Today, attorneys Toby Mathis, Esq., and Eliot Thomas, Esq., answer listener questions with a focus on various strategies for minimizing estate and income taxes. You’ll hear about how to use non-profits or irrevocable trusts to avoid estate taxes, structuring an assisted care business with asset protection strategies, and setting up single-member LLCs taxed as S-Corps. For short-term rental tax deductions, it’s clarified that a property can’t serve both vacation and business purposes. The questions also address investment in qualified opportunity zones or QOZ’s, 1099 tax options for truck drivers and other independent contractors, deducting home improvement costs, and alternatives to 1031 exchanges.
Submit your tax question to taxtuesday@andersonadvisors.com

Highlights/Topics:

• What is the best way to avoid estate tax? – Setting up a non-profit, or an irrevocable trust. Currently, only estates over $13 million get a federal tax
• I’m a nurse. I’m interested in starting an assisted care business in my home. Any recommendations to use for taxes or startup strategies? – Focus on asset protection – separate your building vs. operations in an LLC. You’ll need good insurance and other protections for anyone coming into your home.
• My wife has a single-member LLC engineering firm and it’s taxed as an SCorp. I plan to open my own business. Would I be able to open my own single-member LLC tax as an S -Corp? My CPA advised me to run my business through hers so that only one 1120S is filed. – Yes to the SCorp and NO to running through your wife’s LLC. If you get sued someone can take everything from you.
• Can I use my vacation home as a short-term rental to tax write-off? So how do we do that? – it’s either vacation or it’s business, you don’t do both, okay?
• I hear a lot about seven average days, but there is a lot of confusion behind those seven days. – The only reason there’s confusion is because people don’t know how to read the regs…
• I’ve realized capital gains from an installment sale in 2023. I’ve not received capital gains up to my basis yet. I will have a chunk every year up to the next five years. Can I still invest in a qualified opportunity zone? – QOZ’s are ending at the end of 2026
• I would like to focus on 1099-related options. I’m a truck driver, and I feel I’m paying very high taxes. – This is broader than just truckers, but don’t start a sole proprietorship, try a C or S- Corp to cut down employment taxes.
• Sold our investment property in 2023, which was previously our residence for 10 years. When we started renting out our property about five years ago, our CPA did not advise us on updating the cost basis because you don’t. Right. We have done many upgrades to the house during the 10-year stay. So this year, when we file our taxes and report the sale, we will be using the initial cost basis for the home. My question is, any way to deduct the expenses we had when it was our residence? – See form 315 to capture that missed depreciation.
• I see different ads from others saying there are options other than a 1031 exchange to defer taxes. Looking for any viable options, please. – We can look for UPREITS, Umbrella, partnership, real estate investment trust, things like that.
• Being a senior over 70, I really enjoy the videos I watch on YouTube as it’s never too late to learn and try to understand real estate investing in taxes. But even if I do pick up some of the things, I still would need experts to do the job for me. What would it cost for Anderson’s group to follow my future investments? I want to do this for my daughter who is now in her second year of college. – If you want turn-key investing, come to infinity investing

Resources:

How to Avoid Taxes When Selling Your Rental Property
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Full Episode Transcript:

Toby:  All right, hopefully you’re here for Tax Tuesdays. If that’s the case, this is Tax Tuesday where we’re bringing tax knowledge to the masses. My name is Toby Mathis.

Eliot: Eliot Thomas.

Toby: We’re going to be your hosts for the next foreseeable future until we get through all these. Usually about an hour. Used to be two hours. Let’s let everybody flow in. How many people we already got on? Let’s see. They’re flowing in. All right. We will start getting going.

If you’re alive and kicking, give me a thumbs up. That’s what we like to see. We’ll see who’s in the room. Give me a thumbs up if you’re able to use an emoji. Look at all that, there’s a bunch of thumbs. All right, everybody’s loading up. All right.

The simple rules, if you have comments, put them into chat, like Eliot looks really good today. You can put that in there. If you have questions, put it in the Q&A, like I’ve had a house, I’ve lived in it for the last five years, I rented it for the last year, can I still do a 121 sale exclusion?

We have a bunch of folks on. I’m looking at it right now. Matthew, Patty, Arash, Dutch, Jared, Jeff, Rachel, Troy. You got a bunch of tax attorneys, accountants, and others there to answer your questions. We’re just going to send you a bill. Joking. We’re not going to send you a bill. We don’t charge. Just don’t abuse it. If you ask a million questions where it’s getting really technical about your return, I probably invite you to become a client. That’s it. It’s supposed to be a little bit of fun.

We usually do have a good time. If this is your first Tax Tuesday, give me a smiley face or something. Give me some indication that this is your first time. We want to know who the first timers are. Crying? Getting cry emojis.

Eliot: Scared.

Toby: They’re like, ah, crap, what did I just get into? You got into the tax world, we’re going to have some fun.

Eliot: The IRS is censoring this.

Toby: Bunch of agents are on. They should be, they need to learn some of this stuff so they don’t make jack decisions.

Eliot: That was him.

Toby: As I see it. All right. Let’s dive in. These are the questions we’re going to go over today. We’re going to go over in order, so don’t worry. We’re not going to answer them right now. We’re just letting you know what the questions are so you can decide whether it’s worth your while to sit here and deal with this.

All right. “What is the best way to avoid a estate tax?” Eliot picked this. Where is this?

All right. “I’m a nurse. I’m interested in starting an assisted care business in my home. Any recommendations to use for taxes or startup strategies?” These are open ended questions.

Eliot: Yeah, they are.

Toby: “My wife has a single member LLC engineering firm, and it’s taxed as an S-corp. I plan to open my own business.” Congratulations. “Would I be able to open my own single member LLC taxed as an S-corp? My CPA advised me to run my business through hers so that only one 1120-S is filed, but I can’t see myself doing that.” Probably because you’re smart. “I want to completely separate my business from hers. What do you think?” We’ll get into that one.

All right. “Can I use my vacation home as a short term rental  to tax write off? If so, how do we do that?” That’s a pretty good one. We hear a lot about seven average days, but there is a lot of confusion behind those seven days. Some say it has to be seven, some say it doesn’t have to. We’ll go over with the losses. “If I have two bookings of two and 12 days, to me that’s seven. If I have four bookings of 24, three and seven, that’s an average of seven?” question marks. We’ll dive into that. It’s not horrifically difficult. It’s very simple.

“I’ve realized capital gain from installment sale in 2023.” Congratulations. “I’ve not received capital up to my basis yet. I will have a chunk every year up to the next five years. Can I still invest in a qualified opportunity zone?”  I hope you know these.

Eliot: Yup.

Toby: Good God. Somebody has got to know the answers because I’m going to have to use a lifeline. Do they have lifelines? I need a lifeline.

“I would like some focus on 1099 related options. I’m a truck driver, and I feel I’m paying very high taxes.” Not the first time I’ve heard that from a truck driver.

