Tax Planning for your Rentals

welcome everybody to this week's live broadcast on small business tax savings asset protection privacy world peace ever well not world peace my name is mark kohler i'm a cpa attorney and senior partner in a law firm an accounting firm and a trust company helping people self-direct their iras we're live on youtube facebook and instagram right we're going does someone need to push a button somewhere okay all right we are cranking now we're going to talk about real estate investors first i want to always start with a tip try to help out here give everyone something to think about in their master plan to control the universe but uh then it's all q a it's all for you i just want to answer questions around the country i've already got a bunch of questions in here from instagram but please down below type her up we'll do the best we can now i've got my guest here with me our co-host if you will darren cherrington one of my tax attorneys here at the office he's awesome you can't see him on camera he'll come out he's got some questions we've got camera here you'll see me eventually yeah we'll see eventually um i might give away some books here we'll see how it goes i want to keep this as interactive as possible and i want to say thank you for paying attention here because it's truly we this is what we do we help our clients save money protect it save taxes build it grow it blah blah blah so i hope to wow you today now if you want to read more about this tax strategy of owning real estate let me give just a few general caveats first my book the tax illegal playbook has a whole chapter dedicated to real estate and the real estate professional classification that's the tax side of it we also have the asset protection side and i'm going to do some diagramming here in just a couple minutes the next thing i want to say is today's broadcast is not about why you invest in rental real estate i got other podcasts and youtube videos and all those goodies on that today is really about how do i structure it i'm going to buy real estate mark i'm all in but where do i buy how do i buy how do i hold it what are the tax benefits what can i write off please bring those questions we kind of want to keep it real estate centric today now of course we've done lives on cryptocurrency lives on s-corps lives on restaurants importing you know we i tried to cover it all but today is kind of real estate now if you have a question that's not real estate related we'll get it we'll do the best we can now if you see a comment down there in the youtube feed or the facebook feed from a darren darren cherrington he's he's a real tax lawyer here on my team that's going to be trying to answer some of those questions there he is he looks like me just dressed up a little fancy yeah we're here together we're rocking it okay want to say thanks to corey our producer director cameraman and my marketing director jack over here telling us what to do we're good any problems we're live okay we're cranking all right real estate investors let's just talk structuring for a moment because i think the tax piece of this is easier once we talk about big picture all right now here's what i'm we got to go to the trifecta this is what we want our clients looking like whenever you meet with one of my tax lawyers or cpas we're going to try to build a diagram for you of your master plan and we want to start out down here with your 1040 and your revocable living trust now your trust is going to be comboed with a will powers of attorney and we're using this for privacy we're not setting up a trust for asset protection or taxes it's to hide your assets it's to protect them from a crimey family members when you die or courts or lawyers we want to try to distribute your wealth in the most creative manner keeping cost to a minimum and fights to a minimum so the trust is really going to do that all right so that's a topic for another day as well then what we do is we divide your life from two sides remember and some of you may have a day job w-2 or your spouse or your partner whoever you're hanging out with so you may have a day job or not and you may have a side hustle and i want all my clients having a side hustle to create tax write-offs build extra wealth make more money yada yada but eventually a lot of my clients end up with a full-time operation some sort of business that they can really start to build into the future now you may keep the day job i don't know but we're going to take this side hustle that usually starts out as an llc and eventually we're going to be an s corp now in the real estate realm this is kind of my developer this is the fix and flipper i'm going to put fnf fix and flipper this could also be my realtor or broker so in the real estate world this is what we're doing and we're funneling it all through an s corporation now rental real estate is on the other side this is my asset side this is the operation side all right so when it comes to tax planning and rental real estate i want to build this so that we can really make sense i'm going to kind of get rid of that so we make this a little prettier here and as we answer questions today this trifecta is going to help us a lot so you've got a 1099 coming in again you might be fixing and flipping property and so your operations i want to get this a little prettier here and this is important so operations are over here and assets are on the right hand side so in our trifecta your income is coming down here off this side through your s corp through your llc your side hustle your day job coming down to your tax return and this is where your personal bank account might be down here but you also have a business bank account and so personal bank account and business bank account up here now the asset side is going to be built up of really two sides you're going to have your 401 k you might have your roths you might have regular iras all sorts of tax deferred strategies so i'm going to put tax strategy stuff all right let's just kind of leave that there for now but over here is where the rental properties typically go so this you know i wanted to zoom in on this but this is typically where you're going to see your revocable living trust is going to own your llc your trust is going to own your personal home and then your trust is also going to own your s corp or llc on this side so this is the trifecta and my clients that are worth 50 million dollars or 5 000 just getting started we want to build this structure so that we're efficient we're making money we're saving money and this is really really important because the write-offs that i want to build all the tax write-offs are either going to be here right because i want to i want to write off um here i'm going to write it out tax write-offs i want to write off home office cell phone dining computers electronics ipads books education but a lot of times your side hustle can also be your rental property so i want to put over here my rentals and these rentals are going to have a lot of great write-offs too travel being a big one you might buy rental properties where grandma lives where your parents live where your kids are going to college whatever so rental properties are going to be over here and again with this red we're going to write off as many strategies as we can on these two sides of the equation i'm going to kind of clean this up a little bit this is a work of art people and when i meet with clients we really try to build a diagram that comes together for them so we have our llc's our llc's and s corps flow down into our trust our 1040 our llc here all of our 401ks and roths and iras flow down and we're building the structure that all flows down into our 1040 tax return on our trust and all these write-offs and this is what we're talking about today i'm going to write off expenses here in my small business and expenses here in my rentals boom okay that's the big picture darren feeling it absolutely okay now that's for asset protection i'm only going to set up llc's where i have rental properties i'm going to keep it simple i might put two or three rentals in one llc i'm not just going to go pay 50 at the state and get an oc you need to have an