Don’t be embarrassed or feel like an idiot when it comes to taxes. You’re not alone. A little knowledge goes a long way. Toby Mathis and Jeff Webb of Anderson Advisors answer your tax questions. Submit your tax question to taxtuesday@andersonadvisors.
Highlights/Topics:
- What are the requirements for being a real estate professional, and what are the benefits? Either you or your spouse must have 750 hours and greater than 50 percent of personal services in real estate, and both spouses must materially participate per property unless the aggregation election is selected; and the benefits are that you get to write off losses that you typically wouldn’t be able to write off as a landlord
- I have a fully depreciated rental in a high-tax state. Can I do a 1031 exchange and buy some farmland in a different state and not pay taxes to the high-tax state? Yes, temporarily, unless or until you sell the farmland property
- I have an S-Corp business. I hired my 12-year-old son to work and he gets a W-2 with an annual income of about $1,400. Does he need to file a tax return? If he does not file a tax return, will that increase my chances of getting an audit for my business? If your son makes less than the standard deduction, he does not need to file a tax return, and your business is unlikely to be audited
- Can I write off my monthly car payment if it’s financed and in my corporation’s name? Write off the expenses and interest, but depreciate the car if in the corporation’s name; you may have more income from that vehicle than the vehicle is worth–track and reimburse your mileage
- I have a rental property that is owned by a self-directed IRA. Does it need to be in an entity or is it safe in the IRA? Having the property in an LLC within the IRA is preferred, especially if there are other assets in the IRA
- On a “subject to” deal, who pays capital gains and who pays depreciation recapture when the owner grants the deed to the “subject to” buyer? Seller takes care of their own capital gains and depreciation recapture; buyer resets basis and starts depreciation
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Resources:
Real Estate Professional Requirements
Anderson Advisors Tax and Asset Protection Workshop
Anderson Advisors Tax-Wise Workshop
Anderson Advisors Infinity Investing
Full Episode Transcript:
Toby: Hey guys, you’re listening to Tax Tuesday. This is Tobay Matthis.
Jeff: And Jeff Webb.
Toby: We are bringing tax knowledge to the masses, one listener at a time. Just be a guy and see how I would say that. But he wouldn’t say the thing about the tax. He would just say he’s being dry by wisdom. All right, let’s see. We have a whole bunch of people on. We like that. The more the merrier for us. And our staffing, we have the ability to answer all your questions.
We have Matthew, Patti, Susan on. But we also have a bunch of tax professionals. Christos is on, Elliot, tax attorney Piao, another accountant, and Tavia, bookkeeper. We have a good crew. Jeff is a CPA, I’m an attorney. We never even say that, just goes without saying. We will answer your questions, so ask away.
When you’re doing this—we’ll just go through the rules—ask in the Q&A feature in Zoom. If it’s in the chat, it’s just going to fly right by us because there are so many people. “Is that Jeff Webb from Dragnet?”
Jeff: No, that would be my dad, Jack.
Toby: Anyway, there are some people from different areas. We never get to ask this on Tax Tuesday, so I’m going to ask where are you guys all from? We have so many people that join us, it’s usually just a blur. Put it into the chat; many of you guys already put it in the question. Where in California? Rolly, San Jose, Colorado Springs, San Francisco, something New York City […], Chicago, Orlando, Dallas, Tucson, Houston, New Jersey, Lancaster, Oklahoma, Sedona, Sta Fe, San Antonio, Capital AE.
There’s Mark, I always know it’s him. Olga from Seattle, Woodside, Chicago, Long Beach, Takoma Park, Maryland, Las Vegas—that’s where we are—Incline Village, Honolulu—you’re making me jealous—Utah, Twin Cities, Livingston, Saratoga Springs, Spokane, Denver, New Jersey, Boston, New York, Washington State. Look at this. We have a lot of folks from all over the country. Minnesota, there we go. Guys, thanks for letting us know. That’s really awesome. Maine. Oh my gosh, that’s where Denise is, one of our employees actually lives up there.
That’s always fun to see just how diverse a group we always have, but we’ll just jump right on in. First off, if you have any questions, feel free to send them to taxtuesday@andersonadvisors.com. That’s where we pick the questions that we answer on this. We also answer your questions, regardless, as long as it’s a general question. If you start asking us about a bunch of questions on your tax return, we’re going to make you engage us, but otherwise we’ll just answer. It’s supposed to be fast, fun, and educational. We want to give back and help to educate people.
Jeff, you probably didn’t experience this, but I was an idiot with taxes. When I became an attorney, it was embarrassing. I didn’t know anything about them. I remember the first time I fought a tax return on my business when I was still in highschool and I sent all my receipts in. I was sure that they wanted to see my receipts. I sent my tax return in with the big old box, all the receipts off from my little painting company. It was kind of fun.
I just want to help people so you’re not like me at that point. There’s a lot of tax knowledge that we can help get out there, and hopefully demystify it and make it less scary so people realize how empowered they are in the tax world. Is that fair?
Jeff: It is. A little knowledge goes a long way. Just certain misconceptions you may have, but hopefully we’ll clarify those and clear things out for you.
Toby: Such a CPA. Can you hear that? I was whispering. These are the questions that we’re going to answer today, by the way. Just bear with us as we lay them out. “We are concerned about how to protect our tax deferral for capital gains and how to separate the LLC that we own with another partner so that each may be protected from capital gains at this time.
The other partner owns 43.2%. We have a basis of approximately 165,000 with a potential value at sale of $1,000,000.” Nice. “We would like to divide this so we could each invest in multiple assets without paying capital gains at this time. Both partners want to diversify but separately. What are our options?” There are none. No, I’m just kidding. We’ll answer that. Take their joy away. Oh my God, you did that? They look at you and say, what did you do?
“Please talk about being a real estate professional. What are the requirements and the benefits?”
“I have fully depreciated rental property in a high-tax state. Can I do a 1031 exchange and buy some farmland in a different state and not pay taxes to the high-tax state?” Good question. We’ll pretend that the high tax state is California. We’ll use that as an example.
“I recently bought a security that I am bullish on in the long-term, but it has taken a hit recently. I also sold some real estate this year and realized capital gains on them. If I sold the security and replaced at a lower price, could I lock in a loss to offset the capital gains on the real estate? Are there any rules about the timing of that transaction?” Definitely answer that one. That’ll be fun. This is like accountant crack. All the accountants out there are going […].
“I have an S-corp business. I hired my 12-year-old son to work and he gets a W-2 with an annual income of about $1400. Should he need to file a tax return? If he does not file a tax return, will that increase my chances of getting an audit for my business?” I don’t know. We’ll answer it.
“Can I write off my monthly car payment if it’s financed and in my corporation’s name?” Great question, we’ll knock that one out too.
