Using Rental Real Estate Losses Against Your Other Income

[Music] welcome everybody to another episode of the main street business podcast with yours truly mark fuller and my amazing co-host matt sorensen we are broadcasting live west of the mississippi helping clients around the country save taxes build well and just you know make life a little nicer and you like my new intro that was kind of that was west of the mississippi does anyone refer to anything as west of the mississippi anymore i was like lewis and clark would say that maybe who says that anymore well i was okay fair enough i was reading stephen ambrose for some of you that go okay mark fuller could quote dumb and dumber and read stephen ambrose ambrose you yeah i'm a renaissance yeah um so i can relate to the most stupid people on the planet and hopefully some of the smarter ones but anyway stephen ambrose wrote the book about lewis and clark's undaunted courage have you read it man no no sounds like a winner though really good it's really good yeah anyway so matt's broadcasting live out of phoenix i'm over here in idaho last week i was in california we've got offices in four states but helped clients around the country and today is a big topic it's a really good topic matt you wanna you wanna lay it out yeah baby we're talking about something actually that's been in the news donald trump's been getting a lot of crap for this it was probably the biggest tax strategy revealed and why donald trump doesn't pay any taxes and so we're gonna talk about it we're gonna talk about how rental real estate losses can offset your other income it's a huge topic it doesn't whether you're donald trump with a massive hotel offsetting your you know uh income from what was his show the apprentice you know or whether you're uh uh have a day job in corporate america and you got a single family rental you know it's the same tax strategy there's just different zeros on the end of it so um we're gonna hit this for everybody learn how to use it big or small yeah i love it and a couple thoughts we uh we are coming to you via uh itunes spotify stitcher and youtube i there's a good chance i'd like to use a whiteboard it'll be a paper one i don't know maybe because i but i'm gonna do my best to just explain it um for the virtual audience listening only so i'm to stay away from the white board for those that have been to i've got online workshops i got i've got i guess i've got next months well november's yes next month on friday and saturday the 5th and 6th i believe my basic and advanced workshop where i go for two days on a lot of these strategies very affordable on zoom uh get over to markjaycolder.com if you want to sign up for that but that's where i like to use the whiteboard so i'm gonna have to hold myself back but in my book the tax legal playbook i don't have one here on the desk but this is a whole chapter it is one of our top ten so when people come to us and go i need to save taxes uh this is one of our really really important strategies that we talk about and it can be used in a lot of different scenarios so were you looking for a book of mine is that what you're doing i've got it in my office somewhere i mean that's a reference tool you know you see all these books over here on the bookshelf over there old school law books those those are those are for a show the tax and legal playbook is the one i actually use yeah yeah if you go over those books if you're in matt's office you'll open them up and they've been you know the guts have been cut out so you can hide guns ash gold bullion you know those fake books on a bookshelf yeah i've always wanted those yep that's thanks for letting the secret out but there you go all right okay so where do we start um let's get it do a little outline should we do an outline of what we want to cover yeah and let's talk about maybe the let's hit an outline of and then just hit the general strategy i think okay all right so that's number one we'll hit the general strategy okay number two i want to talk about your cat your uh classification as a real estate investor and there's three of them active passive and real estate professional and what those mean and why you need to know them and why most accountants don't understand them very very important third what would you like to do third i'll throw it back at you oh um well let's talk about rental income losses versus well let's talk about how i can use let's talk about how you can use against other properties maybe like i've got multiple properties and i think i think that'll come and talk about the classifications yeah i think that'll come out in the classifications but i like where you were going we'll say number three will be real estate losses versus stock losses do they can they play with each other friendly in the sandbox and then number four i think we need to talk about real estate losses when it comes to your retirement accounts um and then you know what i say we reserve a couple extra topics for whatever the heck we want to bring this together so you guys feel informed now next week freestyle at the end yeah next week our podcast is the open forum which we do every three weeks you can get to main street business or mainstreetbusinesspodcast.com we have both urls get over there and you can leave a voice recording of your question or an email question to mark at kqs lawyers or matt at kqesler's and uh so if you have questions about this real estate lost thing rather than you could go out and buy my book you could come to the workshop in another week you could throw out a question on the open forum we want to make sure you get answers and probably one of the best is you may need a consultation and i i guess matt we should probably touch on the political environment right now you wanna you wanna go under those treacherous waters i don't know i'll just say this because i've got it right here this is an article that i have to submit to entrepreneur magazine on what someone's tax return might look like under um president biden if that is to happen um the reality is is presidential candidate joe biden has said i don't like the real estate loss strategy he said