operating agreement membership minutes stock certificates i should say are membership certificates a tax id number a bank account you got to treat this llc legit you can't just say oh i have an llc online nope we got to make sure we maintain it if you live in california but your rentals in arizona if i have a manager for my llc out of the state of california i can avoid registering in california i don't want to pay that 800 minimum tax but i typically have to have an llc where my rentals reside if i live in california i could have a an llc in freaking california you can't just go set up in wyoming or nevada and hope you get lucky it's not going to happen and what i do a lot of times with clients is they have their trust and they might have maybe some rentals in tennessee so we have a tennessee llc with two or three rentals and then they might have an illinois llc for their chicago rentals and both llc's are owned by your trust that's okay now you might have a partner in this one so you each own it 50 50. but this one you may own a hundred percent so every person situation can get a little different but i want to try to keep it efficient and not set up more llc's than i have to i want to get keep it tight all right now we're going to go to q a here in one moment the next big topic is everybody says should i be a real estate professional so i'm going to write that in blue a real estate pro okay this is this is a big question now here's why let's go back to our trifecta i'm going to try to keep it simple here here's your trust you have an llc boom you've got a day job and you have a small business okay what happens is a rental property loses money on paper even though it's cash flowing we love this i have rental property myself i've got duplexes some low-income housing some commercial properties i don't own 50 properties i don't but i have five or ten and i'm trying to encourage my clients every year look for a partnership in a rental or buy a little rental every year i want my kids to buy rental property as they start building their wealth this is what rich people do they buy rentals as part of an overall strategy i'm not saying we're putting everything in crypto or we're putting everything in real estate or putting everything in the stock market we want a well-balanced approach i meet with wealthy people every day i meet with people making good decisions and people that are making stupid decisions i want to try to help you okay now when you have rental property they make cash flow but you're writing off depreciation and mortgage interest and travel and home office and auto and computers and electronics your rental business will lose money on paper even though it could be cash flowing this loss is a big deal people want to write off this loss against their day job or their side hustle so these losses let's put a little loss here a little minus people want to write that off now if you're not a real estate professional you can write off the first 25 000 but once you make more than 150 grand in your life your adjusted gross income once you hit 150 k the 25 is gone it's lost forever or israel is it no no no it's not lost forever it comes back and goes into this bucket in this bucket of losses you get to carry forward for the rest of your life some clients go yo mark i make too much money so i don't i don't track all my write-offs from with my rentals i'm like no no track them all because you get to carry them forward you might have three or four rental properties you sell property number three you can dump the bucket out on any rental so your rentals grow based on all of your rentals but you can dump out the losses against any one property so if i have three rental properties i can dump out the loss we do this for clients all the time okay so that is if you are an active real estate investor all of my clients qualify as active i qualify as active you don't have to be a realtor you don't have to be a contractor all you have to do is make decisions it is so freaking easy if your accountant has you classified as passive you got the wrong freaking accountant and if you're playing around on turbo tax with rental properties you may want to get a professional helping you that's the idea i don't freaking re-plumb my kitchen i may screw around with painting and something but when it gets complicated i hire a freaking professional be careful trying to hack this out on legalzoom and turbo and you may say well my accountant sucks get a new freaking account all right now what happens if you're a real estate professional then there's no bucket the bucket goes away i'm going to in fact even race it here no bucket all of your losses they come straight over and they're a hundred percent deductible against your other income all of them and if you're married you could have a day job and have a stay-at-home dad that's the real estate professional so husband wife the wife has the day job the husband manages the rentals qualifies as a real estate professional all of these losses you can deduct against spouses w-2 and your income boom and this is where people don't pay a lot in taxes now i know i'm going to say a name here that half of you are going to love and half are you going to hate so just freaking chill out donald trump now a lot of people were mad that the year before donald trump became president he paid 600 in taxes 600 why how did he do something bad he had millions of in dollars of income over here millions from the apprentice and tv shows and his um retail stores and from miss american miss world and miss universe and whatever he had tons of income but he also had tons of write-offs from his real estate and because he qualified as a real estate professional because that was his main business he took all these losses and wiped out his other income zero in taxes made millions you can do this too don't be mad at donald trump say freaking a i'm gonna do the same thing that's what real estate professionals do most of my realtors don't pay taxes most of my contractors don't pay taxes because their rental properties are generating depreciation and write-offs that wipes out their other income and what do you think they retire on rental income from their rentals that generated losses when they were making money to buy more rentals so they get write-offs make more money buy more rentals get more write-offs make more money buy more rentals you do this for 20 years i've got clients that are 70 years old with 30 rental properties paying cash flow now and they didn't pay any taxes getting there now at some point you're going to pay some taxes if you sell a rental or you have passive income and no ordinary income it's good i can't guarantee no freaking taxes forever but this is a cool deal so in summary i want to combine good asset protection with the right amount of llc's in the right states with what classification is a real estate investor are you are you active or a pro is your spouse active or a pro and if i can bring those two together it's not a get rich quick scheme it's a plan over several years to build your real estate wealth and save taxes oh now how do you qualify as real estate professional husband or wife either one qualifies you both qualify so what's the test number one you do 750 hours a year doing real estate now you don't have to be a licensed realtor broker or contractor you could be a fix and flipper or just manage your own freaking rentals but you have to be at least doing 13 hours a week in real estate that's number one you can't just say i'm a real estate professional you got to put in the time and plus it's not or it's and you have to 750 hours a year and your primary occupation has to be real estate now you could be a part-time pharmacist 20 hours a week but you better ever you better show me you're doing at least 21 hours a week doing real estate so primary occupation now again that could be doing your own rentals being a contractor being a realtor but you can't be a plumber and say i work on real estate not gonna happen you gotta be a gc a general contractor realtor broker and you can't be a w-2 working for a property manager oh i work in real estate i have a job working for a property manager nope you've got to be at least a 