How To Avoid Taxes (Legally) as a Real Estate Investor

[@RichardMPM]

BP was one of the influences that led me to start real estate investing, along with Ken and Robert. Im halfway through the process of my first purchase. Found a overly leveraged landlord that needed to sell urgently and cheaply. Soon having an apartment rented to nurses by the room near my city's hospital which will cashflow HALF of what I currently earn at my job. This started out as me just devouring hours of videos and books from all of you authors and thinking about real estate 24/7 for a year while saving money for first investment. Grind, grind, grind !!! Wish me luck guys !

[@narcymatoko9747]

Congrats! Almost on the same boat. Closing on my first investment property after devouring countless of material.

[@katersization]

I hope the absolute best for you

[@LashusJourney]

That’s awesome 👏

[@adolfogutierrez7424]

Do you have an social media? I’d like to follow up to speak about your experience & network!! :)

[@RichardMPM]

@@adolfogutierrez7424 you can leave me your FB profile. I dont use anything else really

[@tamekamostella]

It would be amazing to have him come back and have a less experienced buyer interview him so the information will be more understandable and easier to relate to. The video was very informative and great.

[@alphabeta8403]

40:00 Depreciation is magic 50:00 LLC facts

[@MrWaterbugdesign]

I retired 21 years ago at 45. I didn't have a pile of money and had no plan to retire. I was a software engineer working at startups and had one pay off a $100k so I decided to take off work and develop my own app to sell. My plan was to go back to work when the money ran low. I absolutely loved writing code and creating consumer apps. But wanted to create my own app. This was when the web was starting out so there wasn't a lot of social media or info on "retiring early". A strange thing happened...the money lasted much longer than I had imaged. I also got into gardening and playing basketball which was fun. I owned my home in San Jose CA with a $2200/mo mortgage payment. I could see without that mortgage payment that wow my expenses were really low. So I fixed up that house (had to refi with no doc loan) and sold for a $400k profit. Moved to Phoenix bought a house for $305k, sold that 6 months later for a $60k profit (just before the crash) and bought a $265k house closer to central Phoenix. Bought a second house in central Phoenix for $200k during the crash. Basically I've lived off cap gain on houses I lived in. I try to buy dumps in OK areas and I fix them up, sell, repeat. I do all the work myself, another hobby. I generally keep the cap gain below the $250k tax free limit ($500k when I was married). So my taxable income over 21 years has been below the limit needed to file so I don't even fill out Fed or State income tax forms. Weird feeling. I don't invest (other than my home) because I suck at investing and it's a job I don't like. So no income from investments. $0 income triggered qualifying for Medicaid so $0 health care costs. I loved Medicaid. No stress having to pick an insurance company, everything is paid for, no co-pays. Medicaid only considers income, not wealth. That saved me a lot of money. Then I found out because I was on Medicaid I could also get a smartphone and data plan for free (Lifeline). My average spend in the past 10 years has been $600/mo. Crazy right? I self insure my home, don't heat in winter, hot water heater off in summer, no clothes dryer, eat Keto so limited diet (never eat out). $600 includes everything including $100/mo for property tax. I love living simple. I don't have cable TV or even a couch. It's been a strange trip. There are options to retire early, not pay income taxes. I get no one believes any of this is possible. 21 years ago I wouldn't have believed it either. Today I'm fixing my remaining central Phoenix home to sell later this year or spring 2023 and moving to SE Asia. As a 65 year old single white dude it's pretty cool I'll be able to date/marry a very young attractive woman who will be a great wife. I can even have kids and have the funds to make sure my kids get through college. No sure I will, but pretty sweet option to have. The one tip I have is how important marriage is to any financial plan a person has. The biggest risk to retiring early for example is divorce. Never hear that mentioned. When there's a big pile of money people can start seeing being divorced as a way to get more control over that money. Also I couldn't live the way I do, and want, while being married. Chances of find another person to live like this is pretty much impossible. I'm not against marriage, only marriage in the US and most western countries. It's a bad financial contract.