i'd like to minimize it number two he does not like the 1031 exchange strategy for real estate professionals those are two where he's come directly at um the real estate investor community and you got trump in there who is very very pro real estate obviously and we all know why um so i'm not going to talk about their other personality traits good or bad or whatever but i'm just saying if you're solely making a decision on your voting preference based on taxes it's yeah it's it's clear-cut so yeah you got to decide if you're up for paying more taxes yeah there's there's plenty of reasons not to like trump but i think the tax stuff for most business owners and investors is way far in favor of trump over biden so yes i know there's no design close yeah and i love the black rapper uh 50 cent this week that came out and said there was an article where our my podcast was quoted in the art well we did a facebook live video that was in the article on 50 cent which we were honored to be there because we explained the situation quite well for the average listener or viewer yeah and uh 50 cent says i don't want to be 30 cent so yeah what are you guys all crazy i don't like by he goes i don't like trump either but i'm talking there's a there's an economic thing going on here and so that was his take so we'll leave it at that we don't want to piss off anybody that's a trump or biden fan we try to be non-denominational or non-partisan in the political arena we can joke around that okay so let's just jump into it matt tell us do you want to describe the general strategy and then i'll give my color commentary on what i how i would say to journalists yeah so the general strategy is when you have rental real estate you're gonna have rental income obviously you're gonna have your expenses your mortgage interest expenses on the property all that stuff you also have a depreciation expense and so that's where you're taking a piece of the cost of the property and over 27 and a half years for residential and you know you're taking up a piece of that and it's an expense every year against your income well the nice thing about that is you can be cash flowing a property like money in your pocket as you're owning this rental property but you're getting a tax loss it's like i'm making money the property is going up in value i've got cash flow i've paid down the debt sweet deal right these are all the awesome things that rental real estate and when it comes to my tax return i got a loss now what are we gonna do gonna do with that loss okay how can we use it now this is where the strategy that's where we can is it usable yeah yeah and that's topic two is how you categorize yourself dictates how you're gonna get to use that loss but again i i'm going to take another stab at that general principle and i love the way you went there matt i was going to do it myself some people talk about the trifecta or whatever i have the trifecta for asset protection planning but this is the quatrefecta what do you call it a four home run of course or the quad or banger whatever four four whatever it's good i'm getting a home run i'm going all around four five four yeah like a four by four yeah an in-n-out burger here's the four benefits very very clearly let me reiterate these people and matt just said them quickly and that was good but i'm going to say them again cash flow that you wouldn't have received otherwise so the property is actually cash flowing the tenant is paying down the mortgage for you which is creating equity in and of itself third the property is appreciating in value which over time has always outperformed wall street with all the ups and downs dirt you can't lose dirt you can lose a stock but you're not gonna lose dirt and if this is not a property you're gonna hold three years you might hold it seven ten or fifteen but you're gonna get that appreciation just gotta be patient this is not a fix and flip like chip and joanna and then number four you get the tax write-off so tax write-off appreciation cash flow and mortgage reduction those are the big four and if you hit a rental properly you're going to see a little benefit in all four and sometimes off the chart benefit with all four where you're getting 50 60 rois on your original investment that's why people buy real estate it's a good investment let alone the tax benefit yeah right that's the price yeah and i think those are the easy ones to capture is cool i've seen some appreciation i got money in the bank from the cash flow i owe the bank less money when it's paid down but the last one requires a spec a whole podcast episode of how do i use that damn loss goodness can i use it or not and is it going to help me can i get it over my other income and you know what i think i came up with number two and then we'll bump the the three classifications to number three number two is let's let's talk to the naysayers for a moment is there risk with rentals absolutely you kind of get you got to figure it out and get your crap together and do some education you don't learn this in high school you don't learn it in college so there's some street smart education that has to occur and some people think of rentals as a single family home and if they call me i've got to go over and plunge their toilet and look no rental property can be storage units duplexes college housing low-income housing uh commercial buildings look at what trump do he's not buying single-family homes trump's buying apartment buildings and commercial buildings and hotels same principle and so but but we like our clients to start off with the little base hits let's just get a single family home down the street get figure it out you don't have to be the property manager but just we know there's risks we know there's a learning curve we get that but i'll say this 90 of our wealthy clients they all own a little bit of real estate oh yeah for sure man you've said the wealth what have you said about wealth in america well i mean there's there's really there's if you think about it there's really three ways to have wealth in america business ownership you own your own business or company real assets like real property