10 owner in the business if you're going to say i'm in the primary occupation oh got to figure out what i'm doing here all right look at all these notes ooh look at that trifecta that looks cool all these cool notes all right i don't know where i'm at here okay i'm going to start a new one should i just do that cory there we go oh there i am i'm getting better at this huh cory sure i used you know all these millennials come around here and go you are a freaking nightmare when it comes to technology and i'm like no i'm not i'm getting better okay q a darren you have a good one yeah um i've got some instagram ones i'm going to come back to okay so um i'm actually kind of interested in this one and um all right i'm married oh i'm sorry okay okay okay that's all right sorry all right so um from from youtube uh we'll just call him kool-aid uh asks can i 1031 exchange investment property funds into a primary home okay well what do you want to say you want to give you want me to answer do you want to go for it i can go for it all right okay i'll diagram it here you correct me okay okay we have an llc with a rental right so we've got a rental over there okay tell everybody what a 1031 is a 1031 exchange is essentially you're gonna buy that rental property ideally you're gonna have some appreciation in that property right so it's going to go up in value so let's say you buy it for 100 grand it goes up to 200 grand you'll have a hundred thousand dollars of gains okay now when you sell that property that's when you're going to realize those gains and have to pay the capital gains on the sell of the home okay or or if you want to defer those gains to a later date you can attend 31 exchange you can 1031 exchange and essentially it's called the like kind exchange sometimes and you're pretty much trading that property for another property or multiple properties of equal value equal or greater value okay all right now that's on the face of it but l.l cool j here or kool-aid who like him says ah i don't want to trade for another rental so i'm going to take this rental and trade for another one i want it to be my personal residence well the ira says uh-uh you gotta trade for another rental and hold as a rental for at least 12 months there's kind of some wiggle room here so you've got your revocable living trust i would keep the new rental in the llc for at least 12 months because you got to show its investment property for investment property then after that we would deed it out to your trust and now your trust owns it and it becomes your primary at that point so i'd say the answer is it depends and you've got 12 months to keep it as a rental right i think the big thing that they're looking at is really the intent right when you're doing that 1031 exchange um so that 12 months is essentially to show this is an investment property going to another investment property okay cool let's jump over to instagram um tax this is from higher high rick gay says tax pros and cons of being a real estate agent and landlord investor well hair i'm hey er i'm just going to call him hair so here says mark let's just diagram it out again so we got our rlt down here and you're going to be a realtor now if you're a realtor and you make more than 40 grand a year you're going to be an s corp period i've been teaching that for years even if it's an llc you're going to be taxed as an s corp so all my realtors become an s corp now my daughter sydney she's in california and she's an llc right now because she's starting out as a realtor as soon as she makes at least 40 grand net boom we're going to do an s election that's a 2553 a form 2553 we charge 150 bucks very easy and simple to do make sure you do it right and we're going to back date it into an s corp when the time's right man let's say city has a rental property so she's also got a rental and this is the trifecta very very common rental realtor restaurant restaurant owner dentist lawyer building see this is very very common i want to put your assets on one side your operations on the other and higher says well o'hare says what is the con man i love my realtor clients it's hard to say there's any cons i'll say being a realtor you live sale to sale you're going to have ups and downs in income that's that's a challenge but you're going to be seeing deals out there and i want you picking up rentals my realtors buy rentals every year once they get things figured out and their incomes up and down that's probably the biggest con the trick here is marry someone really boring i've told my i've told my daughter sydney i want you to marry a chiropractor an engineer they're really boring [Laughter] he thought it's boring so might as well add the lawyer thing to it but you know but the real combo this is why i'm going to set up a website called taxmatch.com i want to i want to put you together i want my realtors married to a day job i want my day jobbers dating real realtors only that combo matchmaking so all right i just can't see many pros and cons from a tax perspective it's you want to be both um i nick i'm going to do one more this is nicolo brasso 19 says is there a cap on the dollars you can write off against normal income if you're a real estate professional no there's no cap donald trump wrote up millions in real estate depreciation losses against millions of other income there's no cap if not a real estate professional the cap is 25 grand but it carries forward in a bucket so you'll get to write it off someday track it but there's no limit okay who else you got there all right i've got one that i like here so um let's go with this one short and sweet so from david he says i just rehabbed a rental can i deduct rehab costs oh good question all right do you want to start it out where do you want me to go for it uh i can start it out yeah i have a rental here's our rental right here and it's a fixer-upper so uh we've got our purchase price how much are you going to put into it you choose let's buy for uh websites midwest go 50 grand do another 50 for rehab later so it's a low income housing deal yeah we're buying it for 50k and we're gonna put 50k in rehab can you write the whole thing off if you're okay so from what i understand maintenance yeah if you're if you're maintaining the property you can write it off okay so what happens is your accountant's gonna divide it into two pieces so let's make this a little bigger so you've got a purchase price of 50k and your accountant is going to take all of your expenses yeah and they're going to go okay what you do repairs and then maintenance are generally immediately deductible right but what's the word where you cannot you're gonna have to capitalize you're gonna be renovating or it starts with an eye improvements so if i put in a water heater i'm going to have to capitalize it i'm going to depreciate it if i go and paint that's a repair that's a or a maintenance i'm going to go out and maybe fix the sprinkler system or things like that but improvements are going to be a new roof adding square footage i like that new walls i think appliances and carpet are going to be typically depreciated now a lot of times you can do what's called cost seg now it gets a lot of press it's called cost seg where you can write off stuff faster like all at once through bonus or 179 now i'm getting a little deep here for some of you but you can do a 179 or a bonus but think about this everybody you want the real answer i think cosseg is a bunch of crap half the time because let's say darren or i we're lawyers and i go out and buy a fixer-upper and i go out and do a cost sag do i get to write it off gary i get to write it off but do i get to take it against my ordinary income no no so what hell did the cossack do me didn't do me any good yeah the cossack is sitting there in a butt so there's promoters out there that are all oh you need to do a cossack if you're not a real estate professional who freaking cares because it's going to go in your carry forward bucket now if you or your spouse are a real estate professional and i've got income over here that i want to write off oh i'm loving the cossack so that's the difference so whenever you do improvements in a renovation we at an accounting firm