[@JF-vw9lv]

Thanks for posting this. It actually helped addressed some of my own retirement planning concerns and strategies I'm considering. I agree with the last paragraph. I know a guy who's divorce is costing both of them more than it should.

[@LoveMyAbeshaWomen]

Marriage in the western world is not worth the risk. But I enjoyed reading about your journey. Very interesting and inspiring!

[@tit4357]

Thank u for the share!

[@almmason7]

Divorce destroys wealth's greatest potential! You wonder why so many families have zero wealth and lots of debt. The old song/saying is true...ITS CHEAPER TO KEEP HER/HIM!!!

[@lz898]

But your cap gain in fixing houses counted as income, isn't it? Then that's not $0 income. Could you explain?

[@dropthebassline]

Such a valuable episode!

[@jpramirez3745]

This actually saved me. I love my W2 work and have my 2 businesses built on outsourcing and VA. My problem is my 2 businesses are now gaining profit more than my W2. My initial plan was I need to invest in short term rental to take advantage of depreciation for my active businesses. It turned out, what I was doing is correct. My 2 businesses are already passive since I just audit and create systems which just requires 2 hours a week - less than 100 hours in a year. Turn your active income to passive income. Invest passively in Real estate and take depreciation losses on the profits in the passive income. Thank you!

[@wavygoods877]

What are you businesses on? I’m currently in cybersecurity and trying to offset my w2 income by owning a quadplex

[@Kaylo_ve5]

@@wavygoods877 is cyber security a good field I was hurt on my city job and now having to pivot careers

[@jackmabbett5691]

Love this. More tax and insurance strategy shows. Thanks for the hard work, BP!

[@josoffat7649]

did you just say hard work? The guy is a little weasel that probably doesn't know the meaning of actual hard work . Sound like you don't know what hard work is either.

[@zanerobloxgamer1665]

I’m constantly battling my Dave Ramsey investor friends (in a friendly way) and looking forward to sharing his quote: “If you are afraid of debt then what you are your really afraid of is the asset not performing financially.” Stew on that for a little bit.

[@RidleyE]

I think that is a valid fear, particularly for newer investors

[@gcg8187]

@@RidleyE It's is a valid fear, but is it a valid financial philosophy?

[@RidleyE]

@@gcg8187 All depends on where you are. I go against the grain a bit when it comes to the ‘just jump in’ advice typically given to new investors. That doesn’t fly in this market where everything is on hard mode. You need to do your DD and do it twice. Hopefully with a mentor as well. Just my opinion. Buying an asset that underperforms can be devastating to a household’s finances. I’ve seen it happen to friends of mine.

[@T2Kirby]

I think it’s important to understand Dave Ramsay’s points when it comes to leverage. When he was a young millionaire, banks called his debt for bad reasons and wiped him out. Investors who pile on the debt without understanding the banks position and power will do so to their own peril.

[@dp-116]

It's all about risk dude

[@sadams6663]

Love this show. For years, many BP shows focused on "20 doors in 1 year" type of stories. Not much on financial side of real estate investment. It is nice change to see!

[@buydip7951]

Which online platform do you recommend for newbies to know the secret on how to become a millionaire without taxes?

[@prestonwalters1795]

I have been making good profits and consistent free withdrawal since i joined (First Trade Markets)

[@buydip7951]

thank you for the recommendation. I just started making profits now from the platform. I started my account with a small capital. I will definitely add more.

[@MrShutterButter]

Yes! That wasn’t as helpful as BP thought it would be. In some cases it was the opposite

[@yourwellnessla4067]

Love these solo deep dive discussion with David with guests or with QA. So informative, engaging, and enlightening.

[@geofreyumanger6542]

Well said! Well i am also looking for more genuine and smart ways on short and long term investments, any idea here?

[@ericalorraine7943]

​@@geofreyumanger6542I'll strongly recommend Christine Lynn Saitta, she's a real investors prodigy and has also handled my investments for over 11 months now

[@davidhudson3001]

It's fascinating to hear that someone here employ madam Christine's services. She has been managing my investment

[@dr.ervingalen1777]

A CNBC news host spoke so highly of this💕lady Christine Lynn Saitta and her loss prevention strategies been trying to get to her

[@investorwest8735]

I heard she always have a way of linking someone investment into something new and profitable?