which has created more wealth than anything and paper assets like stocks and mutual funds which really is created from saving and then investing and growing it but um but real estate's such a huge category um and we mark and i buy rentals ourselves invest in real estate and so as we as i you know as i was kind of like a newer lawyer i was always doing estate plans and i would look at clients and you know i'd look at someone they kind of had made a hundred grand a year you know maybe their spouse made 50 grand a year and then i come into their state plan i'm like wow you guys got 3 million bucks in assets good job how did you do that and it was like they bought their house and paid it off they bought some rentals they maxed out their retirement accounts and it was just these easy base hits that they did that over time they did it for 30 years it's like huh you've got a bunch of assets now and you're gonna have a pretty great retirement even though they they're just kind of the millionaire next door type thing you know so and it's not a get-rich-quick scheme um i've said it before and i'll just say quickly here when i first got married uh we're going on 28 years now of marriage um my mom and dad said hey we'll give you some money for a uh a honeymoon and and you know a little trip and all this or we'll help you with the down payment and let's buy this little duplex that needs some work and it was tough you know we're looking at tropical island paradise 10 days honeymoon or a rental property that needed some work but we were going to live in it as well and luckily we they there was a little coercion as well you know don't be an idiot and then i my dad and then uh so we bought the house we sold it later for three times more than we bought it for after eight years of college and fixing it up and i learned how to be a landlord i was an idiot i'd rent it to the wrong people i wouldn't fix stuff properly it was a disaster for the first two to three years but my dad just sat back and watched he's just like what yeah so okay okay three categories matt you want to lay him out yeah let's hit let's go from worst to best all right so the worst passive okay we don't want you to be passive means you're not going to be able to take that loss over to your regular income whether you're a small business owner you got a w-2 somewhere um working spouse whatever it is this is going to get locked over here as a passive loss now it can carry forward to be used against that property when it sells later or maybe other real estate you have but it's gonna be just locked over here on the passive side we're not getting it over to your ordinary income on your return yep and a few other thoughts uh by default the irs is going to make you passive unless you check the right box um number two those passive losses carry forward until you die just to add a little bit more to matt's comment so it's not a bad thing i have some clients while i go i'm only a passive investor i'm not going to buy a rental by grandma and right off the trip every year to go check on the rental um i mean you know we oh so many good strategies here but some people don't harvest as many write-offs against the rental because they think eh i don't get the write-off no no you do it's just delayed gratification and that's okay down the road you might be able to sell that rental and pay tens of thousands of dollars less in tax because you you wrote off the kids in the rental prop rental car and the airfare check on a rental where you travel so yeah you don't mind me nursing this diet do while we're here oh thanks for bringing that up i'm a little thirsty right now um i already knocked down my rockstar i mean once the rockstar's gone yeah now let's talk on just the losses too let's say i've got other real estate i've got two rentals one that had a gain net rental income and one that had a loss those are netting out right i'm not i'm not even as am i'm passive those are gonna net out because they're both on the passive side yeah so that's good yeah and i have that i have some that that have a loss again they cash flow but because of depreciation i get a um a tax loss but then i have some that cash flow really well beat depreciation expense that i get a gain but those are netting out on the return so that's so so you're still getting the perk of it and if you're building a real estate portfolio for the long haul you'll see this this lease this netting of losses and gains between other rentals yes and now we're going to call these type a losses now matt you're going to like this i told matt before the show i've got a new way of presenting this because it gets really confusing these are losses from the operation of the rental property and what can you use them for well matt just said i can use them against any other passive gains from those rental properties ooh can i use those losses against stock gains we're coming to that okay but these are type a losses now i got this white board here thanks louise we're gonna i'm gonna use this at some point here i got my shadow in it but that's okay we're just gonna we're gonna deal with it okay so matt that's passive what's number two okay active now active is pretty sweet we wanna at least be active and now you can phase out on active if you're high income you can phase out on active but the nice thing about active is you get a deduct 25 000 of rental real estate losses against ordinary income all right that's awesome 25 000 is a lot that could be a few single family rentals you know to get to that high of a loss um but you can use up to 25 to offset ordinary income we're talking about your w-2 your small business income your self-employment we're not talking about other passive income we're talking about you know your regular income okay now to add a little bit to that great way of presenting that matt um that 25 000 that you might cultivate now let me give some figures an average rental is going to lose this is a single-family home rental by the way this year in our accounting firm we did over 5 000 tax returns that had rental rental properties over 5000 rental properties on tax returns for clients around the country 