we have highlighters and we go through and go repair repair maintenance improvement improvement and we bifurcate them and we put them in the right column and that's what accountants do so the answer is it depends again it's kinda you get a little of both all right let's go over here corey can you give me uh my kids win as a real estate agent what are the perks of buying rentals all right boom let's hit some this is some candy this is eye candy right here my kids win why buy rentals okay now he said realtor or she said realtor so what's a realtor it's a real estate professional so if i buy rentals i get a hundred percent write-off against all expenses 100 write-off with all expenses okay darin you give me one why should a realtor i'm going to go freaking anyone why what are the the perks of buying rentals give me one see should we go with the big d the appreciation on it okay appreciation i'm gonna ask you which is kind of the write-offs i'm gonna put that in number one so number one you get 100 write off of all expenses with depreciation number two you get tax deferred and sometimes tax-free growth because you might do a 10-31 you might die with the real estate and get stepped-up basis so whenever you buy a property you're not paying taxes when it grows it's going to grow you're going to build equity build equity okay darren give me another one what do you like reynolds yeah if you do it right you're going to have some cash flow too oh i love it cash flow and cash flow is typically tax free why is why is rentals tax free because the losses first wipe out the direct costs so even if you're not a real estate professional all these write-offs you get to write those off first is what you get to do with the loss so you get tax-free cash flow 90 of the time i have tax-free cash flow on my rentals now i can't take the loss against other income but i'm not paying taxes on most of my rent okay i'll give you number four you get to use leverage see if i want to go out and buy crypto or i want to go out and buy stock let's say i want to buy a hundred grand of lulu lemon stock well i better come up with 100 grand but when i want to go buy a rental there's this unique thing called mortgages and banks fannie mae freddie back blah blah blah i can put down 20 percent and go buy the same rental for 100 grand rather than stock now i know there's margin accounts and stuff like that but you've got to have money somewhere else to get a margin account but on the face of it the rest of us americans i can put down 20 grand but get the benefits of a hundred thousand dollar investment it's called leverage i love that that's another benefit of rental real estate you got another one you want to keep going we talked about appreciation have we talked about that well we did tax deferred equity so okay equity with the appreciation all right then equity as well with mortgage pay down oh mortgage pay down yeah now that's a tricky one because it's almost part of the leverage but the beauty is the renters are paying the mortgage for you so i love that that's why rich people buy rentals for a reason okay so renters pay the mortgage for you number six going with depreciation in some of these write-offs i'm gonna i'm gonna say this you get travel i love travel home office auto these are ones because you're gonna buy rentals where you go buy rentals where your kids are going to college which number seven is i want family renting your property if they're family you're gonna pay their rent for them anyway let them pay rent to you i have some clients that buy their parents home so they can start qualifying for maybe medicaid and they want to look for some state assistance now there's a look back period but a lot of times i have family by mom and dad's house and then rent it back to them so they can qualify for other aid to be helpful family renters do you have another one i can keep going all day yeah as long as um well the nice thing too is if it's your personal right as long as it's not in a retirement account you can be able to go in and use it every now and then so you have a vacation rental or something like that at a beach house strategy good one he's gonna go there good one you can buy rentals and go travel to fix them up on occasion and still call them a hundred percent rental now i hate that freaking augusta rule that's another day for another topic but buy airbnbs and go visit them check on them number nine leave a legacy teach your kids about rentals pass on rental properties to the next generation number 10 rent a commercial building from yourself in our law firm and accounting firm one of our first goals was to buy our own building rent from yourself with your commercial business that's a great strategy i'm building a little storage unit right now because i'm sick of paying rent to someone else that owns a storage unit so rent from yourself when possible oh man the list can go on and on um let me see leave a legacy airbnb family renters travel home office mortgage renters cash flow tax deferred growth equity um oh you get 1031s opportunity zones kind of get little extra strategies that only are there for real estate investors ooh charitable remainder trusts love those i don't know we could go on and on all right okay let's go to our next question my kids what's the name of theirs my kids whatever hopefully that helped you out you got a question or something go to instagram yeah yeah i've got one okay i'm curious what you think on this one mark so um someone here from florida laura from florida owns a property in california and is thinking about doing a 1031 exchange to buy properties in florida oh i like that a lot is she going to have to pay california tax or the state tax is going to be deferred as well state taxes are deferred as well california's been trying to put in legislation to tax people when they leave california but a 1031 exchange is deferred uh and that's a tricky one because laura is down in florida with no state tax but she has a rental up here in california now a california cpa that maybe is knee-deep in this may tell me mark you're wrong but i'm a california cpa so some of you might really question my intelligence here when i say this but laws change all the time but currently according to my understanding that rental in california in your llc i would sell it 1031 to another rental in florida with a florida llc and then i would shut down my california llc get rid of my california rental move it to florida and pay no tax i'm good with that i don't have a problem okay talk to your advisor always get a second opinion this is a live broadcast if you do screw this up do not sue me this is your disclaimer these are just general answers that i think are 99 correct but everybody's situation can be a little different hopefully that's helpful okay i'm going to go over to instagram and court can you minimize that so i can see what's going on um i'll go to rentsdue out on youtube rent stu says can real estate llcs be structured as disregarded entities to have to avoid having to file multiple federal and state tax returns the answer is yes and no okay so let's go to our trifecta now we've got several situations going on let's say corey my producer says hey mark i want to buy a rental property with you well oh mark we'll just do a jv and it can be in your name and not cory's and blah blah people do not screw around with that it's a lawsuit waiting to happen and there's going to be general partnership and general liability issues when corey and i are really partners behind the scene but it's in my name bullcrap watch out so what are we going to do we're going to form an llc now so you're like well mark i can use a land trust i've already written chapters in my book on that one watch out for the land trust strategy and i really get hate mail about this all the time because i'm not a fan all right so what are we generally going to do corey and i are going to form an llc and we're going to go own that rental that's not a disregarded entity i'm going to have to do a 1065 tax return that's a federal tax return and i hate to say rents do but you've got to do it whenever you have a partner there's no way around it now i know you're asking about disregarded