“I have a rental property that is owned by a self-directed IRA. Does it need to be in an entity or is it safe in the IRA?” We will get that for sure. We’ll go through all these. Good questions. By the way, I stopped myself, I have four or five more. Then I thought of Jeff going, are we really going 4:30, 5:00 again?
“Say I have 10 properties (single family homes), all under my name. I want to get a portfolio loan to include them all under the same loan, but also want to put them under an LLC’s protection and not in my name. If I separate the properties into several different LLCs, can I still put them under the same portfolio loan?” Great question.
“On a ‘subject to deal,’ who pays capital gains, and pays the depreciation recapture? Assume the owner granted the deed to the ‘subject to’ buyer.” Then I guess they want to make sure. Great question. Good questions today. Interesting. And I like to pick them because oftentimes there are some points that we can make with them. Sometimes I just grab them, but I like to see if there is some learning that we can do together on it. This will be fun.
Jeff: I do like it how you make it really dramatic in the intro, then we go to commercial, and then come back in.
Toby: We should. We’re going to start having commercials. Who would advertise on this? I can’t even imagine it. I want to advertise on a tax program. The pencil company might watch it. All right. A cat company because I imagine accountants like cats. All right. “We are concerned about how to protect our tax deferral for capital gains and how to separate the LLC that we own with another partner so that each can be protected from capital gains tax at this time.”
The other owner. Let’s just say Jeff and I are owning. I’m in it, 67% or 68.8% or whatever it is and Jeff has 43.2%. We have a basis of 165, but we’re going to sell it and there should be a $1 million. “We would like to divide this each so we could invest in multiple assets without paying capital gains. Both partners want to diversify but separately. What are the options?” What do you think, Jeff?
Jeff: Assuming that this is real estate we’re talking about, you actually have two choices. You can do the 1031 exchange, which means you sell your property through your qualified intermediary, and then purchase new properties to replace that.
Toby: But there are rules on that, right?
Jeff: There are rules on how many properties you can use to replace.
Toby: But doesn’t it have to be name to name? If you and I are like, hey, we have to get run, we made some money but you want to do your thing, I want to do my thing.
Jeff: Both the problem with the 1031 and the other one—the qualified opportunity zone—is it does have to go from name to name.
Toby: I don’t think the QOZ does.
Jeff: You don’t think it does? Okay.
Toby: In a qualified opportunity zone, you’re putting in money in a qualified opportunity zone fund and you’re saying, hey these are capital gains and they have been allowed under the regs put in the depreciation—all the gains—and you’re deferring it.
Jeff: Yeah. You’re right about that because it’s your capital gains and being a partner is partnership.
Toby: Yup. What it comes down to is like in this particular case, we have a partner in a partnership, so their taxes would be due April 15th, but their tax year-end would have been December. And those individuals are allowed to use that as their starting point to put the money into a qualified opportunity fund. That qualified opportunity fund, it means to put in some money into qualified opportunity zone property within a set period of time too. It’s basically you have a year between the two, but you want to make sure that you’re doing that. But when you have a partnership, you actually have a longer period of time to put it in, whereas if I sold something in my name, I’d have 180 days from that point.
This is actually a pretty good scenario. The reason I was picking on you on the 1031 exchange is because you have to go name to name. Let’s say we have an LLC and I assume from this that we’re talking about real estate, too. If this is stock then this is off the table. If it’s stock you could still do a qualified opportunity zone and you can absolutely defer.
The other thing you do is before you sell it, give it all away. Give your interest away and sell it through a charity if you felt like it. There’s some other things you could do. Whereas if this was an LLC, it depends on who the owner is. If it’s an IRA or a 410(k) then you don’t really have to worry. But let’s assume this is real estate. I think that’s the correct reading of this question. We have depreciation recapture, depending on how long they owned it. It looks like probably for quite a while, and they have long-term capital gains.
You can roll basis into new property acquired by that same LLC. Now, there’s something called a swap and drop that you can potentially do. Which means somebody agrees to go hey, I’m going to keep this LLC, we’re going to acquire new properties. I’m going to buy you out of your interest and I may be buying you out of your interest with property. It depends on what they’re doing. It may be an interest in the property. I believe you could do that to avoid tax entirely without a deferral because in the qualified opportunities zone fund, you’re going to have a tax hit in 2026, I believe it is, five years from now. You’re just deferring those capital gains here if I get a 1031 exchange, I’m just rolling it into new property. I could do a bunch of properties, right?
Jeff: Yup.
Toby: Hopefully, we didn’t just confuse you. I felt like I just made a word salad and dipped it in some oil.
Jeff: If you do want to do a straight 1031 exchange, you do have to deal within your LLC. So you’d buy several other properties or different kinds of properties. You’re going to establish their basis. At that time, after the purchase of a new property there’s no reason why you couldn’t distribute those properties out to the partners individually. Say, I want the apartment building and you take the two single-family homes.
Toby: There’s usually not much on there. The swap and drop is when you complete the 1031 exchange and then you buy out a partner usually by returning their money. But if you distribute an asset inside the partnership, then they would just receive it at the basis. It probably go LLC to LLC with the owners breaking up their interest so that it’s the correct proportionate amount.
That’s the hard part. Try to think if there’s anything else you could do on that. No. They’re going to sell it for a million. Let’s say you have a bunch of cash in there, too, then it makes it simple. You could say, hey, here’s your portion, here’s some extra cash to make sure that you got an interest.
Jeff: One other thing I thought about on this is you can actually do a combination of 1031 and qualified opportunity zone.
Toby: Absolutely. Those are the ways, the big deferral ways are opportunity zones and 1031. 1031 is an indefinite deferral, qualified opportunity zone is a 5-year deferral right now. Or you could put it into a charity or your own foundation—that type of thing—avoid the tax entirely, try to get a tax write-off, and then you’re not worried as long as you’re not trying to get back to the asset. You want that asset back, you’re paying ordinary income on it by paying it out to yourself. But that’s not why you do charities. Charity is to do good and give it away.
All right. “Please talk about being a real estate professional. What are the requirements and the benefits?”
Jeff: I’ll start with the benefits. The benefits are it allows you to write off losses that you normally wouldn’t be able to write off just as a landlord.
Toby: Yeah. There’s a bunch of different types of incomes. You have ordinary income, active income. Think of the sweat on your brow, I work my butt off, I run a plumbing company. That’s ordinary income. That’s hey, I get a W-2 income. That’s ordinary income, so wages and things like that.
Then you have passive income. There’s only two types—real estate and businesses in which you do not materially participate. The rub is losses on those real estate and businesses in which you do not materially participate—you’re a silent partner in a business—can only be used to offset other passive income. It sucks. I have a bunch of real estate and I have lots of depreciation. Maybe I accelerate it. I’m all excited and I’m like, oh I learned this that I can accelerate it and I got $100,000 loss. Oh boy, I’m not going to pay tax this year.