“I sold our investment property in 2023, which was previously our residence for 10 years.  When we started renting our property about five years ago, our CPA did not advise us on updating the cost basis.” I’m trying to figure out whether they own this thing for 15 years. We’ll get into that.

“We have done many upgrades to the house during our 10 year stay. This year when we file our taxes and report the sale, we’ll be using the initial cost basis for the house. My question, is there any way to deduct expenses we had when it was our residence?” Okay, I think I’m getting that. Good question. We’ll get into it. Makes the wheels start to turn, and they’re rusted. They got stuff in them like gunk.

“I see different ads from others saying there are options other than a 1031 exchange to defer taxes. Looking for any viable options, please.”

“Being a senior over 70, I really enjoy the videos I watch on YouTube as it’s never too late to learn and try to understand real estate investing and taxes. But even if I do pick up some of the things, I still would need experts to do the job for me. What would it cost for Anderson’s group to follow my future investments? I want to do this for my daughter who is now in her second year of college.” Good questions, and we’ll get into that. We’re not financial planners, so that side of it’s going to be. But from a tax and compliance standpoint, we could probably help.

Speaking of YouTube, hey, there’s YouTube. A lot of fun, YouTube is, especially recently. It’s been a lot of fun doing a lot of these rules and stuff. If you feel like it and want to join our YouTube channel, there are two. I have one and Clint has one, and they’re absolutely free. We also stream. I believe we stream Tax Tuesday on it. Hey, Matthew, do we stream it on YouTube?

Matthew: Yeah.

Toby: All right. We do, apparently I have it on good authority that we stream on YouTube. You guys are probably chatting on YouTube. My partner, Clint, who I’ve been partners with since 1998, actually, but we actually formed Anderson in 1999, a long time, does a great job on his channel. You should join his channel too. I think there’s a link that gets you to one of them. I have no idea, but Patty, just put those in the chat.

Feel free to join up. We don’t pound you, it’s just you get notified if you click that little bell. It notifies you when a new video goes up, and they’re always fun. A lot of tax topics on mine, a lot of asset protection on Clint’s.

Speaking of tax and asset protection, we do teach workshops. At this point, it’s every week. There’s two live ones coming up, which are a lot of fun, where we actually get together. It’s a bunch of investors. It’s usually 400 or 500 people. September and December, we have them coming up, September in San Diego, September 26th-28th, we’ll be there. They’re very inexpensive tickets. December is in Vegas. Come to both if you feel like it.

If you just want to learn the basics of asset protection, we teach the virtual workshops. We have folks that go a couple of times a year just to get brushed up and make sure they’re doing everything right. Clint does a fantastic job teaching that one. I teach him a lot of times with him.

Amanda’s been teaching. Brent Nagy, one of our longtime clients, who’s an investor, does a very good job of teaching it. He came out of the Rich Dad organization, worked with Robert Kiyosaki, and has done really well in his real estate. He’s really good at teaching, so we love having him come on from a non legal standpoint. He comes in and uses plain language. All right, let’s dive into the questions. You guys ready?

All right. “What is the best way to avoid estate tax?”

Eliot: I think the obvious answer is, of course, you don’t die. Ways to get it out of our estate before is what we’re looking at here. Maybe setting up a non profit, very popular option with a lot of our clients. We have ways working with our team there, Karim and the rest of the staff there are exceedingly good at what they do, working with these non profits.

There are options such as what we call irrevocable trusts. Basically, it is as the word sounds. You put it in the trust, it’s irrevocable. It doesn’t change. That might get it out of your estate to where you could have the beneficiary, it’d be some of your offspring, et cetera.

Toby: Karim agrees with you. Believe it or not, but the head of the non profit.

Eliot: He’s actually listening in.

Toby: He says, hey, that’s a good idea. The estate tax, they tax you during your life. We make a dollar, you’re going to get taxed. If you’re a business, then you make a dollar, you spend it, then you’re taxed on what’s left. But whatever’s in your estate, whatever the value of your state is, if it’s over a certain threshold, you’re going to get hit with an estate tax in the United States. In your particular state, you may get one. There are states, I think Oregon has a million dollar exclusion. Anything above that, you’re going to get hit with the estate tax.

We’re just going to talk federal for now.  It’s insanely high. It’s over $13 million per spouse. You don’t have to worry about the estate tax, unless you are over $26 million. That’s the fair market value of your assets. You actually get them appraised when somebody passes away.

That’s supposed to go back down. It’s supposed to sunset in 2025, and we’re going to be somewhere in the $5 million range for spouse. I think portability comes along, which means that you can use it, each spouse. If that goes away, there’s a drafting technique using a living trust that enables us to double it up. We never rely on just the way the law is written now, we always want to be flexible. Our estate documents already have AB trust components drafted into them.

You want to make sure that if you’re married, you’re using up the estate exclusion for both. There’s a lot of practitioners. In the next year, you’re going to see this stuff like crazy doing spousal lifetime access, trust, these slats, and stuff. There’s a lot of drawbacks to them. We’re not huge proponents of them here. But if you have a large estate and you want to use up your exclusion, I got 13, I don’t know the total amount it is this year, but it’s big, you want to use up your $13 million.  One spouse could give to their other spouse that $13 million.

You can’t  go back and do it the reverse way because you have a reciprocal trust doctrine that would invalidate that, even though most practitioners ignore that and just do it anyway. You want to make sure that you’re just being cognizant of it. The best way to avoid it is what Eliot said. Sometimes it’s giving it to an organization and letting your kids serve on the board of a public charity or a private foundation. sometimes just set up a memorial fund or things like that. We do have clients that have done that successfully. It gets it out of your estate. We’re not worried about the tax deduction at that point. We’re only worried that it’s not included in your taxable estate when you give it to charity.

The other thing is transferring it during your lifetime and getting it out of your estate to something else that might be an irrevocable trust. They can be used for that purpose, although, again, we’re not huge on it. Minimizing the tax burden with your estate by using entities. You get what’s called a discount for lack of marketability so that the appraisals are lower. What an insurance person would tell you is buy a lot of insurance to pay for the tax.

The estate tax for US citizens is one thing. If you’re a foreigner and you have assets in the United States, the exclusion is only $60,000. You got to be pretty careful that you buy a half a million dollar duplex, you didn’t think about it, then you pass away, and all of a sudden the Feds are saying, hey, that  $440,000 of gain or actually be the 5 million, they don’t even care about that, it’s not even the gain, it’s the $500,000, they’re going to give you a $60,000 exclusion and tax the heck out of you.

I think you’re going to be in the highest bracket at that point. It’s 40% right now, although there’s proposals to get it up to 65%, but you’re looking at 40% tax on it for $440,000, so over $160,000 tax on that transaction. It’s not small. It sneaks up and blindsides people. You want to make sure that you’re addressing it.