[@RachelTomeTampa]

I’m about 3/4 through Tom’s book! Great content! Thank you!😊

[@travisjacobsvideos]

Thank you for making this episode, I have been rambling in my mind about what I should do about my goals with taxes. Now I will have less questions for my CPA...

[@TheBurtle005]

What an incredible episode!!! I hope you guys do more podcasts like this. Some episodes with hard money lenders would be nice too.

[@9xqspx6]

They have such content - and it is awesome. It's not a podcast and it isn't with David. It's on the Bigger Pockets Multifamily Mentor Show. In another episode they go very deep into cost segregation as well. Gotta love BiggerPockets!

[@zdobson88]

@@9xqspx6 Is that show on KZbin?

[@9xqspx6]

@@zdobson88 Yes, just search for the full name that I typed with capital first letters, here on youtube, and you will find it.

[@seanwaters8886]

Ah! I get this now. When I was 35, I used credit cards to renovate a home, and buy a car (for business only, not pleasure). My method would have worked, except I did not have any financial education. And yes, my asset did not cover my expenses, I did not know about CAP rates. I did have to go bankrupt, but in the process I learned from my mistake, and today I have an amazing spending plan, where I can document my money movement. I can definitely now see that using credit would have helped me build wealth, but I just didn't know how. Buying and hold makes sense, but only if a person understands all of the expenses to run a property (plus emergency funds should be calculated into that equation, me thinks).

[@brandonmitchell8972]

I absolutely love bigger pocket. The information they give is priceless!! I’m working to start my real estate journey. the more I listen the more confident I get!. I’m really glad I stumbled across this content. Life changing!

[@crispinlocke9868]

How is your real estate journey going? I just started school to get licensed as an agent and hope to become and investor - do you have any valuable insight to share about your journey so far?

[@luistovar2494]

Tom W is a master mind on taxes. Great learnings from his books and this discussion

[@susanshen7612]

Hi David: great show. We have a few rental properties that are paid off, under an LLC. Understand it’s dangerous if get sued. But how do you get mortgage for an LLC? Mortgage companies wouldn’t lend to an LLC. Thanks Susan

[@LeeG260]

Excellent Podcast episode. Mini-course on Real Estate investing all in one package. A question I have for Tom Wheelhouse is whether using Statutory Trusts (Wyoming, Nevada, etc) for each rental property, held within one LLC (From a state that has a charging order only for creditor remedy) would protect one property's claims from each of the others and the LLC protecting all properties from an outside/personal or other claims?

[@nathancalacat3019]

How do you go about calculating the value of the property versus value of the land when determining standard straight-line depreciation? Also, for example, let's say I bought a property in January 2022 for $775,000 but I put $750,000 into renovations on the property and furnishing, designing, etc. but it took until October 2023 to complete the project. Does the 27.5 straight-line depreciation start this year at the new value of the property or does it start at the purchase price? This is a real example of an active Airbnb. Please advise.

[@FutureWillTrades]

i’m just saying Tom never really specified if getting an LLC is the right thing to do or not. 52:18

[@christobar]

Great information! He's simplifying the situation with the amazon like deals around the country, for example in WI the state actually paid Foxconn to build there, it wasn't just a reduction in taxes. The benefit to the communities that pay large companies to move in are highly contested.

[@Storybooktea7167]

Really good information! I took pages of notes and now I have so much information I have to act on.

[@Beadyboyworld]

24:23 - why we are never going to have a loss if you use your equity? Can someone explain?

[@khongcolong]

Thank you Tom W! Thank you for educating and sharing us your passion.

[@stevencorrea1940]

Tom mentioned an online/DIY cost segregation tools for single family houses we could use. Anyone have more info on this or specific links they can reference?

[@poorinvestor]

This is one of the best information on the tube!