And then Jeff goes up and says, well, you’re going to have a loss carry forward because we can’t use those passive losses against your active income. And of course then, the question immediately to Jeff is, really? I didn’t know that. What are the exceptions? And Jeff says, oh, well if you’re an active participant, you get a $25,000 limit. If you have $100,000 loss and you made $100,000, you would take $25,000 of that $100,000 each year for the next four years. Basically, you pay tax on $75,000.
And then the other one, Jeff says, well, if you’re a real estate professional—either you or your spouse—then it unlocks the entire amount of that loss and you can use it to offset your entire ordinary income, in which case you would pay no taxes in that year. I don’t even think that’s the best idea, by the way. You want to lower your taxes, if I am underneath 20%, I’m okay.
There might be one other way to do it. One other benefit. Real estate professional is if you’re going to group up your activities, if I’m going to accelerate depreciation, now I have a lot of control over my income. But that’s really it. What are the requirements? You want to go over the requirements of a real estate professional?
Jeff: I’ll give you a couple of definite fails. If you are working full-time or you and your spouse are both working full-time and you’re married, you’re probably going to fail this test. There is the 500 hour requirement?
Toby: 750. Let me give you guys a site so that you have some fun. You can go read 26 USC 469(c)(7). That’s the actual code provision. To be a real estate professional, the first test is 750 hours and greater than 50% of your personal services for either spouse. This is either spouse. What Jeff was saying about both spouses work full-time, it’s going to be almost impossible to have more than 50% of your time on real estate.
It doesn’t have to be your real estate. This test is in buying and selling real estate, so real estate agent, development, construction. You run a company that does construction, general contractor, you do driveways, whatever it is. As long as it’s real estate, then you’re going to get that benefit. You’re going to be able to hit the 750 hours so long as you don’t do something more than that activity.
If you’re full time, Jeff’s a full time accountant and let’s say he does 2000 hours a year as an accountant, he would have to hit 2001 hours in real estate. Crazy. It’s not going to happen, right? But let’s say that Jeff did part time accountant work. Let’s say he did 800 hours a year as an accountant, but he did 801 hours as his construction on the side. He would qualify for this first prong. That’s prong number one.
Prong number two, is you materially participate. That’s a term of art, in your real estate activities, so that’s a big one. There’s like nine tests?
Jeff: Yes.
Toby: Somebody says, “750 hours could buy between my wife and myself.” No. One of them has to hit that first prong. Prong two is, both spouses combined. In test number one, either spouse has to hit that 750 hours greater than 50% of their personal services. Prong number two is you look at the spouses together. Did you materially participate in your properties? And it’s per property. Unless, what do you have to do?
Jeff: You make an aggregation election, which means you’re saying all of my properties are one property.
Toby: Do accountants forget to do the aggregation election?
Jeff: They do.
Toby: And they end up becoming great tax cases because that’s all the cases. It’s like, oh you did 750 hours, but you had three properties and you didn’t elect to aggregate them. Which property did you do the 750 hours on? Or was it all three of them together? You don’t qualify now for any of them because you didn’t do 750. It’s silly.
The best example I can give you is let’s say that Jeff and I are married. Jeff is working his tush off. Jeff is the CPA making lots of money, and I go out doing real estate. Jeff makes a whole bunch of money, I go out and I do real estate. Together we create this big, real estate empire and it’s generating losses. Jeff (let’s say) makes $500,000 a year, and I create a loss of $250,000 because of depreciation. Maybe I accelerate the depreciation, whatever. I can use the $250,000, we can use the $250,000 on our return to offset the income.
Jeff: Other couple of times I don’t recommend doing the real estate professional if you have existing properties that have significant passive losses that have been suspended.
Toby: Go over that one. That’s a huge one.
Jeff: I have say, three properties and between the three I may have $250,000 worth of passive losses that have been suspended. I couldn’t take them in the past so they just keep rolling forward. Once I become a real estate professional those losses get locked in. Normally when you sell a property, release those passive losses, but once you make that aggregation election, you have to sell substantially all of your properties to be able to release those losses.
Toby: That’s the one downside is if you have a big loss carry forward, you wouldn’t want to aggregate all your properties. If you have a big loss carry forward, probably not horribly worried about the aggregation at that time. We’d have to take a look at it and make sure you don’t do a face plant.
Somebody says, “If I’m retired, can I take care of my own properties?” Yeah, materially participate. You can do it without an hour limitation if you self-manage. If you do manage properties, as long as nobody spends more than a 100 hours on your properties, then you can do it with 100 hours as long as you spend the most time. If you do have other people spending more than 100 hours, then you have to hit 500 hours. There’s a few other minor tests about prior inclusion, like if you’ve been a real estate professional for so many years then it kind of works.
Somebody asked about the net investment income tax, “Does a real estate professional affect the net at all?”
Jeff: Real estate professionals are not subject to net.
Toby: Yup. If you’re a real estate professional and you make a whole bunch of money, now we’re not worried about the loss, but we are looking at it saying, hey, you don’t have that net investment income tax on that income. Somebody nailed that. Where do you aggregate the properties?
Jeff: It’s actually an election you fill out. It’s not a form. It’s just a statement that gets included with your return. Once you make that election, it’s usually irrevocable. But say I make the election, I have two properties, and I buy two more properties. It automatically gets collected under the aggregation rules.
Toby: Somebody has a good quick question. “As a W-2 employee in construction, can I qualify as a real estate professional?” Unfortunately, in order for you to qualify, you have to be a greater than 5% owner of a business in which you work. If you have your own company, it’s easy. If you work for somebody else, as long as you are a 5% or greater owner, then you can.
“Can I do it if I’m retired?” Yes.
Jeff: Retired is actually a great time to do it. Material participation rules are pretty easy and neat.
Toby: Yup. It’s not hard. Then it will offset any of the forced income you have from your IRAs, or 401(k)s, etc.
Somebody says, “Do you need a qualified intermediary? What if you’re using a real estate attorney?” They have to be a qualified intermediary, right? There’s actually […].
Jeff: What happens is the QI—qualified intermediary—handle the entire sale. The proceeds go to them, not to you. Once you touch the cash your 1031 is dead in the water.
Toby: Yes. Somebody’s asking about referrals to one. I have a really good one out in Idaho. It always depends on where their registrations and licensing is. I’m always shocked. You can absolutely use somebody as a qualified intermediary in multiple states. But there’s lots of exchange companies; you just want to talk to somebody.
Somebody says, “Have you had any clients take advantage of the tax haven benefits of Puerto Rico?” Yes. We have quite a few that move there and set it up because the long-term capital gains or capital gains in general and dividends are taxed at zero. You have to spend at least 180 days on the island—actually physically on the island—and you have to have a business that employs, I want to say, one or two people. Do you remember all that?
Jeff: I didn’t know the exact rule, but yes.