The best advice I can give you is talk to somebody who understands the estate tax, apply it to your situation, and go through a couple of scenarios. What if this, what if this, and then say, here’s the way to add some flexibility into your state plan, so that you don’t inadvertently make a mistake. Our trust, we make it very flexible for the trustee to make decisions based on the law that is in existence at that time.

I think Jeff earlier was joking about Steinbrenner internally. We were like, how do you avoid the estate tax? Die when it doesn’t exist. One year, Steinbrenner passed away, billion dollars plus, no estate tax that year. You want to make sure that whatever the situation is, that you’ve empowered somebody to take action that’s in the best interest of your estate so that if you’re not able to because you’re incapacitated, you have empowered somebody else to do it, or when you pass, that if there are options, that they’re able to take the option that’s best for you, and that’s by using a living trust or an estate plan, where you can actually give somebody those powers. Even a financial power of attorney will oftentimes be very, very helpful.

Eliot: It wasn’t that bad of a question, was it?

Toby: It was open. I knew you were going to say, just don’t die. You could say this, entities don’t die. Your living trust carries on, your LLCs, carry on, your corporations carry on. If you have a nonprofit, nobody even owns it. You transfer control to somebody else. You can give a veto rights to them. You really can do it. You can get their non-green carder citizen. Somebody says foreigner, non-citizen. I think you’re okay. If you have a green card, do you get the estate tax exclusion?

Eliot: I always have to go back and double check that. My understanding is that usually green card, I’m not aware of any situation where you’re not treated like a regular US citizen.

Toby: Yeah. If you’re a green card holder, I believe that you’re getting that, but we want to check on that. If you’re a non-US citizen and you have assets here, just make sure you’re talking to your tax person and asking them, hey, what happens if I pass away next week? What’s going to happen? Just have them go through the scenario with you.

All right. “I’m a nurse. I’m interested in starting an assisted care business in my home. Any recommendations to use for taxes or startup strategies?”

Eliot: I really like this one. The reason I picked it is because in a couple of these, it is going to go a little bit outside of our realm of taxes. I know that’s our primary focus, but here, often people would just set up the building, the assisted living building, put it in a business, maybe an S-corp or something like that, but we want to take care for a little bit of asset protection here. We’re going to take the building itself, put in its own box, its own LLC, and then you’re going to have a separate billing for the operations. I think right there, tax planning and asset protection are just walking perfectly hand in hand. We can do things with the taxes on the billing itself, and you can run your operations over here in a separate…

Toby: But she’s talking about it in her home.

Eliot: Within my home, oh, excuse me. There, we’ll still probably want to put some asset protection around that. Yeah, you’ll definitely want to put the operations probably into maybe an LLC of some sort, disregard or something like that. I think it could still be disregarded there. Definitely you want that asset protection still, but we’re going to look for just the regular deductions, such as the use of that space all of a sudden becomes business use. You’ll be able to add up that square footage and so on and so forth, and be able to take a lot of deductions against the cost of running that house, just your regular expenses, plus of course all the business expenses.

Toby: I would dissect this a little bit farther. She’s starting an assisted care business. That’s a trader business in your home. The question is, are you meeting people in your home? Are you bringing them in? Because if you are, that’s a whole other liability kettle of fish. There’s a lot of issues with having people in your house as your place of business. You’d want to make sure that you have good insurance and umbrella policy, and you’d want to isolate that activity into its own entity, including the real estate you’d want to isolate into its own entity.

I know it sounds weird because you’re saying it’s my house. Yeah, you want to make sure that whatever happens on that house, because if you invite people in an assisted care and something catastrophic occurs, you don’t want them to take everything else that you own. You want to limit it to the insurance and the equity in that business. That’s it.

The actual business itself, it always depends on what you’re going to do with it. Let’s assume that you’re going to build it up and sell it. You might be a C-corp proper  because you want to do the 1202 capital gain exclusion. You say, hey, I’m going to build this up and sell it. Three, four or five, six years, whatever it is, I know it’s going to go for a multiple, and I’m good at this. That’s not everybody, that’s a very small percentage.

The other route, which is probably the more likely, is, hey, I’m going to run it, I just want to have an income source. I’m probably setting you up as an LLC taxed as an S-corp or as an S-corp as a starting point. I think most practitioners are going to start there. Is that what you would do?

Eliot: Yeah.

Toby: The reason being is because you’re looking at it saying, hey, I want to have an accountable plan, or the business can reimburse you for a lot of things that you’re using the home for. The square footage, for example. You’re going to look at everything that’s a cost in that house, all your utilities. If you have a mortgage payment, the interest you pay, property taxes, insurance, everything, and you’re going to figure out what percentage is the business using of that home. You can use room methodology, you can use net square footage. There’s a lot of options you have when you actually have an S-corp or C-corp in the mix that you don’t have when you’re just a sole proprietor.

We do that, and now the company can reimburse you tax free a chunk of money. Plus, it could do 280A, which is the Augusta rule, which we’ll use for having our corporate meetings. Plus, you could do everything from your cell phone to all your equipment. All of these things become 100% deductible to the business, and you don’t have to figure out the personal usage of it. As long as it’s benefiting the business, it can write it off.

What that does is it does two things. (1) It’s going to save you a bunch of money in taxes. Let’s just say, hopefully you have a great year and you’re making $100,000 a year net or something. It’s going to save you about $10,000 in taxes just to avoid the employment taxes if we made an S election on an LLC or on an S-corp proper. Either one of those is really going to be a benefit. Depending on whether you’re married and you have other income sources, things like that, I’m not seeing anything in the chat, so I don’t know if this person is there. I don’t think so, but I’d ask some more questions. If you’re married with a high income earning spouse,  then I might say a C-corp might be more interesting.

(2) What are your medical expenses like because the C-corp may be more interesting there too? I’d be breaking it down into two categories. I’d be looking at the operating business and then where it’s taking place. If you are meeting people in your house, there’s one strategy. If you are just using your house as an office, you’re not meeting anybody there, and there’s no liability, then that’s a different strategy. I wouldn’t be so worried about structuring the house.

All right. Hopefully you guys got it. Are there any questions on that? I just threw so much at you guys.

Eliot: Of course, you’re the boss.

All right. “If she thinks she might operate a loss the first year, how about starting as a sole prop, then going S-corp when making money?” Nick, you still get the losses when you’re an S-corp. I would still probably start off as the S-corp because it gives us the accountable plan. We’d probably create more loss that way. The other reason I do that is because the audit rate between a sole proprietor and an S-corp is the difference of hundreds of percent, if not more than a thousand percent higher for the sole proprietor.

The last year I have the access to the data was 2019, where they would break down what the audit rates are for the sole proprietors. They quit publishing it under publication 55. All the years that we can go back and look at it, the audit rate for sole proprietors were usually 400%, 500%, 600% more than anybody else. They’re way up there. When you compare them to an S-corp, the last year I have, it was an asterisk for the S-corp, meaning that was below half of a percent, and it was 1.4% for a hundred thousand. It was a little bit higher when you made more.