98 of them had a loss because of the big d and when you're going through the big b oh sorry many people consider the big d divorce we talked the big d depreciation so yeah you're going through the big d depreciation and you're just like choo choo you're like i'm getting this depreciation so the average rental is going to lose money on paper and that amount is fluctuates between five to eight thousand so if you've got say three to four rentals you're going to be pushing 25 grand in losses now rather than just put them in this bucket this passive bucket that i get to dump out down the road when i sell something or have rental income that's taxable i'm going to say hey i'd like to use those this year well that 25 grand of losses that you can use starts to phase out when you make more than a hundred thousand so you only get 50 cents on the dollar starting at 100 000 and so at the at 150 000 of agi the losses are gone now did you lose them no no they just go back to the passive bucket but if you make too much money and again this is where accountants don't even bring this up with their clients because they go well you make too much money rental losses aren't going to help you they'll help you just maybe not this year but it doesn't mean you give up on the whole damn strategy sorry kids in the car got a little mad yeah yeah that's the strategy about who for damn that's what it is so yeah okay so those are that's active now i'll see this on all of our clients tax returns matt's tax return my tax return we check the box active you don't have to be a realtor you don't have to be a contractor you don't have to put in a certain amount of time you just have to be a decision maker so unless you're in a coma and you own rentals we're checking the freaking box for active i mean you don't have to be the property manager you don't have to go look at the freaking rental you just have to be on a phone and say yeah yeah do this and make it done yeah if you're done so everybody's active don't let your accountant check the box or leave you passive yeah okay even if you're high income and phasing out still check the box active is what you're saying because you never know okay yeah it's true and you might have a a year that's low and then you you get the you get to use it so but of course because a lot of clients and a lot of you know you are maybe exceeding this hundred thousand hundred fifty thousand dollar income threshold where that you're phasing out on active there's another option and and that is the third option of real estate professional love this the real estate pro and again this might put chills up your spine because you hate it when his name's brought up but i've got to say it because it's been in the news donald trump is a real estate professional now right now that's actually an interesting point right now he is not a real estate professional because his full-time job is being that of the president of the united states and he gets a w-2 for working for the united states although he has said don't pay me i'm going to put that back in the coffers which i know again some of you may hate trump but that's somewhat admirable you know that he's saying i don't need the money let it go to the american people fine but he's a w-2 government worker so he can't be a real estate professional we'll give you the definition in a minute right but now can melania though can melania be you know i don't know does the first lady get a paycheck i bet you she does i've never known that someone's going to send us a message yeah this first lady yeah if you followers that are going to send us hate mail instead just just work with me here so i want to get my shadow out of this i don't think the shadow's not going to happen my my studio guys are like dude you got to tell us if you're going to do a white board you're pissing me off okay i'm going to do this right here okay so the point is the tax returns that are in question for donald trump and all this taxes that he didn't pay were when he was a real estate professional and so he gets to take all these write-offs and when you're a real estate professional there's no income limit so this 150 grand thing is gone so if you qualify as a real estate professional all those rental losses from a single-family home no matter what your income is or an apartment building or a hotel or whatever it is you can lose those use those losses against your day job at w-2 yada yada okay matt what are the qualifications i'll i'm not going to write those on the board yeah so as mark said you have to spend majority of your time in the real property business okay and then you must spend at least 750 hours or more in essentially real estate business being real estate professional so that's where trump can't say well the majority of my time is spent in the real estate business no you're president of the united states it's not you can't and and that's where some people get caught up is they'll say they have a day job and like well i'm hitting the 750 hours yeah but that's that's not enough it has to be your primary business or employment yeah and you don't have to be a licensed realtor you don't have to be a licensed contractor it helps because it obviously slam dunk that's what i do um but if you say well i'm a mortgage officer for a bank doing real estate all day long nope it has you have to be greater than a 10 owner of the company so you can't be an employee for someone else doing real estate it has to be your real estate operation hence you're a professional managing your own real estate you can manage your own rentals you could be chip and joanna i don't know if chip down in waco texas for those that watch fixer-upper chip is our hero we want to get him on our show chip comes in and does the demo then joanna with her brand magnolia comes in and makes the house look pretty but chip's the real we we believe in chip but is chip a realtor i don't know he's working on his own properties so he doesn't have to be a contractor he probably is a contractor i apologize chip we didn't know that but but you don't have to be you just have to say my day job is doing real estate now here's the cool part i'm going