Toby: It’s a little more than just moving there. But if you do that, then you get the 4% tax rate and 0% tax rate on dividends and capital gains, which is why some people choose to shoot on over there.
“Once you aggregate multiple parties. Do you have to sell them together? You have to sell them all the same time or do you sell them one at a time?”
Jeff: You can sell them off piecemeal. But if I sell one of my five properties, I’m not going to be able to release any losses I have.
Toby: Your loss carryforward is what Jeff’s talking about. You always look and say, do I have loss carryforwards?
Jeff: Alternatively, if I start buying properties today and become a real estate professional this year I won’t have any suspended losses. By being a real estate professional I’ll be able to take those losses over a year.
Toby: “When do you have to qualify as a professional? The year the loss was incurred or the year you sell the property to apply the loss?” It’s the year that you want to take the loss. What it does, is it has nothing to do with prior or a future. It has everything to do with this year. I’m a real estate professional, therefore my passive losses from real estate are released as ordinary. If there’s any losses in the past, we’re toast, especially if we’ve made an aggregation election, which is why we’re careful. If you have a bunch of carryforward losses, we don’t want to hurt you, which is why Jeff is bringing that up.
Lots of questions. I’m going to see this, “If I had a C-corp formed at the end of 2020, is the 1120 form easy enough to fill out on my own if there’s no business activity? My understanding is there are fees to pay even if you don’t file, even if there’s no business activity. This is a sole director C-corp.”
Jeff: You’re required to file a corporate tax return, the 1120. Certain states may have fees, taxes. I know New Jersey does, Massachusetts does, California everybody knows. The other fees are typically the registration fees within your state just to be licensed as a corporation.
Toby: Perfect. Somebody says, “I’m a real estate broker, owns my own company, and helps people buy and sell houses. I also own multiple properties and manage myself. Do I need to have 750 hours in property management to qualify?” No. Just being a real estate professional, as a broker, as long as you hit the 750 hours and it’s your greatest use of your personal time, you are going to trigger it. Then yourself managing you don’t even have an hour requirement. As long as you’re self managing, you are the definition of a real estate professional if you want it.
If you don’t want to pay taxes, what you do or you want to lower your taxes is you take the properties that you own and you do what’s called a cost segregation analysis on those properties. You break that property down from just being a 27½-year property in your normal depreciation and you break it into its pieces of 5-year property, 7-year property, 15-year property, and 27½.
Somebody comes in and they look at the carpet, that’s 5-year, the cabinet’s might be 7-year, the driveway might be 15-year. They’re breaking it all down. The fence around it, that’s 15-year. They’re going through and they’re breaking them into their sections. Then you can choose just to let that depreciation go at those, like all of a sudden I have lots more depreciation.
Or I could do a 168(k) election, which is called bonus depreciation and say I want it all this year. You’ll end up writing off about 30% of the improvement value on your house, that’s about right. You get some pretty big benefits there. Good job listening because that’s going to save you some cash if you want it.
Somebody says, “I have $12,000 in start-up costs.” You want to make sure that you file your corporate tax so you capture that loss and we’ll do it.
Somebody says, “I know that extensions are granted to individuals, are they granted two entities as well?”
Jeff: Yes, every tax return has an extension.
Toby: We answered a lot of questions there. I feel pretty good about those today, Jeff. “I have a fully depreciated rental property in a high tax state. Can I do a 1031 exchange and buy some farmland in a different state and not pay taxes to the high-tax state?”
Jeff: Temporarily, yes. Let’s assume that the high tax state is California once again, so yes, you can certainly do a 1031 exchange.
Toby: You may never pay the state tax.
Jeff: Go buy some property in Iowa, complete the 1031 exchange. California is a little more onerous than some of the other states. That they make you file a form every year that says yeah, I still have the replacement property.
Toby: You sell the replacement property and you don’t 1031, even if you 1031.
Jeff: I think you can still 1031 into a different property.
Toby: But you sell that, make it taxable? California wants the tax on that portion as though it was sold in California for the portion that was the value when it was sold in California.
I buy a property for $500,000. Years later it’s worth $2 million and I have depreciated all of the improvement value. Let’s say, I’d depreciate it $400,000–$500,000. My basis is now $100,000. We’re just using simple math. We’re not adding-in closing costs and stuff like that. I exchanged it for $2 million worth of farmland.
California, you have to let them know, hey, I exchanged $2 million. Years later, you sell that farmland for $3 million and you don’t do a 1031 exchange. You’re going to owe taxes though you sold that property for $2 million in California and you’re going to have the additional $1 million in Iowa, in Jeff’s example. Did I say that right?
Jeff: Yeah.
Toby: All right. Here’s a fun one. If you like this sort of stuff and better yet, if you like making money. Jeff and I spend a lot of time rapping about high net worth individuals and when they’re doing stuff and we’re doing tax strategies. I think probably, always walking in Jeff’s and I do this he’s usually like this and I go, hey Jeff, you busy? And then I asked my question.
Jeff: I try not to make eye contact.
Toby: If I’m hovering outside his door, he just goes like this, so he knows. One of the things that is the benefit of doing people’s returns, is we start sometimes asking who’s killing it. Sometimes I’ll just go and say, let’s pull all the schedule leaves with more than $1 million on. You’re just saying, what are they doing? What are they doing? What are they doing? A lot of them are doing the same things.
The Infinity Investing Workshop is built around that premise, of that the people that tend to make really good money, tend to do the same things over and over again, and it’s not what you think. It’s not like we’re sitting here looking at people that are making W-2 and coming with $1 million. such as me, is that they got a good job, or maybe they have their own, whatever the case. What we’re really interested in is that Schedule D, dividends go on B. You’re always looking around you’re saying, where are these big numbers? What are they doing? Why are those big numbers flowing under those returns?
We do this event, think we have one coming up by March 13th. By all means, come in and take a look at some numbers driven, but it’s simple as far as building wealth. If you like stuff like that, by all means go to our website, Anderson Advisors. Everything has click-throughs on this stuff.
If you’re in Tax Tuesday, just go to our main site and right on that front site, you have a whole bunch of our different free events. The Infinity Investing Workshop, Tax and Asset Protection, please go in. If you like Tax Tuesday, you’ll love these things because they’re not just taxes. A lot of it is about helping generate wealth. We like to give it away so you can invite people, there’s not a hook to these things.
If you allow us, we will teach basic good concepts and advanced concepts that allow you to continue to grow your wealth. I don’t make this stuff up, we look at other people and say, what are they doing? Hey, look, they’re all doing the same thing. I’m starting to notice a trend. What’s that trend? What’s that pattern? Here’s what the pattern is and it’s usually pretty boring, then you realize, wow, if everybody did that they get similar results. We try to share that with people so they don’t blow themselves up.
All right, “I recently bought a security that I am bullish on in the long-term, but it has taken a hit recently.”