If you were a sole proprietorship making $100,000, 1.6% versus half of a percent, it wasn’t even close. There are tax benefits. That’s the way my mind thinks. I don’t want to tangle with the IRS, I don’t want to mess with them.  No matter what, I’m putting an entity around it. Even if you were a sole proprietor, whoever that is, I would use an LLC around their business to isolate the liability.

Maybe they unintentionally cause harm to somebody, or maybe somebody else causes harm, but you are treating them too and you get sued, because lawyers like to sue everybody involved, you don’t risk your personal assets and have a catastrophic failure because something goes wrong in that business. I hope that makes sense. Are there any other questions on that one?

Somebody says your comments about risk of having people home I think needs an entity. A hundred percent. If there’s people coming into your house, I’m putting an entity around it, period. I’ve just seen too many bad situations where you don’t even mean to, but you end up with liability that’s just bonkers. It’s how they’re suing people nowadays.

All right. I think this was the next one. “My wife has a single member LLC engineering firm  and it’s taxed as an S-corp.” Engineers are smart, by the way.

Engineers are the number one category in the United States for millionaires. By the way, number two are accountants, and number three are teachers. Engineers are super smart, and they always edit my books after the fact. They’re always like, I said this. They always find the typo that we missed in 20 proofreads.

All right, taxes and S-corp. “I plan to open my own business. Would I be able to open my own single member LLC taxed as an S-corp?” Yes. “My CPA advised me to run my business through hers.” No, horrible idea. “But I can’t see myself doing that.” Good because it’s a horrible idea. Your CPA is looking at things from a, how many tax returns we file? The number one issue in your life. Let’s risk everything else that you’ve worked so hard to build up and own, and let’s just make it a dumpster fire. But you only have to file one return. “I want to completely separate my business from her.” What do you think?

Eliot: I got to say, I think everybody can understand out there, I picked this because I knew how he’d react.

Toby: Not nice.

Eliot: There is no question for absolutely what Toby was already getting at. You can’t really improve on that reaction, but you want to separate these businesses because you’re going to run into that jerk like me, who’s going to sue you and find out it’s all under what you get. Both of your businesses under one S-corp? I don’t care whether I go to your spouses or your business, I’m going to take it all. You want to separate those two businesses without any question. The last thing you should be worried about is the number of tax returns. In fact, the fact that they are separate tax returns is what’s going to save you a lot of pain.

Toby: The court literally looks at things and says, how much respect do you show your business? I used to clerk for a judge, and she would always say, I’ll show you the same amount of respect you showed. I was like, ah. She would look at it and say, you treated your stuff with disrespect, why would I respect it? You didn’t do any formalities, why would I honor this? You didn’t think enough to even separate it out. She would do things like that, and I always listened.

Yeah, fire that CPA. Your CPA’s looking out for you in a way. They’re saying, hey, I’m going to charge you a lot for an extra return. It’s still the same information that’s going on there. It shouldn’t be that much more. It’s the same info, whether it goes on this S-corp return, the 1120-S or this one, who cares? If you really want to get to one return, there’s a way to do it. It’s called Q-Subs. You set up a parent, and then you have it on the other S-corps.

With an engineering firm, that’s a license. You should not be doing anything under that business other than engineering. It should be completely separate from everything else that’s going on. Even if she had another business that says, hey, I do engineering, and I also am an expert witness over here, I would actually isolate those. I don’t want something that happens in one of my lines of businesses, destroying my other lines of business.

These are each little revenue streams. They’re armies. You’re sending out your little armies to go out there, collect prisoners, and bring them back. You don’t want to have them all mixed up so that one bad occurrence wipes out your entire army. You want to keep them separate so they can go off and do what they’re doing and make sure that they understand their directive. Really, please don’t combine those businesses. That’s just ill-advised.

Eliot: Just to add to what Toby was going with on the engineering from, there are some occupations and engineering might be one, where you can’t have another business owner in there other than a licensed professional. If somehow they had been decided that you were going to put in as a shareholder or something into this particular S-corp, you could unwittingly have just run afoul of all the licensing in that particular state.

Toby: Which could cause a piercing, which could cause you to have exposure on your personal assets. We’ve done it long enough. Just take a word for a bunch of lawyers. You see just really bad cases all the time, we all do. We’ve all had to deal with them. We’ve all seen just crappy lawsuits. Don’t give them that end because we would exploit it.

Eliot: Absolutely, without question.

Toby: And it’s cheap. I know it sounds goofy, but you’re not saving that much. It’s the same amount of work, it’s just two returns. They’re just charging you for the extra return. I’ve seen that enough. Even if it costs you an extra thousand dollars a year, it’s cheap insurance to keep those puppies separate.

Eliot: Everybody know what Toby thinks?

Toby: Yeah, don’t set me up like this. All right. “Can I use my vacation home as a short term rental to tax write off? If so, how do we do that?”

Eliot: We ran into this last time too, but this question keeps coming up and up. I get asked this probably far more in the last three months than I did in the last three years. Whenever you have a vacation, first of all, my first advice, it’s either vacation or it’s business. You don’t do both. I know that there are some rules that allow a little bit of that, but I tell clients, look, do as you will, but I’m going to tell you not to.

If you run and use that vacation home, you’re running it as a rental. If you use enough personal use of it more than the greater of 14 days or 10% of the number of days that was rented out at a fair market rate, then it becomes what we call a personal residence under the code. Even though it’s not your primary residence, it’s a personal residence. If we hit that status, let’s say your short term rental income was $5000, but your expenses related to that were $7000, you’re going to be limited. You’re going to be cut off, truncated at $5000 the amount of income. You can’t create a loss from that business. I wouldn’t recommend mixing the two, but if you’re going to just be very aware of the greater 14 days or 10% of fair market rental days.

Toby: I’m not as harsh as you. I’m looking at it like if you could make some extra money on your vacation home and you’re willing to do it, you can write off a chunk of it. It depends on how many days you’re using it as a vacation home. Let’s just say you’re using it 40 days and you rent it for a hundred. What do we have? We have 10% of the days. You’re well above 10 percent of the days. You’ve rented it for a hundred.  If you went over 10 days or 14 days, whichever is greater, so it’d be 14 days, then it’s a personal residence.

All that means is that you have to figure out what period of time you used it as a residence versus as a rental, and you get to write off that portion. In this particular case, 40 days and a hundred, you put that ratio. Out of 140 days, I don’t know what that number is, whatever it is, you would have a portion of it that would be deductible. Of that amount, whatever you made for those rental days, a hundred days, let’s just say you were getting it for $200 bucks so you got $20,000 or whatever it is, whatever the case, you ended up with this cash. Now you can offset it with your depreciation and things.