to stick with chip and joanna if your spouse qualifies as a real estate real estate professional you both qualify so you can say well i make too much money i'm a pharmacist i'm an engineer day job corporate america but if your spouse is a real estate professional all those rental losses that we just talked about deductible against your w-2 so joanne who is it joanna or joanne i think it's joanna joanna yeah you got it yeah joanna her brand is magnolia i think if i was the irs i would argue that she is in retail more than she is in real estate because her brand is everywhere so at target it's just taken over martha stewart see you later magnolia's in so joanna's profession is out of retail product well oh she happens to be married to chip so if they have 10 or 15 rentals which around waco which i bet they do um those losses are going to be deductible against her income selling crap on at target it's not crap i mean it's really good stuff apparently but but anyway it's some of her stuff's around my house but anyway that's the concept so we have clients that are uh firemen and their spouse is a real estate professional i have women that are attorneys that prosecute and make great money and their husband's a stay-at-home dad and manages all the real estate so it's either way but it's all match made in heaven yeah um for someone that has a real estate portfolio you know and you're single you might want to be looking for a real estate professional you know i might want to put that in your dating profile so i've created a website called taxmatch.com yeah and uh we don't want to see a picture of you we don't care what your interests are we just want to see your tax return and we'll match your tax return up with the best sexiest you know possible option to save you taxes it doesn't matter if you love them tax cuts it matters how much taxes you pay yeah right and yeah so but here let's let's hit this again on on real estate professionals i thought that was kind of funny matt you didn't even i didn't even get a snicker out of you on that one oh i missed the end punch line i i mean i was saying trying to say tax sexy to try and save you from you know something so it's like taxi i i think you heard the punchline it just wasn't funny so all right okay so you so let's say i asked my feedback on that joke yeah okay so there's three three classifications so you wrap it up what are we gonna okay well i was just gonna say on the real estate professional so let's say that um you know let's say you've got husband and wife one of you um has a a day job essentially um or you have a small business that's not real estate and but the other um could be managing your properties if you get enough properties where you have 750 hours you can spend on it that person can be a real estate professional just by managing a few of your rentals now you're not going to get away with that by just one rental you're not going to be able to say well i'm a real estate professional because i manage one single family rental that ain't going to do it maybe one apartment building a multi-family type deal that takes a little more work uh maybe a few single families you could get away designating that um other spouse that you know doesn't have the day job working that is kind of working the rentals in the real estate business as a real estate professional or another one that mark mentioned that's common we see a lot of clients able to pick this up is the spouse goes and gets a real estate license becomes a real estate agent or broker and now they're self-employed right all real estates are self-employed they have their own real estate business now all these real estate losses are going to come and offset the other spouse's w-2 or small business income that has nothing to do with real estate and we've got um some huge huge tax savings that can that can occur all right that's the three real estate professional we love it unlimited no income phase outs you just got to meet the test active gives you 25 000 you at least want to be active all you gotta do is have you know some participation in it mark said as mark mentioned it's very minimal but you phase out and then passive is better than nothing but remember your losses even if you don't use them get a carry forward or they can at least go against your other real estate uh gains that you may have all right okay i love it now i'm preparing for those that are watching on youtube i'm preparing a little whiteboard that um with that squeaky pen the sharpie king size yeah it's good it's a nice hit there i want to get this podcast really rolling so you know a good a good whiff of a sharpie can always make the day a little oh perk you up huh okay yeah that's it that's it kids just just one snip okay now here's i'm gonna before we get into this i want to give just kind of let's step back and take a breath what's the strategy what we tell clients all the time is just just be open to real estate if you don't own rental real estate right now just change your mindset a little bit i'm not telling you to go out and rush and spend thousands of dollars of hard-earned money on something you know very little about just start learning about it pick up a couple books make a goal matt and i talk about the strategic plan every year for your 10-year plan if you meet with one of our tax returns we're going to ask you what's your 10-year plan what are you doing and one of those is we'd like you to consider buying one rental property a year or part thereof if i buy a rental with map every year other year that's i'm meeting my goal yeah i don't have to own 100 but i'm in the mix and it could be commercial it could be a third-party rental residential whatever just just start learning now the beauty is three to five years out you've got three to five rentals there's some synergy you may be single now married then you got the right spouse that has some real estate experience or you're married and one of your spouse you're the spouses decides you know what i'm going part-time let's manage this real estate yeah and we're not telling anyone quit your job today we're not just this is what wealthy people do they just they keep