Jeff: Gamestop.
Toby: Gamestop. That’s a great one, right? Maybe it’s Tesla? “I also sold some real estate this year and realized capital gains. I sold the security and repurchase at the lower price. Could I lock in a loss to offset the capital gains and the real estate? Are there any rules about timing the transaction?” Jeff.
Jeff: Yes, you can absolutely lock in that loss to offset your real estate gains. if you do one thing. You can’t purchase that security back for 30 days. On day 31 go buy it again.
Toby: Yup, it’s called the wash-sale loss rule and it’s that security or something substantially similar. If you want to and you’re worried about the market coming back or something like that, you can always buy an option on the entire market saying, oh if we have a huge run up, I’m going to lose out. But you can’t buy an option on that security. You can’t buy something that’s substantially the same. If you sell Exxon, you can’t go buy Chevron for 30 days. That’s it.
Just give yourself a little timer and say, hey look, I’m going to sell it, I’m going to buy it back in 31 days. You’re super nervous about it, don’t do it. If you’re willing to say, hey, you know what, I’ll wait. I’ll be able to use that loss on that security.
It sounds like you’ve had a short-term, so you’d have a short-term loss offsetting some capital gains and if it’s real estate depends on whether it should be shorter long-term as to whether you’re getting kind of hosed on it. It’s always better to have long-term loss, offset short-term gain. Short-term gains ordinary and long-term loss is capped at 20%. It’s like our long-term gains are capped at 20%. It’s always good to have the one that’s taxed as ordinary income, unless you’re in a really low tax bracket. Gosh taxes are complicated. Anything you want to throw on that?
Jeff: Nope.
Toby: That’s a pretty good one. I get what you are doing. Now, here’s one thing. The same rules don’t apply for gains. If you have some loss and you want to grab some gain to use that loss to offset, then by all means sell it and buy it right back. There’s no lot wash-sale gain rule, it’s only the wash-sale loss rule. It’s always kind of fun.
“I was under the impression that real estate depreciation cannot be used to offset market gains.” You are correct. But the sale of real is capital. It’s not depreciation. Am I missing something?
Jeff: No.
Toby: It’s capital losses offset capital gains. Passive losses offset passive gains. Real estate income is passive income. Depreciation is passive loss. Anyway, we won’t keep getting into it or create passive loss. We’ll keep going into this.
“Can depreciation apply to investment properties that were not rented?” It’s possible they have to be rented or available for rent. Yeah, it’s possible if they’re not rented, but you have to be trying to rent them.
They keep moving. I think I zero in on one and I’m like…
Jeff: Where did it go?
Toby: Yes, it disappears. You guys are typing so fast. Our guys are just kicking through them. Let me see if I can find a really good one. “I thought there was a $3000 a year write off limit.” That’s on capital losses against ordinary income. If I have W-2 income of $100,000 and I have capital losses of $10,000, I get to take $3000 of loss against the $100,000. So I’d take $3000 each year for 3 years and then $1000 for one other.
Jeff: If I have a $50,000 loss and $100,000 capital gain, I get to use all that $50,000 against that $100,000.
Toby: Yup. It’s so good today. Look, we’re not even horrible. We may actually finish close to on time. We always try to do an hour, but Jeff usually talks way too much and goes way above. I’m like, Jeff, Jeff, stop talking. I’m being facetious, of course.
“I have an S-corp business. I hired my 12-year-old son to work and he gets a W-2 with an annual income of about $1400. Should he need to file a tax return?”
Jeff: I’m going to answer the last part of this question first about will this increase my chance of being audited. If you have 100 employees that you issued W-2s to and not a single one of them filed their tax returns, that has nothing to do with you. That will never trigger an audit.
Toby: Your S-Corp tax return has 0.02% audit rate in 2019. 2020 is going to even be lower. The audit rate has been dying because the IRS is getting slaughtered right now. The IRS is still opening their mail from July. I’m not kidding. They’re literally opening up their paper mail from July and processing it right now.
Jeff: If your son has a W-2 and he is making less than the standard deduction, which is $12,800 this year, 2020?
Toby: $12,400. You think it’s $12,800?
Jeff: I think it’s $12,800.
Toby: I’m going to ask the omnipotent Internet.
Jeff: Anyway, if it’s less than the standard deduction, he does not have to file a tax return. For $1400 he is absolutely not required to file a tax return.
Toby: $12,550. Married filing jointly is $25,100. We’re both wrong.
Jeff: One reason he might want to file a tax return is if he has a W-2 and he has a federal or state withholding on it because he can probably get a refund for those events or at least some portion of them. Other times you may need to file a tax return is if you have $1400 above W-2 wages but he has $1500–$2000 worth of portfolio income—dividends, interests, capital gains. He may have to file a tax return.
Toby: There’s a good chance he’s not going to have to file, but I’d still do it. One of the really cool things you could do if you have a 12-year-old son who made an active income of $1400, get that into a Roth IRA. Anything you could put in there, put it into a Roth IRA.
I’ve done the math on this. It’s going to double about every 7 years at about 10% and the SMP has grown at about 11% over the last 10 years. We’re not being horrible. But let’s say a 12-year-old puts it into a Roth, they put $1400 in. By the time they’re in college, that $1400 will be about $2800. By the time they graduate out of college, it’ll probably be closer to $6000 or $7000. And then over the years, that $7000 goes to $14,000 pretty quick. That $14,000 goes to $28,000. That $28,000 goes to $56,000. $56,000 hops up to the $112,000.
That $1400 seed that you planted, by the time they’re retiring should be well over $100,000. Which is kind of funny. Makes you look at money a little differently.
Jeff: If you […] on $12,000 or $12,500, you don’t want to put in a traditional IRA because there’s absolutely no advantage to it. There’s no deduction that you can take. Roth just works a lot better.
Toby: The question is I always forget, can you do a Roth with a 12-year-old? I know you can do it with a 16-year-old. Twelve might be young, but I would talk to the group. I’m not sure that there’s an age limitation. Elliot or Piao, do you guys know the answer to that? Maybe somebody is listening out there. Does anybody know that?
Somebody says, “Regarding the IRS delay, so it’s normal if we haven’t heard anything regarding your paper filed 2019 returns still?” Yeah, Jeff, it depends on when you actually filed that. But they put out an announcement three weeks ago. And they said that they’re opening up mail from June.
“Can you add your son to a solo K?” Yes. I’m still looking if Piao or anybody is listening, but maybe they’re not. I’ll have to look at that. I can’t remember off the top of my head whether you could set up the Roth for a 12-year-old. Again, I think a custodial IRA, but I thought that might be for 16-year-olds.
Piao: Toby, did you ask about the 12-year-old? As long as they have earned income, I think it should be fine.