If you end up with a big loss, you just can’t use it because it’s a residence. That’s how the IRS  says. If I live in a house and I lose money, I don’t get to write it off. If I live in a house, I rent it part of the time, and I am over 14 days over 10%, then they say, you get the loss up to the income. If I don’t live in the house but I rent it out, then they say, okay, you can have the loss, but it’s passive. Unless you’re a real estate professional, active participant, or short term rental, it’s going to be different.

In this particular case, I have no problem with somebody taking a vacation home and making it into a short term rental. I would isolate that puppy into an LLC more than likely. I’d probably be looking at whether I want to make it into an S-corp because if I’m doing all the work, then I’m going to have to deal with that because of the type of income that’s going to come in. It’s trade or business income, and the only question is whether you materially participate in it.

I have a couple of options. Based on the facts and circumstances, you’d be able to get a narrow it right in. Is that it? I’m trying to think. There’s a few comments, but it’s not about this. Anyway, yeah, make it into a short term. Make money, put your assets to work. Don’t worry about all the accountants. We’re all a little nutty anyway.

Speaking of nutty. The heck did you bring me? I hear a lot about seven average days, but there is a lot of confusion behind those seven days. It’s literally in a rag and it’s spelled out to a tee. The only reason there’s confusion is because people don’t know how to read the regs. Not you, but accountants.

They’re always like, I never heard about this thing, oh, I looked in the internal revenue code. It’s because it’s not an internal revenue code. It’s in the regs that interpret the code. It’s still law. Here’s how we’re treating this stuff. Some say it has to be seven, some say it doesn’t have to. Seven days or less, not rental.

If I have two bookings of two and 12 days, to me, that’s still average seven. That’s exactly right. They literally give an example very close to that. If I have four bookings of 24, three in one days, that’s 28 days divided by four, yeah still an average of seven. Anyway, what do you think?

Eliot: First of all, just to pull it back here, why are we talking about the seven days? This is because we’re talking about short-term rental as opposed to a long-term rental. The difference being how they’re handled on your return, quite frankly, and where they go on your return, short term rental actually has three categories. The most common is if the average rental is seven days or less, and that’s obviously what we’re talking about here. We’re in the short term rental universe. We want to forget all about long term rentals.

The idea of why this is so popular lately is because of bonus depreciation and things like that. It becomes very easy. If your average stay is seven days or less, that’s one of the tests that make it easier for you to maybe take that bonus depreciation as an ordinary loss. There are other things to it, but that’s the seven day test. You’re absolutely correct the way you state. You take the number of stays and take the average like you did with the two and the twelve or the four different stays there divided by four. Seven days or less.

There are other ones like 30 days or less, but you have to do more work. You’ll be more hands on. There’s actually one for over 30 days, which really isn’t applicable to most of our clients. That’s if you’re using that property for something other than really a rental purpose, maybe a halfway house or something like that, where the actual operation, what you’re doing in the home is far more important, integral to what’s going on, than the actual rental of building. Back to the short term rental, where we’re just having someone from Airbnb stay there, that’s going to probably be your seven days or less. That’s the most common test. You’ve laid it out perfectly here in your example of how it is.

Toby: Yeah. The seven days is the easy. All it is is the difference between. Is it real estate rental or is it trade or business income? You guys know me. I like to pizza, pizza. We’re going to have a pizza shop. That’s a trade or business.

We open up the pizza time. We have the oven and we’re making pizzas. That’s a trade or business. Real estate, when it’s seven days or less, it’s now a trade or business. The only question is, am I materially participating in it or is it a passive business? But it’s no longer rental activity. The IRS says rental activity is passive, and then it says here’s three situations when it’s not. Situation one, seven days or less. Situation two, less than 30, which requires substantial activities performed in conjunction with it. It’s like your halfway house.

Number three is greater than 30 days and extraordinary services. One I always think about, and this is horrible, but I always think of it like a fat farmer or six-month recovery facilities where they’re doing alcohol or drug recovery. Just because you’re renting somebody six months, that’s not rental activity, that is business activity. That’s trade or business activity, because you’re paying one price for one big thing, and they’re going to say, no. That’s not rental. They’re there for the health benefit, for example.

Those are in the regs, and they’re very clear. That’s why when I said there’s confusion, seven days on average, there’s no confusion. Seven days or less is not rental activity. That’s a trade or business. There is no argument  out there that it’s somehow, no, no, no, that’s all right. No, you’re a hotel.  You are seven days or less, you’re a hotel. That’s what the IRS is saying. Don’t let anything else fool you.

In fact, you depreciate the house over 39 years now too because they say, you’re not a investment real estate, you are an active business. You’re a business. It’s trade or business income. The only question is whether you, as one of the owners, are materially participating in that business. That will tell you whether it’s passive  or active. Even if you materially participate, they don’t charge you self-employment tax on it unless you provide, what’s the term for it?

Eliot: The substantial service.

Toby: It’s not substantial, it’s another term.

Eliot: Significant.

Toby: Significant services with your rental, which they say is things that a hotel would provide like concierge, food, and things like that. Then they would say, aha, now we’re going to hit you not only with ordinary income tax, but we’re also going to hit you with the FICA. Anyway, that’s why I said you got to have somebody who understands this because if this than this, if this than this, we could tell based off your facts and circumstances pretty quickly what category you’re going to fall into. Here, it sounds like you’re short term rental, seven days or less. Gear for that. Make sure you’re hitting it and you’re going to be fine. There are ways, even if you’re above that, to still be a trade or business.

If you don’t want to be a trader business, let me just tell you. I’ll show you guys the workaround. If this is you, you have a short term rental, and it’s seven days or less, but you want your real estate to be treated as long term, sorry to scribble, then you rent this to an S-corp or an LLC taxed as an S-corp. This is the host with Airbnb. There is a workaround if you’re like, oh, man, I don’t want my property to be treated as short term rental, I’m a real estate professional, I want to keep all of my activities as long term rental so that I qualify, I don’t want to get confused and schizophrenic, then what you do is you set up your LLC and you rent it long to an S-corp that acts as your host. You can do that with multiple properties.

“I realized capital gains from installment sale in 2023. I’ve not received capital gains up to my basis yet. I will have a chunk every year up to the next five years. Can I still invest in a qualified opportunity zone?” I’m glad you’re here to answer that.

Eliot: In installment sale, you basically have three components. We’ll talk more about two of them. You get a return of your basis and a portion of capital gains for each payment that you get. There’ll be a calculation where you take the…

Toby: Recapture is all in year one?

Eliot: Yes, very good point there. I think what we’re asking here is, Toby, is there any way that we can push the capital gains into a qualified opportunity zone? You can on those payments. I was looking at this, and the IRS looks at each payment individually. You could, but the bigger problem here is that QOZs are ending very shortly. You’re really effectively only going to be able to do this for 2024 payments in 2025 because it ends at the end of 2026.

Toby: Talk about a major pain because then you have to hold it for 10 years. You’re not going to get any step ups now because it was five and seven years.