their eyes open matt do you add to that at all i don't know yeah i mean this is one where it takes a little strategy but if you've got a real estate portfolio and you start accumulating properties you're going to start seeing this on your 1040 you're going to see this bucket of losses building up over here and again these are great properties they may be cash flowing money in your pocket they're appreciating the mortgage is getting paid down like you love it but you get this bucket of tax losses building up over here meanwhile you've got your ordinary income that you're getting crushed paying taxes on and so figuring that out on how to move these losses over here is just take some strategy and some planning here it doesn't work for everybody but there's a lot of clients that can figure out a way to get to real estate professional um and really start maximizing this particularly if you're married um because now we can work with a spouse possibly and and trying to figure out how to do this i love it well i i'm not kidding uh when i say this this little diagram i just created i i've had this in my head and sometimes it just takes teaching it over and over again until you finally it clicks on a better way of explaining it matt this may be a diagram in my next book i'm not kidding you wait till you see this okay matt have you ever seen this diagram no this is a newbie i mean i've i've seen all the mark i've seen all the mark called their greatest hits on his terms of diagrams this is a new one this is his latest this is like michael jackson going out and pulling off the moonwalk on the david you know it's like on the night show uh the late night show and everybody's like oh my gosh what's that no one's ever seen it this is yeah this could be the moonwalk right here right you put the bar pretty hard pretty high there okay for you tax geeks out there this is the moon all right so here's the deal here's what i've diagrammed for everybody here now by the way if you're catching this on on podcast please when you get a minute on your phone or at home get on youtube and just type main street business and if you have to type in the word soren center kohler um and we switched from the refresher wealth show after four years of broadcasting into that name before that we had a different and so we we're really trying to get that brand down so you it may take a minute fine but when you find that channel please subscribe whenever we shoot a new podcast it'll be up on video as well so you might find that more enjoyable sitting on your phone watching a youtube video of the show okay when it comes to real estate what i've created is a line down the middle what we want to talk about is where can i use these losses when it comes to stock you see a lot of people come from the corporate world or they've got some stock gains or stock losses now stock losses are a pain in the butt um stock losses you can only take up till stock gains and then you get this 3 000 here you go you have 3 000 losses and the rest carry forward forever and millions of americans die every year with stock losses that just disappear on their tax return never to be used again so a lot of people ask well if i get these rental losses can i use them against stock gains and if i have stock losses can i use them against my real estate gains and and it can be really complex for an average accountant because you get into what's called 1231 losses 1250 losses and any of you that are a tax practitioner you know that that is muddy muddy water so okay take a breath everybody so here's what i've done i've created a line down the middle of paper and said rental operations on the left selling property on the right now in my trifecta these would still both be on the right side these are both real estate passive related this is not your day job this is on the right side of your trifecta if you don't know what the trifecta is you got to get over to youtube anyway watch some videos on that but i've got you could have a rental property with losses and gains yeah you can have a rental property you sold okay for a game or a loss that's right so what i did here is i've got a and b a on the left for all of you driving down the road i got a line down the middle of the white board on the left is rental operations we're going to call those a gains or a losses and then on the right side we've got sale of rental property which is b gains or b losses now in the irs code a and b are very very different okay so a let's say i have rental losses and i put over here on the whiteboard 98 98 of rental property owners are going to have rental losses which is good we know that we're still getting cash flow matt laid it out right man we're good yep yep then i could have rental gains now where rental gains come into place when someone's like i've watched dave ramsey and i need to pay off my rental and just sit back and collect rent um maybe very safe love dave ramsey not a good investment move you got all this cash sitting in a rental ready to get in a lawsuit and it's not making you a great roi so when you said cash sitting in a rental it didn't sound like that's what you said it's not like the cash is doing something else in the rent on oh like that's not i think we said that was funny all right we don't have technology to fix that so you're just gonna have to okay all right okay but we got type a gains or losses i like it all right okay now the losses come down with a little arrow and they run into the first gate can i use stock gains against rental losses no there's a big no here so no i can't use stock gains against my rental losses dang bummer then the losses go through that gate and i've got my one two three passive active real estate professional okay depending on how i classify myself is where they go all right so door number one two or three okay now a rental gain meaning you paid off this rental and your depreciation's gone and you're just sitting back and collecting rent and our clients that are 80 years or older that's when it's okay so you're just sitting back collecting rent you're done investing for the rest of your life you're just chilling no stock losses against real