Toby: No age limit but they might need a custodian. All right, there we go. Yeah, everybody is saying the same thing. “For 2020 and later, there’s no age limit. I’m making regular contributions to traditional or Roth IRAs.” That’s from Doug Shawnberg. Hi Dougy-Doug. I didn’t even know you’re rolling out there. Doug’s been with Anderson since 1999. Thanks Piao for jumping on. Good to hear your voice. Remember, we don’t get to see each other anymore because we have a plague.
“Can I write off my monthly car payment if it’s financed and in my corporation’s name?”
Jeff: Not exactly. You write off the actual expenses. You would depreciate the car if it’s in your corporation’s name. You would also write off interest, not the mortgage payment. You would write off gas, fuel, maintenance.
Toby: Here’s the thing. You have to remember that when you get a vehicle, if you buy it, whether you paid for it or not, it’s immaterial as to whether you depreciate it. If useful life is still five years and if it’s over a certain weight, they’re going to say it qualifies as equipment. If it’s a luxury car, there’s going to be certain restrictions, it might be limited to $10,000 a year blah-blah-blah. But those things are completely separate. But because you have an asset that you’re being given access to, whatever your personal use for that is taxable. People miss this all the time.
It really gets to be one of those deals where I see people and they buy the G Wagon or the Range Rover. They buy it in the company and then they’re driving around and it’s 95% used for personal. But their business bought it. There’s income inclusion on the lease value that the IRS publishes every year. You still have to track the mileage on.
The much easier way, I’ll tell you guys, my personal view, is unless you are using that thing more than 50% for business—and I mean a strong 50%—and you’re going to do it for 5 years at least, that’s the only time I will buy it in the business because otherwise, there’s nasty consequences to doing it. There’s a surprise for you.
You buy the car, you write it off, two years later, you’re not running the business anymore, and you go on to something else. You have now a taxable event to yourself of three of the five years of the depreciation that you already took. It’s just like ordinary income just being hammered on you.
Jeff: You may have more income from that vehicle than the vehicle is worth.
Toby: Yup, and you’re like ah! What I would do is reimburse your mileage. Get MileIQ, put it on your phone. When you drive around, it tracks your miles. You swipe left if the car’s ugly, right if it’s pretty. No, I’m just kidding. I forget which way it is, but you’re going one direction swipe if it’s personal, the other if it’s business. If you do a business swipe, between two offices, for example, it’ll ask you, do you want me to remember that and make it business all the time? Yup. Then you don’t have to worry about it. And then you get $0.55 a mile this year.
I can just write a check to myself at the end of the year. Hey, I did 10,000 miles of business use. Fantastic. I got the lowest price insurance, I didn’t put a bunch of liability into my company, I drove my car around, and I write myself a check for $5500 that I don’t have to report as income and my company can write-off. That’s why I suggest everybody do.
Unless you are using that vehicle predominantly in your business and it’s really staying in that lot and you’re buying it specifically for the business. For realtors, it’s always a push for me, but I’m always worried that realtors are going to quit being realtors. They’re going to go out there and become a real estate investor, they’re going to quit being an agent, and then they’re going to have income inclusion. It always gets me a little freaky.
All right. A few more questions, let’s see. “I sold depreciated rental property. I have to recapture the depreciation. Can I take the land value out of the gross proceeds since I had to take out the land value to calculate the basis?”
It’s not part of your calculation at all. You have a basis which is always non taxable and then you have gain. Out of that gain you take your depreciation, and the remaining portion is either a long- or short-term gain.
Jeff: Yeah. The land portion should never create depreciation recapture. The recapture is only going to be based on how much depreciation you previously took on that property.
Toby: Yeah. Let’s go over standard deduction since somebody is asking. Standard deduction for 2020. It’s $12,400 for single, $24,800 married filing jointly, and then this goes up to $12,550 in 2021 or $25,100 married filing jointly, I think it’s what it was. A little bit of adjustment, $300. That’s your standard deduction. We’re always in this weird spot when we’re in tax season. We’re talking about last year, but we’re also talking about this year. Somebody asked that. That’s where that came from.
“Can you pay your child, should it be paid to my corp or from me personally?” Benjamin, you should never pay your kid you personally, unless you’re a sole proprietor then you could pay them. Otherwise, pay them through the company. You always pay them through a company.
Somebody says, “Where do you get MileIQ?” Patti has put that up.
“So you could include interest or capital gains from K-1 and passive income on a 1040 Schedule E line 28?”
Jeff: Actually no. K-1s are what they call separately stated income. It means interest from the S-corp or partnership go on the interest line. Capital gains go on the capital gains line and so forth. It doesn’t all get flushed together.
Toby: Yeah. What we’re saying is the capital gains in a K-1 can be offset by capital losses from any other source that ends up on your return. Some other business or something else, if it has capital losses, you’re going to end up putting that on Schedule D. They’re going to offset each other. Interest income is ordinary. You’d have to have ordinary loss to offset it. It doesn’t have to be interest loss. It just has to be ordinary loss.
I know it gets complicated. I will say this, that if you want to peel that back, do look at our site and look for the Tax Toolbox. I think for you guys, we’ve done some pretty big specials on it before. I didn’t prep on this so there’s no special today that I know of, unless Patti or Susan has the old one. I think we gave it for a discount, but it’s sitting on our site. Take a look at it. It’s part of our business. Essentials package that we sold at the last Tax and Asset Protection. That has it broken down into painful detail.
You can look and say, what type of income? What type of loss do I have? Which ones work? And then, what are the exceptions? How do I unlock this so I can use it? What other things could I use to offset a loss, for example? If I have a capital loss sitting there that’s going to carry forward into next year, but I have capital gains locked into things, maybe I should sell those assets even if I end up buying them back like in the stock market. You can literally do that in about 10 minutes.
“Is there similar mileage deduction for a plane?” No. That’s a good one though. Seven-year property, though.
Jeff: And airplanes are highly audited.
Toby: Yeah. If you like being audited. We’ve done that. We had a helicopter company. They were fun. They always got audited because they always think you’re goofing off, even if it’s not, even if it’s a real deal. Usually, they can smell it.
Somebody says, “Mileage is $0.56 this year.” Oh good. I can’t remember, I thought they went down. But maybe it’s $0.56. It’s all these 50s—57, 58, 56 blending together. This is why we need charts.
All right. Social media, you […] and follow us. If you like this sort of stuff, you can go on to our YouTube channel for example and there’s a ton of information. If you’re a real estate investor, check out Clint, my partner’s channel. I think it’s Real Estate Asset Protection, but here’s the link. You’ll see him on our site at ABA—Anderson Business Advisors—and his is dedicated solely to real estate investors. He’s very popular. He does a good job.
Let’s see. “You’re okay if you have the car for eight years in the business?” Yeah. If you’ve depreciated it, John, and written it off over the eight years, you’re not going to have income inclusion if you take it out of service. That’s always the thing. If it’s before its useful life is up, you have income inclusion.