entities but chill out i'm trying to build a baseline here now also let's assume this rental property is in arizona i'm going to have to do a tax return in arizona now you may say well i live in florida but corey lives in washington state well there's no state tax in florida or washington but our rentals in arizona so we're gonna have to file an arizona tax return okay now rents due says well mark i'm gonna form an llc in arizona but i own a hundred percent of that llc so that llc is 100 owned by me what we call that is a single member llc and it's called a disregarded llc meaning there's no federal tax return required and no state llc tax return but i still have a rental in arizona so you're going to have to file this on your 1040. so on your 1040 you're going to do a schedule e and that schedule e is going to report the income and expenses for your rental so rent's do and any of you out there rentals do with a single member llc i can avoid a state and federal tax return for the llc but i'm still going to report it on a schedule e on my 1040. so it does save some costs um now some people may say you want an inside tip here some people say okay mark i got a 1040 husband and wife and my accountant said to do an llc that's 50 50 husband and wife well why don't we just do a single member llc owned by the husband or wife is still marital property i'm not ripping off the husband i'm not ripping off the wife but why don't we do a 1065 for that rental property in arizona and do an extra tax return now i'm not going to put jack or corey or darren on the spot this is from 20 plus years of experience and i'll throw it out there why let's see if i get some comments here corey let's scroll me down to the bottom on youtube and facebook people i'm going to give away a book tax and legal playbook to the person with the right answer why would i do a 1065 for husband and wife and file a federal and an arizona tax return you're like mark it's gonna cost me a thousand bucks to do that why would i do it the answer first one to answer this correctly wins a free book and i'll sign it right here for you okay cost of living says you know taxes based on purchase price not debt right people when you buy rental property tax strategy and depreciation are based on the purchase price debt doesn't matter how hubby and not super cooper says hubby and i are doing a similar asset strategy with aircraft rentals what would be the difference in the benefits of real estate rental properties versus aircraft operations in a c-corp assets and an llc yes they didn't know the super coopers was not answering my question but that's okay um aircraft rentals are going to be the same strategy as real estate rentals i'm not going to use a c corp hell no to a c corp and i'm not going to need an s corp either i'm just doing rentals whether they're airplanes or rental properties same story dave corrid says to save money doing an llc tax return does not save money scott says why there's a reason ledaro says to save self-employment taxes ladero there are no self-employment taxes with reynolds so do you got it right jamie lewis note says because you said to do it that's close i almost gave you a book for that one matt says tax savings no everybody with a look at this with a 1065 tax return arizona and fed i'm still going to pay the same in taxes why would a husband and wife go to the headache of doing a federal and state tax return when i could do it disregarded and not have to do the tax return it costs me money it doesn't save me money and the tax result is the same i knew i wouldn't need your book jennifer i don't get that one oh if i knew i wouldn't need your book thanks jennifer that's funny tax against the business and not hit the personal taxes on 10.65 for the married couple example nope there's no extra taxes and there's no extra tax savings why would i do this establish corporate credit no because i don't need corporate credit with a freaking rental property i establish corporate credit on this side to do fix and flips and rehabs i never use corporate credit for rentals doesn't work oh rentals do rentals do by the way clarissa says a partnership does not pay tax on its income but passes through sure but why am i doing this reynolds do gets it less chance of an audit your chance of getting audited with an llc tax return are 15 times less 150 percent no 1500 percent less chance of an audit by doing a 1065. i have clients that are pretty damn aggressive with those renovations with the travel with the home office the auto and they've got their kids living in a rental property down at asu and they're like i'm going to do a 1065 tax return because i'm being pretty aggressive less chance of an audit you don't save taxes it costs you more you're not going to cost you more in taxes i can still get privacy either way it's because it's less chance of an audit reynolds do gets the book okay so um he already says he has all my books well you get to give it away to someone reynolds do make sure you email corey corey mark j kohler.com corey mark j kohler.com and if you uh just tell corey your contact info he's going to mail you this book i'm going to sign it right now and you can give it away to someone for the birthday all right okay why is there less chance of an audit david says because there are fewer auditors in the partnership tax return department than there are in the or the 1040. 1040s and schedule e's and schedule c's get audited more than any other tax return and you know it was two weeks ago or three weeks ago when the irs released the tax book what i call it's the tax book that tells you the statistics for two years before on all the audits how many tax returns were audit and every time per capita you'll say well mark there's fewer partnership returns so there's fewer audits still per capita your chance of an audit goes down by fifteen hundred percent okay kk adorable says i love everything you say mark best tax and legal advice for business owners would you mind explaining see i gotta take her question when she says she loves everything i say i appreciate that kk you rock she says would you mind explaining the situation when we can't write off the losses in rental real estate super high income earners well kk let's go back this is good good little thing here so you've got your 1040 and let's say kk is single all right and she's got her trust revocable living trust and she's single i'm going to make sure she has her bow sign a prenup i'm not going to let her marry some guy that's going to take all her money so two words kk breed up okay and kk is going out there and she is buying uh what am i doing here oh i gotta tighten this up okay she's going out there and buying rentals now let's say kk she says she's a high income earner so let's say she has a big day job or she has a restaurant or she's a consultant or she's a life coach or whatever so she's got the big income over here and she makes more than 150 grand a year so should she buy rentals does she get the write-offs oh she gets the write-offs it's just when does she get to take them so we're going to build all these write-offs and we're going to put them in a bucket and kk everybody out there the government's just said if you're a high income earner you get all the write-offs but it's delayed gratification when you sell any rental kk you can dump these out with any rental you sell but you got to wait that's just the rule i'm in the same bucket i've got a it's called a pal passive loss carry forward i don't know what's called pound but passive loss carry forward and we're going to dump this out on any sale so they just carry forward now kk here's your number one strategy i want you to go out there and you are on dating restrictions that's right your accountant's giving you dating advice you can only date real estate professionals contractors realtors brokers make sure you really interview them about their tax return i don't care what you know are they sagittarius or scorpio or whatever i don't know cancer you want to say how are you doing on your income how you know talk to me real estate professional now if kk is married next strategy well how much do you love this guy you know i'm just saying you know if he's not