In this episode of Tax Tuesday, Anderson attorneys Amanda Wynalda, Esq., and Eliot Thomas, Esq., tackle a diverse range of tax questions from viewers. They explore the differences between PadSplit/co-living models and short-term rentals, explaining why PadSplit typically doesn’t qualify for the same tax advantages as short-term rental activities. The duo covers entity formation costs and how they’re treated for disregarded LLCs, the importance of proper documentation for independent contractor payments including W-9 forms and 1099 requirements, and cryptocurrency taxation for long-term holders. They also discuss offsetting bond interest with stock losses, wash sale rules for options trading, 1031 exchange strategies including improvement exchanges to minimize boot taxation, and comprehensive guidance on real estate professional status requirements. The episode concludes with settling a marital dispute about whether primary residence maintenance counts toward real estate professional status hours.
Submit your tax question to taxtuesday@andersonadvisors.com
Highlights/Topics:
- “Are the fees for disregarded LLCs taxable on the business return or the personal return?” – Fees follow the entity’s disregarded destination and activity type.
- “Will the PadSplit/co-living model give you the same tax advantage as a short-term rental?” – No, PadSplit typically doesn’t qualify for short-term rental benefits.
- “Last year I purchased a three-level eight-bedroom house with one kitchen and one bathroom on each floor. I rent the floors as separate apartments except for one level where I have two rooms rented separately. I put the house in service on January 25. I listed it as my primary residence. I never actually lived there. Can I perform a cost segregation, take advantage of bonus depreciation, et cetera?” – Yes for cost seg, but homestead fraud concerns exist.
- “I paid freelancers to put up a fence last year. I didn’t get a receipt. Can I write off any of the costs of this fence? I used my company credit card or bank checks to conduct business with vendors and stores. I am bad at keeping receipts. But I print my bank statements. Can I use my statements as proof of purchase for tax purposes?” – Bank statements help but proper W-9s and 1099s are required.
- “I will be receiving profits from the sale of cryptocurrency investments that I’ve had for five years. I’m retired and receive social security as my only income. How will this crypto be gained from an IRS perspective?” – Taxed as capital gains, likely at fifteen percent rate.
- “Can interest gained on a US savings bond be offset with the loss on a stock sale for tax purposes?” – Yes, up to three thousand annually against ordinary income.
- “If I sell a stock at a loss and purchase calls instead, do I lose my loss benefit as if I had repurchased more stock within the 30 day period? Or in simpler terms, are calls treated the same as stock?” – Yes, calls typically trigger wash sale rule provisions.
- “We did a 1031 exchange with the building we own, but the place that we bought the replacement property was 250,000 cheaper. How do we minimize our capital gains on the leftover money? I know we can use capital improvements that we’ve made, but what are the rules and how must we document the improvements? Likewise, can we use depreciation schedules from the prior returns for the new tax returns?” – improvement exchanges must occur during exchange.
- “I wanna know more about the tests for real estate professional status as a way to deduct expenses from other passive income. I understand that I need 750 hours, but this is very loose and I’m not sure how it is audited exactly.” – 750 hours plus fifty percent test, requires detailed documentation.
- “Please settle this one thing that my husband and I disagree on, I say that maintenance on our primary residence cannot be used towards rep status. He says certain things you could count towards reps would be pool maintenance, HVAC service, et cetera. I say no because it’s a primary residence and reps is strictly for time you spend on rentals only. I’d like him to not have to sleep on the couch any longer.” – No, personal residence maintenance doesn’t count toward business hours.
Resources:
Schedule Your Free Consultation
Tax and Asset Protection Events
Full Episode Transcript:
Amanda: Welcome back to another edition of Tax Tuesday. I’m Amanda Wynalda. This is…
Eliot: Eliot Thomas.
Amanda: We are the tax knowledge and you are the masses because that’s what Tax Tuesday is. We bring tax knowledge to the masses. We will jump right in the rules. Actually, let’s welcome the rest of our team. Eliot and I will be hosting. We’ll be going through a series of questions that you, the viewers, have emailed into us, but we’ve also got a crack team of CPAs and tax attorneys in the background. Let’s welcome in.
Eliot: We got Jennifer running everything in the background. We got Dutch, Jared, Jeffrey, Rachel, and Troy currently on, answering your questions in the background and YouTube.
Amanda: Yeah, Troy’s on YouTube, so put your questions into the YouTube chat as well.
Eliot: Flood the YouTube.
Amanda: Yeah. Why don’t you guys use the chat to tell us where you are joining us from? What’s the furthest you’ve seen someone join us from?
Eliot: Japan.
Amanda: Japan. That’s pretty far. If you can hear us, California.
Eliot: That’s pretty far.
Amanda: That’s not far.
Eliot: Vegas.
Amanda: Arnold, you must just be right around the corner. We’re in Studio 210, the infamous Anderson studio located in fabulous Las Vegas, right on the strip at the top of the Stratosphere. Just kidding. We’re way off strip.
Eliot: Not quite as elaborate.
Amanda: Pennsylvania, Houston, Texas.
Eliot: Colorado Rockies.
Amanda: Amit, looks like you’re going to be joining us at the Durango Hotel for our live Tax and Asset Protection event that’s coming up in just a couple of days, so we will look for you there.
Eliot: That’s Thursday.
Amanda: Sherman Oaks. Well, welcome in everyone. Let’s just quickly go over the rules. This is a live Q&A, so go ahead and throw your questions into the Q&A. If you’re having any technical difficulties, you can put that into the chat and our team in the background will try to sort you out. But if you want our tax pros and attorneys to be answering your specific questions, please throw those into the Q&A. They can be completely unrelated to anything that we’re talking about.