[@jerrysweany278]

This is great. My question is: How do you create loss through short term rentals when the goal is cash flow? What am I missing? Depreciation can help...but not very significant.

[@whatcanisay995]

@BiggerPockets Is there a resource or person you could recommend to Canadian investors buying property within Canada? I love your videos but would like more Canadian content regarding tax rules and so on.

[@gayleneflower398]

OK, my Accountant told me not to get an LLC even though I have three rental properties because he said that my insurance will cover any damages as well as my umbrella policy. What do you have to say about that? That may be confused that having an LLC would be redundant and maybe not necessary if I have a $2 million liability policy.

[@conlawmeateater8792]

You're also protecting yourself from the robin hoods out that. The guys that want to take from you because you're rich

[@FinancialFinesse00]

Thanks for having Tom W. on this helpful informative tax strategies podcast he dished out alot of meat and potatoes keep the gems coming .

[@lucrtrvl]

Can a second owner of the house take 27.5 year depreciation if the first owner already used this option? And one more question if anyone would care to answer. David mentioned that his paid off properties were sitting ducks for scammers who knew how to abuse the title companies system to take over the ownership of the paid off property to sell it fraudulently to unsuspecting buyer. How to protect such paid off properties if one doesn’t want to put another loan on it? What are the steps and ways to protect our paid off real estate? Thank you for the great content in each and every video you produce here.

[@johnnyb33good21]

i just purchased a $1.5 million off-market seller-financed 7-unit apartment building in Phoenix, Arizona. I'm gonna look into having a cost segregation done and using bonus depreciation & if it makes sense for my situation... My other 30 units of multi-family consist of 4 plexes, a 6 unit & 1 acre of land and I never looked into it because I always thought they were too small of buildings and purchase price has anyone else ever done a cost segregation or used bonus depreciation? Was it worth it? Thxs for Sharing!

[@ocram9690]

Man Tom is awesome he makes just about every other tax person seem subpar. I read his book a while back and was shocked when I spoke to several tax attorneys and accountants who knew nothing about it or what’s discussed in the book. 😢

[@kawaiajackson9037]

Stuggling to find an attorney who's worthy enough to handle my business

[@edwardlora4918]

If you have long term capital gains from stock or crypto can you buy a property and do cost segregation to deduct you gains?

[@leakedavid]

In the control everything segment what if you don't have the intention to become passive in your self-employment business for instance I'm going to run a service based business teaching meditation I'm going to continue to do that I'm not going to step out and abdicate that so it's a bit confusing your guest would Define terms for people like me that don't have I'm working understanding of the tax law and lingo. Thank you!

[@Bluewh174]

It’s a real education ..awesome learning

[@TheOlegGroup]

Amazing episode! Speaker is very intelligent and clearly explain all questions

[@nickbaptiste3047]

Just found your channel and I’m so glad I did cause I’m interested in investing in real estate and I had no idea where to start. Thanks so much for this invaluable content.

[@lisarogers5873]

Thank you for keeping the interview on topic and providing the most information in the shortest time. My time is super limited and you are providing a valuable video. I am becoming a subscriber!

[@tyzxcj34]

49:10 LLC

[@MARIACRISTINA-ht3tr]

Hi Guys, very informative, When he says 500 hours is a month or a Year?

[@debbieskora7907]

I cant seem to find anything about the Section 469 C7 Election on the IRS website. Any links you can share?

[@Daniel_Trombonist]

Love the comment on hire professional to do it .. I can really feel it as I worked in IT consulting. Unfortunately most real estate agents are not giving their 100% effort - especially when they are the seller agent. I sold my house in 2021 at market price with no mark-up and the agent that I used did not help much to drive traffic nor getting better offer. I might be able to sell it for same price thru sale-by-owner and save the 3% commission.

[@ColinGHd]

Can I write off the depreciation of a

[@MarqFlournoy]

What if fail to make the llc payments to the state? What happens to the llc ownership of the property?

[@kkaymoody1483]

how do I find a local CPA that is in your network?

[@taranwinslow2615]

Can I write off the interest on a seller financed property?