Eliot: Yeah. The train really left qualified opportunity zones all the way back the year when it first came in.

Toby: You actually have three types of income, by the way, when you’re doing the installment sale. You have the recapture, which recognized in the year of the sale. You have the return of capital, you have the capital gain, and then you also have interest. Actually, this is the joy of those. You have three types of income every year, a return of capital which is zero, capital gains which depends on your tax bracket is going to be 0%, 15%, 20%. There might be the net investment income tax at 3.8 and plus your estate, then you have your interest, which is ordinary tax plus your estate. It could be a bit of a nightmare, but you’re stretching out that capital gain.

Maybe you’re in that 0% year after year, maybe you’re in that 15%. We’ve seen that, where somebody that would have been hit pretty hard, they would have been out 24%, 23.8%, ended up stretching things out at 0% and 15% as a result, but they also had to recognize a little bit of income, the interest, in their ordinary bracket. It’s all a little bit of math. I don’t mind installment sales. I use them to close on deals.

Especially folks that are liquidating their portfolios, they don’t have kids they want to leave it to or interested folks, and they have 20, 30 properties, and they’re like, you know what, I just want an income stream, I get it. I’ll say, all right, we’ll stretch it out. How long do you want? 10 years? Okay, great. They know that way they have income every year coming in, they don’t have to unclog toilets, and they can just go do whatever they want to do. I’ve done that a few times, more than once.

I get that, but it’s not huge for me. I’d rather do a 1031 exchange, get all my money now, not pay any tax, as opposed to deferring it and stretching it out. I don’t really care. I’d rather make money on my money than wait, but that’s me. Qualified opportunity zone, you could do it. It’s on receipt, and then you have a new 180 days to put it into a qualified opportunity zone fund that then has 180 days to deploy that money. You have all these timelines. Literally every month, you have a new timeline to keep track of. You do that for a few years, you got a spreadsheet that’s going to make your head hurt.

Eliot: It’s not around much longer. The deferral ends at the end of 2026.

Toby: Yeah, so you’d have to be in an opportunity zone, and then you got to own it for 10 years before you get the step up. I just found them to be red herrings.

Eliot: Yeah. I’m sure somebody’s going to make a killing off of it, but I don’t think that’s the average investor.

Toby: You would see people pitching, pitching, pitching. Here’s the reason we’re going to do all this. The one that really flew under the radar was if he opened up a business and hired half the people in an opportunity zone, then you could avoid the tax on the business. That’s the one that I think there’s going to be people that exit businesses for many millions of dollars that are going to be doing all right because they did that. The real estate, their opportunity zone is for a reason. They’re not the greatest places. It’s trying to get rich, do D level rentals. You could do it, but it’s painful. I’ve just seen a lot of pain in those.

“I would like to focus on 1099 related options. I’m a truck driver, and I feel I’m paying very high taxes.”

Eliot: Yeah. I’ve seen a lot of clients come in. We have several clients that are truck drivers or have trucking businesses, et cetera. We run into this question all the time, but this is broader than just driving a truck. This is very much like some of the earlier questions we had. The 1099 for those of you don’t know just means you’re an independent contractor. You’re not W-2 employee, but they’re still paying you. It’s just that all the taxes come out on you.

This is where you get to that schedule C sole proprietorship that Toby was relating to earlier. Wow, you want to have a chance at an audit winning that lottery? Then go schedule C. Just for that purpose alone, probably you want to take your money. If you can, receive it in an S corporation. It’s most often where it will go. It could be a C, but maybe an S corporation. That’s going to allow you to save on employment taxes, much like we discussed prior, because now maybe only a third of the income you receive, you have to pay as a wage subject to employment tax. The rest is called a distribution.

You’re still going to pay income tax, but you don’t have that extra employment tax on it. Because it’s a corporation, again, an S corporation, you can do all the reimbursements, such as a home office. You can do administrative office. That’s what I was thinking about, mileage, and things like that. Also, of course, the corporate meetings that are 280A. If you have maybe some medical, or your family has a lot of out of pocket medicals, then maybe the C corporation has a medical reimbursement plan.

Toby: Don’t ever miss out. When you have active income, especially if you feel like you’re getting pinched, look at those retirement plans. Look at a 401(k). For some of you guys, the defined benefit plans, if you look on the YouTube, there’s a video I just did with Jeff Mason not that long ago. He’s an actuary.  We have a client that put $1.2 million away last year in their retirement plan tax deductible. It all depends on your age, if there are other employees, the actuarial assumption that he’s allowed to make.

There’s a video, I think it’s the a hundred thousand dollar plus retirement plan. It was two weeks ago. You go look it up. That’s two actuaries sitting there going over. Here’s the numbers that we do. Patty put the link up.

Really interesting stuff. It’s a little bit brain numbing. You’re like, oh, my God, they’re talking a lot of numbers, but they spell it out so you understand. The only difference is typically, when we do a 401(k), it says, hey, Eliot, you could put $23,000. Are you over 50?

Eliot: Yeah.

Toby: You can put $30,500 or something like that.

Eliot: Yeah, I got the old timer.

Toby: It says, here’s how much you could put in. This says, how much are you making?  Based off of that, how much do we need to have putting a retirement plan so you keep making that when you retire? It ends up being a lot of money for a lot of people. You’re making $200,000 a year, $300,000 a year. You’re like, man, I need to have $3.5 million put away so that I can keep paying myself that when I retire. Okay.

You could put away a hundred percent of your income. This is how crazy that stuff is, but that’s how it works. It’s called Cash Balance Plan, Defined Benefit Plan. If that’s you, have somebody run your numbers. I’m always shocked at people who say, oh, my accountant said it wouldn’t help me. What were your numbers?  We never talked to an actuary. It’s three rules of tax, calculate, calculate, calculate. I used to hammer that home all the time, but you just get someone to run the numbers that’s competent.

Don’t listen to some accountant. Put their subjective belief. Don’t listen to me. For example, if I look at it, Eliot and I would say, that might help you, let’s run the numbers. When I see cost seg, hey, let’s run the numbers, you’ll always hear me say that, hey, let’s go over to Cost Seg Authority, Erik Oliver and those guys, and have them run your numbers. They come back to me, here’s what the numbers look like. Okay. Hey, do you think this is worth it? It’s going to return.

It’s going to cost you a buck, but it’s going to save you $10. Okay. That $9 that I get to keep now, instead of waiting 30 years, 27 and a half years, or 25 years, yeah, there’s a time value of money. You can make a determination based off of that and say, yeah, it makes sense to do that. Or no, it doesn’t make sense, but you can’t. I don’t want to guess. Get the calculation done.

When you’re looking at these types of scenarios, I got a 1099,  what I would do is I would say, all right, if I treat you as a sole proprietor, here’s what you’re at. If I treat you as an S-corp, here’s where you’re at. If I keep you as a C-corp, here’s where you’re at. If we add in a 401(k), if we do this over here, here’s where you’re at. Is it worth it to make a change based off of these numbers? The old adage is, is the juice worth the squeeze? If it is, fantastic. Make that change. If it isn’t, then don’t, but I don’t want anybody to guess.