a real estate professional you might need to upgrade you know now i'm going to get some hate mail from kk's husband all right next question what do we got i like this one we got one from uh alex bend on yeah i want to go back to night out too after you okay okay yeah so alex just asks how many rentals would you have per llc oh good okay now i'm going to be the we're going to play pictionary okay okay you know my four options right i don't know if i've heard this before oh my gosh you're killing me dude number four okay so over on this side you decide i'm putting darren on the spot you got your trust i've got four options you've seen this option one oh yeah option two now it's coming back to you right a little bit option three option four i'll get it right oh corey's got it yeah corey's he's thrown down today still a little feisty ladies kk kkk where he's single oh but you're not a real estate professional okay you can't date him sorry sorry course you missed out right there okay now for my brand new real estate investors darren option one so if you're just starting out um typically while you set up an llc in the state that you're in well where the property is sorry in the state where the property is and then you go ahead and you put the property in there one llc one llc and i might put two or three rentals in it now let's say my first rentals in illinois my second rental is in tennessee and my other rental is in arizona do i set up three llc's no i'm going to find the cheapest state to set up my primary so let's tennessee and then i'm going to register foreign it's called foreign registration for arizona and illinois simple easy one llc three rentals and you may have like 50 grand of equity 30 grand of equity 100 grand of equity but if these rentals start to really grow in equity i'm going to go to option 2. now before we go to option 2 i want to ask anybody out there if you're loving this please it helps you really helps you more than it helps me subscribe get over to youtube subscribe and hit the bell icon every time i go live bing you get a ping and baby every time i go live you're saving money so get over there and subscribe to youtube you're going to freaking love it if you're on facebook give me a like and every time i do a post and new tips new videos they're on your feed all right so option two three rentals one llc what's the con darren why do i not want to do option well part of the con is that so if if you're going where i think you're going those rentals are going to be sharing liabilities yeah if the illinois meth lab i love my meth lab rental in illinois and i love illinois there's not that many meth labs there but there's a few i own one of them if something goes wrong and it blows up it they can get at my tennessee or my arizona rental that sucks now there's one reason why you know but so all my rentals are subject to the same liability so that sucks okay option two well mark i don't want that so what am i gonna do each state i'm going to set up three llc's geez so now i have a tennessee llc an arizona llc and an illinois llc now i've got a rental in each llc well what's the good part great asset protection freaking awesome asset protection if anything goes wrong in illinois they can't touch arizona if anything goes wrong in arizona they can't touch tennessee but what's the con three bank accounts three renewals yeah three big llc's three bank accounts three possible tax returns you know disregarded whatever so option two is pretty awesome but it costs more so here's the point when people say how many llc's do i need it's not an issue of quantity i might put three rentals in one llc it's the issue of quality if this is a ski and ski out rental worth a half a million this is a golf course rental airbnb worth 750 grand and this is my little trashy meth lab rental i don't want them all on the same llc but if they're all the same single-family home worth 200 grand boom they're all going in the same llc it's not an issue of quality and some quantity it's an issue of quality i want to look at the liability and the asset value then decide how many llc's i might need three llc's commercial rental airbnb trashy fine and i could you know i'm not picking on illinois i'll just use that as an example but i really do have a crash castle okay now um so option two three llc's one round now night owl richard from wisconsin says can you convert a subseries llc to a regular llc it depends on the state sometimes i can take an lc and make it a sub series and with one form called articles of conversion and other states i can go back the other direction with articles of conversion if you ever want to know what your options are per state call my director of business entities susan cumpy she's wonderful she's been with me for over 10 years she's great call the office 435-586-93 she can quote you the price for any llc in any state for the filing fee we charge 800 and you get an hour with an attorney or 450 for any llc in any state paralegal so this is the paralegal setup and this is with attorney set up now my attorneys are out two or three weeks don't stress get the entity going and schedule the hour with the attorney later that way the attorney can walk you through all the pieces and parts answer your questions but at least you know it's set up right it's okay you don't have to have the attorney call next you know next week to get your entity going get started with susan okay so but night owl brings up this word called sub series llc okay darren tell me how these work i'll play pictionary we're doing the series option three okay yeah so for a series if you set that up you'll have essentially a holding company or a main parent company and then the subs underneath it will be owned by the parent company we call it holdings for passive parent is usually what we use for ordinary okay yeah so parent or and and then you have subs yeah so you have a series llc and then you have the sub llc's underneath that and then the properties go on subs now here's the problem well no here's the good part i only paid for one freaking series llc and i can have as many subs as i want now in wisconsin says well i want to go back to a regular llc why if you already have a parent and subs just keep it it's the same annual filing fee you've already paid for a series llc night owl i'd say keep it if it was me i'd just keep it but here's what's crazy some states don't allow for a series llc arizona doesn't so in this example if i have arizona tennessee and illinois now i already know tennessee in illinois allows for series llc's arizona doesn't so in this example i'd have to have an arizona llc then i could have a parent that's in illinois and have my foreign registered affordable registration in tennessee and i could have baby subs in tennessee or illinois doesn't matter so you're like what states or parents and subs and regulars and blah blah blah well there we go to the tax and legal playbooks so we know the answers yeah it's hot in here isn't it we can't turn on the ac because it's too loud for our audio so this is not hot yoga this is hot facebook youtube probably fine i live it's just cory yeah i'm just wearing lululemon leggings you just don't see them but i'm ready to do some stretches you know i'm just this is hot live woo man i'm not sweating because stress it's freaking 100 degrees in here all right so you go to my tax and legal playbook and you go to appendice a or number one no this is a pen to see which one is this number c number c i'm so stupid letter c append to cc sorry i got to move over huh i wanted people to see the board okay appended c as in charlie look it i can list off all the states that are series llc all right now if you want to buy the book i i literally have this on my desk because i have to look at it too i didn't memorize my book for crying around and i wrote it all right it's like indiana jones when harrison ford asked sean connery his dad he goes well why do we need to go to berlin to get the to get your diary what what did it say and he goes i didn't memorize it that's why i wrote it in my diary so i didn't memorize my book that's why i wrote a book so i can just look at it and know the answer okay series llc's alabama delaware