All right, we have a few more. “I have a rental property that is owned by a self-directed IRA. Does it need to be in an entity or is it safe in the IRA?”
Jeff: I would prefer to have this property in an LLC within the IRA.
Toby: You’re actually right.
Jeff: Especially if there are other assets in this IRA.
Toby: Let’s say that you have a self-directed IRA. It owned $500,000 cash and a small rental in Indiana for $100,000. That Indiana property burned down last year. Tenant was misbehaving, they were leaving, somebody came in there and burned the place down the day after they left. Who knows who. Who knows? But the place burned down. If that occurred and hurt somebody, somebody was in there, that liability—because you would be liable as the owner—would be inside that IRA and any other assets in that IRA, they could grab a hold of. The $400,000 cash, they would be able to get to.
They would also be able to look through the IRA and look at the plan owner which is an individual retirement account—the individual. They’ll be looking at whoever it is and you’d be personally liable. Whenever you buy real estate inside of an individual retirement account, you want to make sure that it is in an LLC. If you buy syndications, it’s very simple because they’re all in LLCs, they’re limited partnerships, one or the other.
But if it’s you and you’re buying single properties, make sure that it’s in an LLC. Same situation, you have the IRA, you have the IRA owning an LLC, and that LLC owns the piece of real estate Indiana. It has a fire, you have a death, and everybody is suing, they’re mad. You are going to be limited exposure-wise to the value of that property and your insurance. You don’t have to worry about the other $400,000 nor do you have to worry about it coming over into your personal realm. They all take that asset for sure, but they won’t go beyond it. That’s the way it should be.
Here’s a good one, I like this. “Say I have 10 properties all under my name. I want to get a portfolio loan to include them all under the same loan, but I also want to put them under an LLC’s protection and not in my name. If I separate the properties to several different LLCs, can I still put them all under the same portfolio loan?” What do you think?
Jeff: This question is really going to be determined by the lender. Some will say yes, some will say no. But you’ve actually experienced this, right?
Toby: Yeah. I’ve done a bunch of these.
Jeff: What are we looking at? Are we securing the loan with one property or all the properties?
Toby: I always say that whenever somebody is getting into the lending world, you have to realize that there’s a loan and there’s security. If I give you money, I want to make sure I get paid back. If I give you money to buy a property, I’m going to secure that piece of property. But I don’t have to secure just that property. I may give you a loan and secure that property, that property, that property, that property, that property.
Really, what they’re doing is they’re just giving you a bigger loan and they’re saying, I need security to make sure that if I have to sell all 10 properties, that I’m going to get them back. But for closing on 10 properties would cost about $400,000 on average. That many properties are going to be very expensive, so they don’t want to do that.
What they’re going to do is they’re going to create an entity, usually in Delaware, and they’re going to have that entity own an entity that gets all the loans. They’re not going to care when you do that loan, how many LLCs are underneath that because that entity in that loan is actually going to be secured by the properties and the LLC that owns the LLC, that owns the LLC, that owns all the properties.
It sounds really complicated, but what they’re doing is they’re making sure that if you don’t pay, they don’t want to foreclose on all the properties. What they want to do is take your main entity that owns the entity that owns all the properties. Now they don’t have to worry about foreclosing on anything because they own all of the properties.
The same way we always use a holding company to hold all the LLCs, they want to be able to take that holding company and they know that there are rules that prevent them from doing that so they have another entity that owns it and they say that that’s what we’re securing it by. They’re going after both, and it gets fun.
Jeff: Why would you want to do a portfolio loan like this?
Toby: First off, it’s not reported to your personal finances. The most loans you can really have that’s FHA I believe is 10. If I want to have more lending, like if I buy a portfolio of 50 houses or an apartment building or whatever, I’m going to probably need to have a different type of loan, I’m going to have a commercial loan.
The rates aren’t horrible. They’re going to be a little bit more and they’re probably going to have lots of prepayment penalties. They’re going to sell it. Generally speaking, they want to put a loan on the properties, they want to have a 5-year payout, they’re going to have a 5-year balloon, it’s amortized probably over 30 years and they want to know that they’re going to get that interest. If you try to get out of it early, they’re going to make sure that they still get their interest. It’s always that. That’s a traditional portfolio loan.
Are there other products out there? Absolutely. You can go out there and do a 2-year, you can go out there and do a 90-day. There’s all sorts of different private money options. What you want to make sure of is depending on who you’re going to and why you’re doing it, that you’re making sure that you’re getting the right type of loan for that.
If you’re a buy-and-hold portfolio, you want low interest, you’re into a portfolio loan, and it’s probably going to be structured I just told you. Most of them are going to have an entity loan secured by the entity and then all the properties below, and they honestly don’t really care about the LLCs. They’re like go for it, do what you have to. They understand protection. What they care about is as long as they have a lien against each one of those properties, they are fine.
“Is mileage reimbursement for private foundation charity the same as any other business?”
Jeff: Actually charity has a much lower mileage rate.
Toby: It’s like $0.25 or something, if I’m not mistaken. I’d actually have to look at that. I don’t know off at the top of my head. I know that a charitable reimbursement for mileage is lower, but if you’re an employee working for it, I think that they can do a higher amount. But I have to see.
Somebody is asking, “Do I qualify for real estate professional status? I do bookkeeping for four properties. I’m a contractor, not an employee now. I have no other job or W-2. My wife and I own four rental houses. We spend more than 100 hours for a year, […] hours around property in bookkeeping. It’s over 750 hours, […] notes.”
So that would be a tough one. First off, you’re asking a very, very specific question. The bookkeeping for the four apartments, there are cases where they’ve tried to attribute it to the real estate professional status, Nina, but in those cases, the person that was working was involved in the sale of real estate and they allowed somebody, I believe that was doing bookkeeping, but it was on the transaction itself not on the actual renting.
The rental really comes into the material participation on yours. You would definitely qualify that you manage your own properties for the material participation. The question is are you a real estate professional. You’d have to have 750 hours documented in the construction, reconstruction, development, purchase, and sale of real estate. You’d have to make sure that your activities qualify under those. I would say, it’s probably not. But you might be close enough to where if you spent some extra time doing it that you wouldn’t have a hard time reaching it.
Yeah, I keep answering the questions here. “Instead of an LLC, is a land trust a better strategy on that IRA?” No. The land trust doesn’t give you any actual protection. All it does is changes the title holder.
“Is it ready to pierce the LLC if the LLC is owned by one person?” Piercing comes from outside, Martin. I think what they’re saying is, hey, if I have an IRA that owns an LLC, how is it going to give me any protection because it can be pierced. Not the inside. Piercing is an outside. Piercing is I did something and I own an LLC and they want to take my LLC away from me. In some states like Florida and Colorado, they will pierce a single owner LLC, they just won’t give you the protection. That’s why you need a statute like in Wyoming where they say, nope, can’t take it.