Eliot: Except if it’s the third question we had about the spouse putting their business underneath that S-corporation. Money’s not an issue there. Let’s keep them separate.

Toby: That’s asset protection. Fair enough. All right. Hey, there’s Mr. Coons. Let’s see, right there. Look at that. That’s an asset protection. If you want to learn all this stuff, by all means, join us. There are some links to do it.

All right. “Sold our investment property in 2023. which was previously our residence for 10 years.” I wonder how long they actually owned it, because this makes my head hurt. I’m trying to figure out. “When we started renting out our property about five years ago, our CPA did not advise us on updating the cost basis.” Because you don’t. “We have done many upgrades to the house during the 10-year stay, so this year, when we file our taxes and report the sale, we will be using the initial cost basis for the home. My question is, is there any way to deduct the expenses we had when it was our residence?”

Eliot: Anything you put into the property, which we call improvements, you add it on to it, you remodeled, what have you, those are all supposed to go to basis. Yeah, your CPA was incorrect. When you started renting, it was supposed to be, catch up that basis. Really, what we have here is we didn’t take proper depreciation for that five years that we were renting.  We do have a tool for that. It’s called Form 3115. We can catch up that missed depreciation, and that’s going to cause us to capture that basis that was missed before.

Toby: You don’t lose it until you start filing and then go beyond. You could still get it. The part that frustrates me is they should have told you when you moved out of the house that you’d been living in  to sell it to another entity. The rule is your basis or the fair market value, whichever is less. Even if the accountant had said, hey, we have this issue, the fair market value might have skyrocketed, but they’re like, it’s not going to increase your basis, we could have increased your basis tax free by selling it to an S-corp and capturing the 121 exclusion.  I feel like we probably left a lot of money on the table.

If you lived in it for five years and then rented it for five years, I would have really have liked to seen what the value of that property was when they did it, because we could have sold it, and then you would have had to be even more depreciation over the next five years. You would have had a much higher basis. You would have paid a lot less tax now. You would have enjoyed some significant tax savings.

Eliot: Being a S corporation would be able to do some fund deductions.

Toby: Somebody says, what’s the 121 exclusion? The 121 exclusion is when you have a sale of personal residence that you lived in as your primary residence for two of the last five years, then the capital gain is up to $250,000 if you’re single or up to $500,000 if you’re married filing jointly, are excluded from tax. They call it an exclusion.

The 121 exclusion just means, let’s say I bought a house for $300,000, I lived in it for a few years, made it into a rental, and then sold it a year later, whatever that capital gain is, let’s just say I bought it for $300,000 and sold it for $500,000, I wouldn’t have to pay any tax on the capital gain. If there’s a little bit of a depreciation  recapture because I depreciated it for one year, then I’d have to pay ordinary tax on that up to 25%, but the capital gain would have been excluded entirely.

When I see this situation, if they were living in it for five years, and you can only do it once every two years on a primary residence, they lived in it for five years, they had three years to sell it to another entity or to another third party and capture that 121 exclusion. That’s the part that makes me sad is we missed it. If we had known him back then, they would have been dripped on constantly probably by us going, hold on for a second, what is it worth?

Just for the sake of understanding, the average amount of a house has grown in the last five years was 47%, I believe. There’s a lot of gain that would have been great. Let’s lock it in. Let’s lock it in, you do a self sale, you do an installment sale, you elect out of the installment sale for tax purposes. You recognize all that capital gain, which is excluded from tax so you don’t pay tax on it, but now you have a house and you’re depreciating at a much higher value, which gives you more depreciation, and you never pay tax on that gain again.

Eliot: A couple of them are just asking about why the S-corp and not an LLC.

Toby: It has to be a separate taxpayer.

Eliot: Yeah, and it can be an LLC taxed as an S-corp. No problem there.

Toby: It just has to be somebody that has a different tax return rather than yours. If it was on your return, then it would just nix it out. It would wash. The IRS has already ruled on this. If you sell it to an S-corp that’s considered a separate taxpayer, and as long as it’s fair market value so you get an appraisal done, then you’re okay.

Again, the way that I do it is I would sell it on an installment sale to the S-corp, and the S-corp’s going to pay you overtime. As it collects rents, it’s going to pay you, but you’re going to elect out of that for tax purposes. We’re not going to spread out our gain and have interest, we’re just going to say, boom, we’re recognizing it this year. Boom, we have $200,000 of gain, because it’s excluded. You don’t have to pay tax on it. You’re like, I want to recognize it this year.

Eliot: Yeah, that’s great. Great play.

Toby: I’ll take that action. All right, more fun. I heard you don’t want to put real estate in S-corp, typically.

Eliot: Except for this.

Toby: Yeah. This is one of the few times you do, because the reason that people don’t is because to take a property out of an S-corp, then you have a taxable situation when you go to refi it. If you do this with your own home and you’re selling it to your own S-corp, it’s got to be cash. We don’t care because the house value is really high. Even if you take it out, let’s say I sold it and then I took it out to refi it, that’s not taxable. If I had it in an S-corp and I’d taken it out to refi after depreciated, then I wouldn’t have tax.

If you die, the basis of the S-corp steps up, which means you can liquidate the real estate, transfer it out to the shareholder, and it’s non taxable because you have the step up. There’s people that think you lose the step up too, but again, they just don’t understand how the taxes work. They’re myopic. The real estate doesn’t step up. It’s because you don’t own it. The S-corp owns it. But you own the S-corp, so the S-corp basis steps up. Sounds too complicated. It’s actually pretty simple when you know what you’re doing. That’s why you have people who know what they’re doing.

Can you change S-corp to a partnership later on? I think you’d have a deemed sale at that point.

Eliot: Distribution is the solution of the S-corp at that point.

Toby: You could, but I wouldn’t.

Eliot: You can, but I won’t do it.

Toby: Everything keeps its nature. If I sell that property for capital gain later, it stays as capital gain, just close to the S-corp, still a flow through entity. If you take it out to refi it, that’s a taxable event, so we don’t do it generally. You’re going to use an LLC taxed as a partnership or disregarded. Fun stuff.

“I see different ads from others saying there are options other than a 1031 exchange to defer taxes. Looking for any viable options, please.”

Eliot: I know this one because Toby actually had me cut a video with him on this, where we talked about a lot of different options. I don’t know if Patty can get that link, but it was the how to avoid taxes when selling your rental property. How about that for a title? If we hit that one, whenever you sell a rental property, we’re looking for your capital gains. How do we defer taxes other than a 1031? We can look for REITs.

Toby: You’re doing an UPREIT.

Eliot: Yes. Excuse me, UPREIT, yup. Umbrella partnership, real estate investment trust, things like that. The video, we go through a whole lot 20 minutes of it. We won’t probably recap all that right now, but that would be one option certainly. There’s the Delaware Statutory Trust as well.