estate games from operation okay so basically what you're seeing is you can't use stock loss or stock gains against any operations from your rentals not going to happen okay that's the a category so as i'm holding it as a rental getting rental income loss stock gains aren't helping me at all and the rental losses aren't helping my stock gains it's snipped yeah these are oil and water they ain't mixing up yep oil and water ooh i like that okay now let's say i sell a rental oh boy now we're in b category b is a boy so now i've got a little house here and i put the word sale in a box under it so if you're driving down the road we're on the right side of the white now and i got i sold the property operations are over not collecting rent i sold this thing gain or loss now stock loss and gains come into play matt so i have a if i have a gain from the sale of a rental property oh i got a first gate again my first gate is depreciation recapture so if i have depreciation recapture i've gotta i've got to pay that for those watching online that's dep depreciation recapture it's a little ugly and then but my stock losses i can use against that gain i love it so if you're sitting on all these stock losses you could buy a rental wait a couple years sell it for a gain and harvest some of those stock losses you're sitting on yeah and some people let's say you sold a property this year and right now the stock market just you know took a crapper this week you might have a loss in your stock portfolio and sometimes that's this tax harvesting you might sell that stock capture the loss and frankly rebuy it back if you really believe in it you know at the now lower price so that gets you that loss that you can now offset that gain on the cell there you go now i kind of put this escape hatch down here called the 1031 exchange and that's where real estate investors that start to acquire a lot of properties figure out what am i going to do with this money when i sell this property anyway i'm going to go buy more freaking real estate so they sell a property and go buy another one or two or three of e core greater value and i kick that tax down the road forever yeah until i die even no one pays it so 1031 exchanges are awesome again we have two different candidates that approach these strategy very very differently one is pro all this one is anti all this okay now the last piece of this is what happens if i sell a rental property and i have a loss matt you're going to love it so i'm on the b side i've got a gain i get to use my stock losses now or i can do a 10 31 exchange i'm cool oh i sold a rental at a loss maybe it was 2009 or 10 or whatever right it was it was hell on wheels right yeah or like me you bought a fix and flip property in 2007 that turned into a rental for 13 years no 12 years i sold it in 19 and you finally sold it without taking a loss you know okay yep worked out yeah whoever that nut job is whoever that guy is here's what's cool the loss from a rental property can be used against any income your day job k ones stock gains other real estate gains so when you sell a rental you don't even have to be a real estate professional you can use it against any other income sweet huh i like that and there we go nice a and b and a river runs through baby yeah so in the cell scenario we got some options we get some we get some tax planning over there with the with the stock as i'm holding it as just a rental year to year i'm just doing the regular stuff we talked about my passive active real estate professional whatever i'm doing on the stock side of things it ain't mixing in here all right so i had one last issue to hit on all this lost stuff with with rental real estate and that is the people who crap on buying real estate with a retirement account self-directed ira or soul okay you know which we do mark and i both do we have helped thousands of clients do it we do it at directed ira with our clients all the time it's the most common asset someone buys with a self-directed ira is rental real estate now a lot of people out there will say don't buy real estate with your retirement account because you can't take depreciation and you can't take the losses okay let me hit a come back i'm just let me just say i'm dying to say the name of some of the organizations that do that but we could definitely get into problems for slander and this that another so but i'm going to say it's fairly common for any of the real estate investors taking real estate investment classes um i could rattle off two or three companies where they they do not recommend buying rentals in a retirement account and it blows my mind i'm like why and they go and here they go they say you don't get the loss you because it stays in your retirement account so why am i buying rentals if i don't get to offset my income i'm like hold it remember the four we just hit it out of the park for the four that's only one of the four there's three other reasons why real estate kicks butt you realize that oh yeah i guess but no one's talking about that yeah yeah and what what we're saying is i'm not saying buy real estate in your retirement account instead of buying real estate personally in fact most of our clients who buy real estate in their retirement account have personal rental properties are doing this tax planning on the tax losses they're doing both yeah they're doing both because they're good at real estate they know real estate that's their thing you know if you're getting a stock then keep doing that if you've been crushing it for 20 years and you're beating the markets and everything keep doing it i'm not saying don't do anything different you may be the only person on the planet but keep doing that yeah yeah so um now here's one my perspective on it in your retirement account you don't pay tax when you're making money if it's a roth the whole thing's coming out tax-free what what am i going to use a loss for there's no tax so do i want loss options to offset income how about just don't tax me period seems like a better deal to me but i don't know now that's matt's take i like it was like i would rather live in a world of no tax than having to deal