67:49
over the whole period that the tax does
67:51
so i don’t know if that’s helpful but
67:53
yeah perfect okay thank you well let’s
67:56
see
67:57
next question just have a couple more
67:58
here uh from nelson as a syndicator does
68:01
the time
68:01
spent prior to closing with lenders
68:04
investors etc
68:05
count towards hours for a real estate
68:07
professional activities
68:10
yeah that’s a great question um
68:14
i i probably probably um
68:17
but maybe not okay
68:20
and the only reason i say that is uh is
68:23
if you
68:24
so so think about any syndication deal
68:26
that you’re part of there’s typically
68:27
one or two people in that deal that are
68:30
actually
68:31
running the deal those people are real
68:34
estate professionals
68:35
most of the time if i come in and all
68:38
i’m doing is bringing capital to the
68:39
deal and i sit on the property manager
68:41
calls
68:42
i don’t need to be there i’m my time is
68:45
probably not going to count
68:46
but if i’m doing that enough and i’m
68:48
doing that through my own company
68:50
my own company will probably qualify as
68:52
a real property trader business and all
68:54
those hours will probably count
68:55
so that’s why i say like probably but
68:57
maybe not it just kind of depends on
68:59
your situation
69:00
gotcha okay awesome uh
69:03
i think this is a question to nelson
69:06
maybe one last one here bethany
69:08
the last one okay um what if you are on
69:10
the loan i think that’s a follow-up to
69:14
what we were just discussing from nelson
69:17
uh you mean like with the ubti udf udf i
69:21
think
69:21
yes yes so so it doesn’t matter if
69:24
you’re on the
69:25
well um if you
69:28
if you’re if you’re investing with a
69:30
self-directed ira and you’re on the loan
69:32
i think you might have bigger problems
69:33
than uh
69:34
um than tax but theoretically even if
69:37
you were
69:37
it wouldn’t matter for udfi purposes
69:40
because udfi just looks at the property
69:42
that’s acquired
69:43
is it leveraged if yes you have udfi
69:46
and any net income coming back is some
69:49
portion of it will be subject to ubti
69:52
gotcha okay clarification no uh he
69:55
actually intended on a
69:56
freddie or fanny loan
69:59
yeah it’s not gonna matter still still
70:02
debt still leverage
70:04
yep good question all right well thank
70:06
you awesome
70:07
awesome well thank you so much for
70:09
everybody who participated as well as
70:11
you brandon for
70:12
dropping tons of knowledge for us um
70:15
once again here on on multifamily
70:16
masters live we
70:17
really appreciate that do go to uh if
70:20
you have any follow-up questions or that
70:21
brandon wasn’t able to answer your
70:22
question
70:23
i feel free to reach out to him he has
70:24
his contact information in the chat
70:27
um and so let’s see right now we’re
70:30
going to go ahead and go into our
70:31
breakout room sessions
70:33
uh we’ll we’ll typically go into our
70:35
breakout room for about
70:37
10 minutes-ish it’s a good chance for
70:40
you to come on come on the screen
70:43
put your information in there meet some
70:45
people
70:46
and um you know and kind of network here
70:49
right at the end
70:50
um right after that we’ll basically come
70:52
back here
70:53
close it up uh right before seven
70:55
o’clock and then from there
70:57
we will uh for those of you who are have
70:59
clubhouse app
71:00
we will be on the clubhouse for a little
71:02
bit maybe an hour at the most
71:04
and kind of answer any q a as well as as
71:07
well as
71:07
dive into other topics around
71:09
multifamily as well that’s our
71:11
mfm after dark on clubhouse that we’ll
71:14
be running
71:15
so if you have any uh questions feel
71:17
free to follow up there but we’re going
71:18
to go ahead and break you out into some
71:20
breakout rooms right now
71:21
and uh look forward to seeing you guys
71:24
all
71:25
next month third monday of the third
71:27
monday of the month
71:28
and um we’ll be talking about new
71:30
development then okay so we’ll head to
71:32
our breakout rooms now
71:33
all right