Toby: That’s a 1031 exchange into a Delaware Statutory Trust. You could do a Delaware Statutory Trust to a REIT, which is a 721 exchange. You have the qualified opportunity zones. You have installment sale for stretching it out. You have the lazy man’s 1031, where you’re buying an additional property, creating a passive loss, but that passive loss can offset passive capital gains on the sale. There was a whole bunch. What’s the title? Patty wants to know.

Eliot: How to avoid taxes when selling your rental property.

Toby: That’s a very creative title.

Eliot: When we were looking at that, me and one of my colleagues, we noticed that there’s 100,000 views for this Toby video, 200,000 for this one, and the one with Eliot was measly 4000 or something like that.

Toby: That’s good.

Eliot: We saw that there’s only one thing that was different amongst the three.

Toby: There are almost 900 videos. They don’t all go well, but they’re not supposed to go viral. That’s somebody selling their property. They’ll see that when they actually, hey, how do I avoid capital gains? Like this person.

Eliot: It’s great. Toby breaks down all of those things he just listed, installment sale, the DST, the whatnot. It’s really on point with this.

Toby, You want to avoid tax, just donate the damn thing, then sell it. People go, you can’t do that. Yes, you can. You could take a deduction. I could donate it to my own public charity or to my own donor advice fund if I really felt like it. Probably be better to do your own charity, donate it, take the deduction at fair market value, then let all the gain be in that charity, and then do something good with it. You could even run it. It doesn’t matter. It’s like, wait a second, I didn’t pay any tax.

Eliot: Let’s call Karim up.

Toby: Yeah. It gets better because you got a tax deduction. You wrote it off once. Yup, you write it off again. Yeah, let’s do it twice. If writing it off was awesome the first time, imagine how great it is the second time. You could do that. Yes, you can. I could hear somebody thinking no, you can’t. Yes, you can.

Eliot: Shut that down.

Toby: Yup. Yeah, you can. People do it all the time, and our clients do it all the time. There’s lots of options, it just depends on your scenario.

All right. “Being a senior over 70, I really enjoy all the videos I watch on YouTube, as it’s never too late to learn and try to understand real estate investing and taxes. But even if I do pick up some of the things, I still would need experts to do the job for me.” No, you wouldn’t. “What would it cost for Anderson’s group to follow my future investments? I want to do this for my daughter who is now in her second year of college.”

Eliot: We have a lot of things out there. As Toby alluded to at the very beginning when we first went to this question, we’re not investment planners or anything like that. What is it, the certified financial?

Toby: There’s CFPs, there’s all sorts of folks. We could send you over there, but for real estate, you’re just learning to do it yourself. If you want Turnkey Real Estate come to Infinity Investing, we have over 4000 properties under management, where you go through our partner, Alpine Capital. We find you single family homes in areas where we actively manage it. You don’t have to do anything other than collect checks. That’s pretty easy. But we don’t want just passive investors, we want you to understand why we’re doing what we’re doing. Bring your daughter along and have her learn it.

I have a daughter too, and I’m always trying to drag her into real estate. She owns pieces on her own now, and she hates me for doing it some days and loves me for doing it other days. Real estate investing, I keep saying, hey, in 10 years, you’re going to be so happy. There are days where you have tenants, where they’re being annoying and things like that, but that’s why you have managers. You’re not fixing any toilets. You don’t even need to go see the properties, but give it time.

It’s like anything, give it time. It’ll cook and it’ll be great. Just let it simmer for a long enough. You’re looking at it going, hey, I’m 70 years old, do I have time? You absolutely do. Then I want to plant the seed that you’re looking at 200-year stretches. When you start creating a plan, don’t think of it in terms of 10 years or 20 years, think of it in terms of a hundred years, 200 years, 300 years.

If you create something, don’t just create it for today, create it for a long term. When you start thinking that far out, it changes your trajectory a little bit, and you’ll be shocked at how easy it is to put something together. Thirty years goes by so quick, and you’ll be like, whoa. Unfortunately, just today, I had somebody, and this is horrible, ended up with a cancer diagnosis, stage four. The one thing she said was, thankfully, I’m in real estate where I’m able to go do the things I need to do. She’s able to go get treatment and do things.

It’s not looking good. She lost her husband two years ago. It’s a bad situation, but at least  she’s not sitting here going, I don’t know how I’m going to work, I don’t know how I’m going to eat, I don’t know how I’m going to do both. She said, thank God. That’s what she said, because she had those assets.

I always think of stuff like that. Infinity investing, by the way, the whole premise is when you have rents, royalties, dividends, interest, and short term capital gains from options, when you have those five types of income sources paying for your expenses, you never have to work again. Now you’re at infinity. You can live an infinite number of days without having to work. Otherwise, if you lost your job tomorrow, or if you were no longer able to work, how long would you survive based off the assets you have? If it’s a number that you can calculate, anything other than, hey, I have so much money coming in that covers my costs, then you’re not an infinity.

A lot of people, it’s 40 days, it’s 200 days, it’s 2000 days. Hey, I’m going to last eight or nine years. That’s not where we want to be. We want to be at it, where we could live in an infinite number of days from our passive income sources, from our rents, royalties, dividends, interest, short term capital gains. You get there, you’re fine like wine.

Eliot: love this question just because you’re never too old. Just keep learning. My dad still learned. He learned how to cement bricks out of nowhere when he was in the 60s. He could build a a mailbox, and it was the most sold one in town.

Toby: That’s probably a lot harder than real estate.

Eliot: Yeah.

Toby: The rules of real estate investing is easier. All right. YouTube, feel free to join. We’re not going to hit you over the head with it too many more times. There’s Clint’s. You should go join his. He’s a great teacher. The Tax and Asset Protection Workshop, please attend. By the way, if you guys want a strategy session or something, you want to talk to anybody, immediately just reach out to Patty or somebody and say, I would love to discuss or I’d like a strategy session, and we’ll hook you up with somebody to go over your situation.

In the meantime, we’re two weeks before we do another one. You can always email in your question. It’s where we get the questions that we read, taxtuesday@andersonadvisors.com. Eliot fields hundreds of them, weeds out, and picks 10-ish. We answer your questions no matter what, but we like to pick about 10 to go over the various themes. He picks them, I just answer them.

All right. There are three questions waiting to be answered. Thank you, by the way, to Troy, Tanya, Rachel, Jeff, Jared, Dutch, Arash, Patty, Matthew. Thank you guys for answering all those questions. They always answer. There’s 160 questions they’ve answered.

Eliot: Crazy.

Toby: Yeah, there are four left. What I’m going to do is say, ado, but we’re going to leave the event on until those four questions are answered so that you guys all get it answered. As soon as those are done, then we’re done. I just want to say thanks for joining us, and I’ll see you in two weeks. Bye.