But that’s different. “Charity miles are $0.14 by the way.” I love the fact that we have good people that are out there doing that. Yes, it’s a really low amount. So if I have a piece of property in an LLC, the piercing isn’t an issue. There, the piercing would be alter ego. It’s not fair to recognize the LLC. Like, I didn’t know or you don’t respect its separateness. Now if you have an LLC and you keep it […] with the state, you’re going to be fine. That’s two different things.
Subscribe to Anderson, to our YouTube. YouTube has a lot of the stuff, by the way. Go check out all the videos. You’re asking questions, just about every question I could see. There are5 videos that we have on it that’ll teach you how to use this.
“Do you need to do formal payroll service to pay a minor from your corp, from example.” I know that we have videos on that and the answer is yes. The only exception is if it’s working for a sole proprietorship.
“On a ‘subject to deal,’ who pays capital gains and pays the depreciation recapture? Assume the owner granted the deed to the ‘subject to’ buyer.”
Jeff: This is going to be treated like any other sale. Subject to meaning you’re just taking over the mortgage. That is actually a payment to a seller. The seller is going to take care of zone capital gains or zone depreciation recapture and so forth. You’re going to reset your basis in that building of the property to whatever you pay for it and start depreciating it from there. And when you turn around and sell the property again, then you’ll be responsible for those capital gains, that depreciation recapture.
Toby: Yeah. Remember when I said that whenever you have a loan, there’s a loan and then there’s a piece of property that’s securing it. Jeff has a loan on a piece of property. Let’s just say that Jeff has this building here and he’s got a loan, and I still want to buy the building from Jeff. Jeff sells it to me, all he’s saying is, hey, I’m not paying off the loan, you’re buying it subject to the mortgage that’s already on it. Usually, you go, don’t tell the lender that we sold it because there’s a do on sale clause. They get all baddie.
Sometimes you can tell them and say, we want to buy it. Would you allow me to take over. They don’t really care because it’s secured. Jeff’s still on the hook, everybody’s still on the hook. All I did is to take over control of the properties. Most of the time, people aren’t told. I’ve done that. People always say, oh, you can’t do that. I did it. Yeah, you can. Usually you have a servicing company that you end up making your payments to so you know that it’s going to pay off the existing obligation. You don’t just give it to Jeff and say, hey, could you make sure you pay the loan off? Jeff’s be like, sure. Yeah, I’ll get right on that and after my trip to Mars.
The answer to this question is, the seller is still subject to depreciation recapture, capital gains and everything else. Quite often they’re in a distressed situation. I know people that do a ton of subject to deals, I’ve done it. Usually it’s a divorce, they can’t pay it, they’re tired of it. A lot of cases as people get older, they may have 50 properties and they’re like, you know what, but I have a loan on it, so they’re like, I’m going to sell it off and it still has a $400,000 mortgage. You’re buying it for $1.6 million. They may even carry it.
You buy it, you’re like, wait a second, I didn’t have to go get finance, I didn’t have to go do anything, they just want it out of their hair. Now it’s your problem and you’re the one that purchased it. They have the $1.6 million. If you’re paying it over a long period of time and you’re paying off their mortgage, all that’s going to happen is they’re going to have to recognize taxes over a longer period of time. You’re doing them a favor. They’re doing you a favor. Everything works out great.
Usually, subject to deals are good for everybody involved. They got over a black eye because people are playing games with them at one point a few years ago when everybody thought that all that real estate did was go up.
All right, so we’ve answered a ton of questions. “How is the single owner LLC different than with the partners?” With partners you have more than one. The single owner LLC, you only have one. What some states say that LLC protection only works if you have two unrelated parties. Husband and wife, they’re not going to protect it. In that particular situation, the Olmstead case in Florida is a good one, Brightwood, I believe is Colorado.
The point was that the court said, hey, we’re not going to respect the LLC because it’s inequitable under certain circumstances to respect it when it’s just Jeff that owns the LLC, and Jeff defrauded somebody. We’re not going to let Jeff keep those assets unless the statute specifically says there’s only one remedy. The sole remedy is that it is something less than foreclosure on that interest.
They actually use Nevada statute in that Olmstead case saying, hey, if we had statute like Nevada. Nevada and Wyoming had the same statute. Wyoming happens to be a lot cheaper so we use Wyoming, but we have offices in both places. We go there. It might own the LLC, so instead of Jeff owning it, Jeff’s holding company in a jurisdiction where they do recognize it means that Jeff now doesn’t have to worry that if Jeff does something and gets himself personally liable for something that he has to worry about them taking away whatever his assets are inside there. That’s hopefully there.
“Why can’t I see all questions?” Because people have their names attached to it and they’re asking personal questions. We don’t put all those out there for you guys to see because somebody could say I haven’t paid taxes in 10 years, what do I do? I don’t want your names attached—
Jeff: These are just questions that are being asked on the fly.
Toby: Yup. Go to the podcast if you like watching or listening to these both. It used to be just listening and you could see there’s Jeff and I. There’s a whole bunch of other podcasts, too. We’ve had some great folks that are on there. I just did one, awesome, yesterday which I’m pretty excited about and a bunch of others that you guys will see coming up. There’s always a good podcast. You can see Clint on there too, I see Greg, I see […], I see a bunch of Jeff and me. But you can always go in there.
Also, if you’re a Platinum, you have replays in your Platinum portal. If you want to ask questions, you can always email them in at taxtuesday@andersonadvisors.com or visit Anderson Advisors. Share it out. Again, we don’t charge for this. You can see we’re not a big heavy pitch company but we answer a lot of questions. I’m looking today, well over a hundred written, there’s 52 outstanding that will get answers to. We answer about 400 questions during the week. We don’t get paid for that guys. We’re just trying to make sure that we’re helping you guys out as best we can.
It’s always funny when people get a little snitty about it. I want you to answer my question right now. I’m like, you’re not paying me to answer your question right now. How about thank you? Something like that. Anything you want to add?
Jeff: Nope. I am good for the day.
Toby: What time is it? This is about as early as we’ve ever finished. I’m going to say yay.
Jeff: Yay.
Toby: Yay. You’re going to pop this out. What we’ll do is keep the people on so that they can answer questions and make sure that we’re answering your questions. I want to make sure that you guys get exactly what you need. We will say thank you for joining us, and we will see you very, very soon. I guess we’ll be back here in another two weeks. Yes, these are biweekly. That’ll be fun. See you here.
We’ll continue to allow you guys to ask your questions and we’ll have people continuing to answer them since I can see that there’s about 30 or 40 questions still sitting outstanding. We’ve got people on it, we’ll get through it and then we’ll see you in two weeks.
Jeff: The week after the March 15th deadline.
Toby: Jeff will look like this.
Jeff: I will take responsibility for any of my answers.