with losses and that's kind of interesting matt when you said that it's like you put on another lens of glasses that are pink and now everything you see is pink that's kind of it is when you do real estate with a retirement account you just you just changes everything now there's no tax so the loss issue doesn't matter now my take matt and i have two different reasons why we hate that argument but here's my take getting pass-through losses is freaking awesome that's what we've been talking about this whole show we want you to buy rentals slowly but surely wisely and carefully over the years to come and i promise you it will build wealth and cash flow for the future no way around it it is proven will you make some mistakes along the way sure are you gonna hit some home runs a long way absolutely and so you just take the punches with the high fives you just do both now is that the only reason to buy rental real estate is because i get losses no we talked about these other three appreciation mortgage reductions cash flow guess what your retirement accounts gets those other three and just usually just pretty much freaking all the time those three benefits are a lot more than your eight percent freaking mutual funds sitting in your 401k or ira the roi when i say return on investment on a rental property that's what we should be focused on when we look at our retirement account not not the tax benefit per se even though matt's like hey i don't pay taxes over here pretty kick ass i love it but sorry kids but but but the better part is even i'm going to get a 10 20 30 return on my investment by buying real estate in my retirement account versus a stock bond or mutual fund or etf and and you don't even bring up the tax loss thing yeah so what makes money yeah most people have money in a retirement account and they want to have more money when they hit retirement age yep it's all about the returns what do you care about stock loss for it or losses just we worry about returns and having the biggest account possible when you hit retirement if that can happen with real estate because that's your thing and that's what you're good at you feel more confident about it than the market go that direction don't worry about these this well you don't get the tax losses in your retirement account that's not the reason we're thinking about this yeah all right that's all i had i just glad i got that off my chest yeah damn geez um i really don't have much more except um when this topic comes up if you start to hear sales pitches for words like cost segregation or bonus depreciation or um turnkey rentals where you don't even show up and look at it you're just just buy this you know sort of thing look if you didn't hear it on our show be a little careful we we really do look out i know that sounds cliche but we really do look out for our clients we're not perfect some of our staff screws up i screw up we we're not perfect all the time but all in all we're trying to make sure our clients don't step into a quagmire and so please set up a console with a couple different accounts get a couple different opinions i'll go head-to-head with anyone on these topics and and just debate them it's not a perfect fit for everybody uh but it is a perfect fit for a lot of people so yeah be open to it i think it's just i'm buying rentals matt and i we're looking at one right now you know we're we're looking at rentals all the time and we wish we could buy one a year oh i do have one last tip if you're looking to buy a rental who's your best tenant who's going to be the best tenant you would ever want not your mom not a kid it's you so if you have an operational business one of your first places to buy a rental is your own building your own unit your own condo your own whatever i don't care if it's a shack if you're renting someone from someone something from someone for your business turn that on its head and start buying a property that could appreciate and pay down the mortgage and get a write-off for that interest that your landlord's getting and you're not anyway makes a lot of sense to me all right well thanks everyone for tuning into this hope you learned something um and i know we got a little tax nerdy there for a little bit mark has a dandy diagram make sure you get to youtube if you're if you didn't if you want to see the diagram it is actually pretty cool um and please give us a five star review our reviews have finally showed up from our fresh wealth podcast that got merged over but uh we still would love to see a five star review for me if you like this show and i think if you're still listening by now i hate to tell you you kind of like it so maybe maybe give us a review we're growing on you um so next week is open forum people don't forget also my workshop is in a week two day workshop uh three four hundred bucks couple days recorded with a workbook lots of q a zoom call where you're networking with others around the country i think you'd love it make your significant other spouse or business partner or children watch it with you and we're not going anywhere don't also if you're into this self-directed ira stuff and buying real estate in your ira just blew your brain please go to their your listening portal whatever you're using and type the word self-directed ira podcast or directed ira podcast matt and i have started a new podcast there just for that topic alone and you can binge listen to a bunch of good stuff there yeah yeah we got four episodes in for the directed ira podcast so thanks everyone [Music] you

Channel: Mark J Kohler

Views: 25,552

Keywords: tax, legal, entrepreneur, asset protection, wealth building, cpa, attorney, lawfirm, real estate, Rentals, Mark Kohler, Mat Sorensen, Podcast, Entity, Vote, Tax and Legal, How to, Set Up, How do I, Professional, write-offs, deductions, MJK, Main Street Business, KKOS Lawyers, Tax Law, home office deduction, Advice, Creative Tax Deductions, Tax Credit, IRA, S-Corp, LLC, financial freedom, when to set up, When can I, Online, Free, How to Free, When to Free, trump taxes, income tax, taxes

Id: _Hs8I1EBnr8

Length: 52min 28sec (3148 seconds)

Published: Tue Nov 03 2020