washington dc illinois iowa kansas minnesota missouri montana nevada north dakota oklahoma tennessee texas utah and wisconsin so night owl richard in wisconsin he's already got a wisconsin series llc he's like i want to convert it back why you already got it you're done if you want to pay me to do it i'll switch it but i probably keep it all right so when you have reynolds properties you say i'm going to probably use a series llc if i can in the state where i have rentals so i can get protection from all the other rentals but i don't have to pay for extra llc's see if you came to me i'd combine these two and save you money that's believe it or not lawyers try to save you money sometime so you come back and use their services we'd love you to come back we don't want to rip you off those are other bad lawyers all right now oh my gosh we got option four guys this is high level you know i teach this to like other lawyers and they're like holy hell i wish i'd learned this in law school you guys are doing awesome if you get this this is master's level law i'm so proud of everybody i'm so glad you're here all right look at this jerry and madison they're going deep on what if i don't want to do a 1031 exchange it cost a living he says just refi pull the money out and go buy another rental why sell and do a 1031. i'm with you you can do 1031s you can refi and pull out equity sometimes it's nice to cash in you're like i'm going to get the most i'm ever going to get and sometimes re-fi's don't work so jerry madison heights cost of living i love what you're talking about this is good stuff audi said audi clark says can i create a series llc in texas to purchase properties in texas and then in other states use the series llc now remember let's go back to our diagram here does texas allow for series yes and then you're going to buy a rental property in georgia no can't do it audi you can't use the series llc in texas and hope to get serious protection in georgia georgia's going to be like we don't have that go back to texas so you can only use series llc's in states that have series llc law sorry okay oh california they said bring them here we'll charge you 800 for every series freaking california all right now number four you want to throw down and forward you want me to you can i if you want or do you want me to throw down go for it okay you sure yeah i'm intimidating darren today darren said i want to be on camera and answer questions now he's feeling the heat this is tough it's tough isn't it okay all right option four masters level you ready some clients go mark i got ten rentals i'm worth two million bucks i need better asset protection this is great but look what's happening here everybody what happens if corey is driving down the road texting and driving which he does and he gets in a lawsuit he plows through a crosswalk and kills a family of five i would never want that to happen to corey but let's say he's texting and driving and they sue him can they get into his llc and take away his rentals can they go in and foreclose on those rentals now some of you may go well mark i set up an llc to pr protect the rental property no you didn't you set up an llc to protect you from the rental this is deep right because you've got to trust and you've got your home over here paid for because you've been following dave ramsey dave ramsey said pay off your home that's cool but you got a 500 000 home paid for over here you screw up in one of these rentals and you don't have an llc they're gonna get your house so why'd you set up an llc to protect you from your rentals that's the number one reason well you said well mark i thought i protected the rentals from me being an idiot i was texting and driving by the way is being prosecuted as manslaughter in more and more counties across the country like a dui be careful no texting and driving i say that to myself too i'm bad so no texting and driving but you do and you get into an accident and they sue you individually and they get a judgment against you can they get into your llc's and take away your rentals well let's go to the tax on legal playbook appendices c as in charlie also says which states give you charging order protection which means which llcs stop a judgment creditor from coming after you they say then you can get a charging order for any money that comes out but you can't get in the llc and foreclose all right arizona ooh i love it arizona cope charging order protection that's great okay let's go over to tennessee tennessee charging order protection tennessee nice illinois oh sorry illinois foreclosure state i can get into your illinois llc and foreclose on your rental property to get money for you driving through a crosswalk and killing my family illinois says we do not want to have llcs to protect people's assets if you owe someone it's their policy and by the way charging order states there's only about 15. so most states say uh uh you have an llc we're not going to protect you if you're a jerk and you owe someone so what clients do is they set up a holding company as a cope and i'm going to put that in red just to kind of highlight that so let's put that in red this cope c-o-p-e so we got cope in arizona that's cool and we have cope in tennessee that's cool but i don't have cope in illinois and so i have clients in california gosh okay you want to know the cope states i know people are asking cope states these are where you get protection all right alabama arizona delaware indiana maine michigan mississippi nevada new jersey north carolina north dakota ohio oklahoma rhode island south dakota tennessee texas utah now utah is not on my chart but i know they have coat protection virginia west virginia and wyoming now the state that is the most affordable the most private and the cheapest to set up and easy to maintain and even a single member disregarded llc gives you coat protection it's the only state it's wyoming so i'm going to set up a cope in wyoming owned by guess what your trust and your cope wyoming llc owns your other llc's so it acts like a sub-series llc but it gives you better protection now some of you may say well mark i called your firm and you didn't do that for me because people we don't sell number four unless you've got a million dollars of equity or more maybe five to ten rentals and you can grow into it see this is what pisses me off out there a lot of law firms oh you come to holiday inn we'll set this up right now by the way for five grand 10 grand we'll set up unlimited llc's blah blah blah blah blah people watch out for that crap set up the llc you need now and grow into it all my clients are at least here some graduate to two those that are in series pro entity states where you go to number three and for clients that have a lot of crap going on and they're building wealth and they get to that level boom we go to number four the cadillac so that's option four and that's a good option when you've got a lot of equity in a lot of rentals in multiple states how did that go good we good good so there's a follow-up oh we have a follow-up okay all right this is from darren yeah aaron's gonna give some advice here everybody well well let's see let's say that all of these rentals are all in the same state there's no we'll we'll say pick a state no series you're gonna put an adrenaline so a non-cope non-serious statement non-cope non-serious state just a generic one you're going to start what should we choose let's see uh where do people have a lot of entities you know are a lot of rentals georgia let's go with georgetown okay okay so we got georgia reynolds with no coke protection and no series and i love rentals in atlanta i got a lot of clients with reynolds and georgia yeah um okay so what's the what you're saying what's the option yes do they need an llc for every single one in that case or should they start putting together or what what should they think about let's go to code i mean let's go to our trifecta people we're going to finish up on this so here's my revocable living trust i've got a 1040. married or single married married okay so we've got spouse one spouse two one of the spouses have a day job sure okay so we got spouse number one with the day