[@TriNgoMBA]

Tom is great CPA, i register his website to learn more on my tax preparer practice already

[@MrThevillababe]

Does working as a real estate photographer and/or real estate stager qualify as real estate professional hours according to Tom? Thanks

[@TriNgoMBA]

David mention you start with your team to raise fund to buy luxury house for Shortterm rental, can I have more information how to join?

[@awesomebosssoccer7387]

Hi David. Thanks for sharing this information. I am thinking about investing in a 37 unit JV out of state. All 6 partners have a percentage of ownership, voting rights, sign on the loan and an active role. My role would be to prepare and update the financials. Would the hours spent in this role count towards material participation? Thank you!

[@bendavis8856]

Wow! Great podcast! Lots of great take-always and nuggets of insight.

[@thoreakes1439]

A very interesting point. I am a CPA and serve many business owners. The ones that buy real estate for their company (and for investment) are head and shoulders ahead of others who don't.

[@Thomas-bu8ee]

So Much KNOWLEDGE! Great video

[@freedomfight1933]

as a long time full time real estate investor I don't totally agree with them on the just hire a professional for everything and don't try and do it yourself except basically signing the papers to buy property or refi. obviously I wouldn't do my own taxes for instance. but as an example I do think you should manage your own properties for a while when you're new, and get a lot closer to the construction then you're comfortable with (if you're rehabbing) as well. things like that. because if you don't you just won't be as strong later, that's just a fact that people don't want to hear because it's scary. of course on shows or at seminars they tell newbies to hire everyone to do everything, partly because guess what thier "other" businesses are besides real estate investing, where most of thier money comes from. those services of course.

[@redrustyhill2]

People who dont have the skills and need to farm out all the work, are people who shouldn't be in the business. I dont see how its even possible to grow a company or business enterprise if the owner doesnt put any sweat equity in. The only way to make money flipping houses is if you can do a majority of the repairs

[@freedomfight1933]

@@redrustyhill2 the truth is definitely a lot closer to what you're saying than what they are. When you start a business you better be ready for a lot of sweat equity in many different areas!

[@rcruz401]

I have been struggling with this for a while now. Let's say I'm a real estate investor, BUT not a professional due to my W2 job. I'm also in the building stages of my investing and taking on loans and trying to qualify through banks. I do my own property management through a C corp. Why should I focus on bonus depreciation and write offs for taxes if it's going to bite me in the butt when I go to a bank or mortgage broker and they see my AGI for that year is to low and my DTI ratio to high, Just because I didn't want to pay taxes...😣😣

[@sparkro]

Depreciation is added back to income during underwriting so no negative impact. But other expenses (meals, travel, etc) are not added back.

[@Kaylo_ve5]

@@sparkro can you let us know what depreciation will be added back and how much depreciation will be added back in what fields

[@campingforayearrenoheart5908]

I bought a Rv the debt was 9,000 last year the money made from Rentals 23,000 ! I made money from the debt , so a RV can make money 💰, and I got to use the rv 4 different trips . It’s a win win

[@sheilakilby5162]

We have 4 rentals in the same LLC (no loans). So we purchased a 3 million unbrella policy.

[@livewithdr.andre1]

Thank you both ❤

[@alexandriakillian6067]

Phenomenal info! Thank you guys!!

[@carloscateriano6087]

Does depreciation apply to condos/apartments?

[@loukylouky3962]

Is this in canada too

[@RobWilliams007]

This is why I’m a big proponent for 0-10% business taxes. The more people you employ, the more in income tax rates the government takes in. It’s exactly what happened when Kennedy, Reagan and Trump lowered tax rates.

[@marcodelucca8163]

Facts I would increase pay compensation and benefits if corporate taxes were smaller for small businesses

[@r3ality1]

I love the idea of taking active income to passive. If you own a rental property and have a rental company manage it for you, would that count as passive because you personally spend less than 500 hours on it?

[@the_ghost_of_cale_gundy]

I was wondering the same thing

[@jameszeris5418]

Tom Excellent as always

[@jessicafrances2247]

I HAVE WAITED SO LONG TO HEAR THIS!!! Yayyyy!!!!

[@CurtissCain]

Have you’re own business! Let’s talk amazing products and services! Great video BP!!

[@vivalosbitcoins8266]

Can you make a detailed step by step video on how to do this? I loved this video but it's still hard for me to understand how to do it

[@bobby_ewan]

Thank you for this invaluable content 🙏

[@gisellmorales5007]

This is awesome! It has opened my mind and eyes to adjust my strategy going forward🙏Thank you so much!!

[@resachadley3135]

Love it , sooooo good ( great video)

[@aprilmartin3442]

Why are LLC harder in Tennessee?

[@oCHANCEo]

Excellent video thanks for your time

[@Kaylo_ve5]

It when you avoid taxes do you qualify for the real estate

[@ambergraham103]

Thank for being a Segway from the professionals to us cuz I NEED these analogies and clarifications!!!

[@hameddadgour]

Fantastic episode!

[@arminc2027]

Is there depreciation on land?

[@arminc2027]

Never mind I see that they covered this subject

[@onelovecreativestudiosllc3226]

Thank you so much for this content

[@bfrances2354]

Great content! Thank you

[@antoniolara1467]

You guys are both incredible great job guys

[@troyweyerstrass7312]

Fantastic conversation!

[@fitrican7983]

Can I utilize tax advantages by investing my W2 income? I am in the top left corner “E” employee. Can I fund my real estate investment with my salary and use to reduce my personal tax liabilities?

[@redrustyhill2]

Yes, on a limited scale. Depreciation is the magic ingredient. I had one rental house as a w2 employee. My bank account was showing positve cash flow every year (taxable income) but using every deduction, including depreciation of the asset, on paper i was showing negative income for the rental on my tax returns which actually decreased the income tax i had to pay from w2 earnings.

[@michaelsherk7645]

I will definitely start reading after watching this video.

[@andyantonio3200]

In the book of Robert kiyosaki cashflow quadrant when he say investors pay 0% taxes, What type of investor is he referring about is it Stock investor, Real estate investor or reit investor?

[@lancasterrealestate3785]

Thank you for sharing

[@cesareana7353]

Great content! Thank you!

[@jd1399]

the key it seems is in real estate the debt interest is also tax deductible. isnt that right?

[@redrustyhill2]

Yes, interest paid is a deduction.

[@jackmiser]

The content begins at 5:25 on tape.

[@wendys5314]

I enjoy bigger pockets and have been listening for several months. Hoping to get started in real estate soon. I am self employed and am looking to decrease my taxes so that's why I bought Tom's book. However I still cringe when I hear the VERY rich not paying ANY taxes. Lots of these same people are the ones who argue against illegal immigrants not paying taxes. So how is this different. Though I hope to pay less taxes, I will always be part the middle class that carries this country. Very confusing topic.

[@frankpapi9764]

Awesome information 🔥💪🔥

[@theeffectiveprogressive]

Excellent content

[@AberrantArt]

This was amazing info!!!!!

[@Zizo8182]

Thanks for sharing

[@scottross5706]

Nailed it!!

[@gbatohbrowne1225]

One of the best videos I’ve watched on this channel. So much info! Thank you 🙏🏾

[@LivinginBirminghamAlabama]

Really loving your videos

[@jazzyphizzel]

depreciation is 27.5 years for residential and 39 years for commercial property. For a Cost Seg study hire a reputable firm (has engineers, accountants working in the firm). the same as you would for a 1031 exchange, you want a qualified intermediary in place.

[@Allinone-of2xj]

Hi David and Tom, I love this video.., actually I love all Bigger Pockets videos, I am starting to invest in real state and would like to ask if you can guide me were to go to get a tax specialist or accountant, CPA so that I receive professional help. Tom, Does your firm has offices in Michigan, I live in Michigan and would like to be guided by you.

[@anjusingal9249]

Really Good Information! Thanks

[@onelovecreativestudiosllc3226]

How do I make the feature films I Invest inn and Produce deductible?