job you guys hang on this is going to be the climax of the show here all right w-2 spouse number one benefits maybe a 401k at work and they're getting a little matching all right cool spouse number two number one and number two spouse number two entrepreneur side hustle with realtor realtor okay so we're gonna go with a realtor darren's just throwing this out so we have an s corp realtor spouse number two what about spouse number three oh i'm sorry that's kind of a south arizona thing okay all right sorry spouse number two is a realtor and they have some rentals okay and they're all in georgia that's what you said how many rentals five rentals worth over a million dollars or equity of a million dollars okay okay 200 grand of equity in each one okay all right this is cool boy trying to throw me for a curveball aren't you okay that's okay i got i got it i got it what we're gonna do we're not even done yet any kids no kids no kids all right so we have an s corp and what i'm gonna normally do is for this realtor set up a solo 401k and i may even pay spouse number one see what's going to happen is spouse number one is going to play in the 401k and i call it matching out they're going to get their match maybe it's a three to four percent match and then get out matching out then they're going to come over here and we're going to have two w-2s one for spouse one one for the other spouse and we're going to fund this solo 401k and maybe we're also going to do backdoor roths roth 1 roth 2. so we've got backdoor roths solo 401k first spouse is going to just be on enough to get the rest of their match so let's say their match okay this year you can do 19 hundred well at work they only match ten up to ten grand so they do their ten get the match and get out so that means they can put in another nine thousand five hundred dollars well we don't do it here we do it in the solo so i put the spouse on payroll for around uh 12 000. now it's going to be around 11.5 but i'll just do 12 000 because i got to cover fica then we put the other 9500 in here the second spouse that's the realtor we're going to do at least 25 000 in salary and do our 19.5 so look at this at work we got 10 000 plus the match that's 20 plus the 9000 here that's 29.5 plus the 195 here that's 38 48 49 000 plus the matches oh my gosh let's throw in another six so i'm up to 54 backdoor roths of 6k each 64 66 grand i've dropped 66 grand in retirement accounts and i'm just getting started with rentals boom all right now over here we're in georgia no coke protection five rentals with 200 grand of equity we're going to use mortgages right madison and kerry we want to we want to use our mortgages we're doing leverage you know what i do i'd probably do two llc's in georgia i'd put about really what i'm shooting for is about 400 grand of equity in each llc i might do a third llc do but i'm going to really do about 500 grand of equity in each llc and by splitting these up generally so i'm going to go 600 of equity here 400 of equity here and i'm going to have two llc's in georgia disregarded llcs 100 owned by my wyoming llc that's a two-member llc husband and wife and why do i do that because i want awesome freaking audit protection i do my 1065 oh by the way there's no tax in wyoming so no tax in wyoming i'm only paying tax in georgia and i only have to do one tax return even though i have three llc's you just get chills i'm getting double asset protection from the rentals so they got to get through two barriers to get to me and my house and if there's a charging order if there's a lawsuit for texting and driving they can't get at my rentals in georgia because they have to go through wyoming and wyoming says no that my friends a whole chapter in here on asset protection advanced that is when you have a lot of real estate with a lot of equity i'm going to double down with the cope and i'm going to throw it in here now if this is awesome for you and you're loving it subscribe over to my youtube channel i shoot videos all the freaking time all my podcasts are turned to youtube videos facebook i post all the videos and all my tips on there too so please check it out give me a five star give me a rating i'd love it this my friends is asset protection this is tax free planning this is payroll tax planning and i'm going to be writing off all of my freaking kick ass sorry for those kids in the room these are all my kick-ass strategies here for the small business owner real estate professional with the spouse wiping out the income of the w-2 getting the match on the 401k all coming together in my trust that was freaking awesome there we go good example darren oh that's our studio audience corey everybody thanks so much for being here i love small business i love real estate i love crypto i love investing i love the american dream i love what i do i love being here with you thanks so much for participating your questions and all that and corey i'm just going to do it for fun i'm feeling it i want to give away two or three books must be present right now corey give me a winner i want a female winner for the self-directed ira handbook female female corey markjaykoller.com if you're a winner just email him your contact info who's my winner sandy chambers you just won sandy chambers just won the self-directed ira handbook written by my partner matt sorensen on how to do all of this tax planning here with your iras and 401ks next winner mail winner business owner's guide to financial freedom a business owner's way to build wealth sell my business do the tax strategies bring my family in how do i do it who's the winner come on come on eric paulson eric paulson is the winner make sure you go to corey email corey mark jaycoler.com and he will give you mail you the financial freedom book he'll give it to the marketing team next winner is what your cpa isn't telling you a story that gets you geeked out on tax planning it's not it doesn't have a chapter for every strategy like this one but it's a great gateway drug to understand how it affects a family female winner on this one andreina arra what if a realtor has a different industry day job law in a single no cope in florida does a revocable living trust owns a wyoming llc that owns a florida llc funded by rental property would she be better off married adriana you're beautiful and i love your structure you would you would be a catch for anybody out there and you know uh whether you're aware married or not is i wish i could say getting married is worth tax planning but marriage is a big decision um i will say this okay i'm gonna go out on a limb this is important for everybody when you're married i have more options for tax planning period because i'm gonna be building wealth times two i'm gonna be using side hustle and day job i might be using real estate professional i've also got two credit scores for loans to buy more rentals so if some of you can swallow being married and it's something you've been through a divorce and you're like i'm never going to get married again just get a prenup that's cool get a prenup we can still do some great tax planning last winner is a male so we got two males and two females taxing legal playbook who's my winner a cost of living man he was active here on the chat wasn't he and he didn't beat me up acosta living thank you for making great comments and not being a jerk and i appreciate it so at costa living email corey c-o-r-e-y and marcia kohler.com give them your info and we'll send you out a book thanks everybody you have a great week and next thursday i might be doing this on friday rather than thursday i've got family in town for a little reunion this next week so we'll see how it goes that's why you gotta subscribe so i can tell you when the live is next week thanks everybody keep living the dream i'm gonna go out for mexican food that's what i'm feeling

Channel: Mark J Kohler

Views: 75,628

Rating: 4.9377432 out of 5

Keywords: Mark J Kohler, mark j kohler, mark kohler, wealth building, asset protection, Mark Kohler, Tax Planning for your Rentals, Live Q&A, Rentals, rental property tax deductions, real estate, real estate investing

Id: xRboubGX2K0

Length: 81min 30sec (4890 seconds)

Published: Thu Jul 15 2021