Eliot: They usually are.
Amanda: They usually are. It’s not unusual for the team to answer 250–300 questions over the next hour, so keep them busy. We’re taking them away from their emails, tax returns, and tax prepping.
Eliot: I like those are important.
Amanda: It’s fun trivia for us. If you’d like your question specifically to be addressed here, you can email us at taxtuesday@andersonadvisors.com. Eliot personally combs through all of those. If you don’t like the questions that we’re answering here today, it’s his fault.
Eliot: Send more in.
Amanda: Send more in. More to choose from. If you also need a more detailed response, please consider becoming one of our Platinum clients or a tax client. We will review your tax returns. As a Platinum client, you’ll have access to our attorney and our CPA team anytime you want for no hourly fee as Platinum. But this is designed to be fast, fun, and educational, so we would like to move on. We’re going to go over the questions one time and then we’re going to deep dive into each of the answers. What do we have up first, Eliot?
Eliot: “Are the fees for disregarded LLCs taxable on the business return or the personal return?”
Amanda: This seemed like a simple, quick one to me, but when we were going over them earlier, there’s actually a lot to deep dive into.
“Will the pads split/co-living model give you the same tax advantage as a short-term rental?
Eliot: Billing off of that, “Last year, I purchased a three-level eight-bedroom house with one kitchen and one bathroom on each floor. I rent the floors as separate apartments except for one level where I have two rooms separate, rented separately. I put the house on service on January 25. I listed it as my primary residence—probably not so much—but I never actually live there. Can I perform cost segregation, take advantage of bonus depreciation, et cetera?” A lot going on on that one.
Amanda: There is a lot. When I first read it, it was a three-bedroom, three-level, eight-bedroom house. Where do you even find something like that?
“I paid freelancers to put up a fence last year. I didn’t get a receipt.” First of many mistakes in this question, guys.” Can I write off any of the costs of this fence? I use my company credit card or bank checks to conduct business with vendors and stores. I am bad at keeping receipts.” Yes, we can tell. “But I print my bank statements. Can I use my statements as proof of purchase for tax purposes?” Great question, because I think a lot of us out there are bad at keeping receipts.
Eliot: I think a lot of people fall into this category.
Amanda: Thanks for sending that in.
Eliot: And the honesty.
“I will be receiving profits from the sale of cryptocurrency investments that I’ve had for five years. I’m retired and receive social security as my only income. How will this crypto be gained from an IRS perspective?”
Amanda: Crypto’s becoming more and more popular.
“Can interest gained on a US savings bond be offset with the loss on a stock sale for tax purposes?” Similar question there.
We were missing one. Oh, we have a special question number 10. A special treat for you at the end. We don’t want to preface too much. We’re going to just go ahead and shamelessly promo our YouTube channels. You’re on Toby Mathis YouTube channel, but we also have our other founding partner, Clint Coons. He has real estate and asset protection channels, so you can go ahead and subscribe to that. You’ll get a little reminder every time he uploads a new video, and they pump out a lot of info.
Eliot: They do, a lot.
Amanda: A lot.
Eliot: And these are our last couple of questions here.
Amanda: “If I sell a stock at a loss and purchase calls instead, do I lose my loss benefit as if I had repurchased more stock within the 30 day period? Or in simpler terms, are calls treated the same as stock?” They’re looking at our wash sale rules for that one.
Eliot: Digging into that one.
“We did a 1031 exchange with the building we own, but the place that we bought, the replacement property was $250,000 cheaper. How do we minimize our capital gains on the leftover money? I know we can use capital improvements that we’ve made, but what are the rules and how must we document the improvements? Likewise, can we use depreciation schedules from the prior returns for the new tax returns?” We’ll look into a lot of detail on that one.
Amanda: These are a lot of very different types of questions. We’re all over the place today, guys.
Eliot: You guys really sent a wide variety.
Amanda: And we couldn’t have a Tax Tuesday without talking about real estate professional status. This writer, this caller, this emailer, “I want to know more about the tests for real estate professional status as a way to deduct expenses from other passive income. I understand that I need 750 hours, but this is very loose and I’m not sure how it is audited exactly.” Our final question, the one that we thought was a little bit funny. We’re going to settle a marital dispute today, guys.
Eliot: Yes. Going family law today. “Please settle this one thing that my husband and I disagree on. I say that maintenance on our primary residence cannot be used towards REP status. He says certain things you could count towards REPS would be pool maintenance, HVAC service, et cetera. I say no because it’s a primary residence and REPS is strictly for time you spend on rentals only. I’d like him to not have to sleep on the couch any longer.”
Amanda: He probably would like that as well.
Eliot: Yeah, I would imagine. Maybe not after our answer, but we’ll see.
Amanda: We’ll see. Don’t forget to subscribe to this channel for Toby Mathis, Tax Planning and Asset Protection. Both Toby and Clint are…
Eliot: Masters.
Amanda: Masters of YouTube. They get those big plaques. Gold, I think now. So many people tuning in. We appreciate you guys coming and seeing us every other week for Tax Tuesday.
Don’t forget, as a meet is going to be with us, you all can discover the hidden secrets of most real successful investors by joining us live in Las Vegas, actually in a few days.
Eliot: Yup, Thursday.
Amanda: A couple of days. September 11th through 13th. A few of our attendees today, we’re going to be looking forward to seeing you. Come and say hi to us. Last live event was also in Vegas at the Durango, and you had a lot of people coming up. A lot of fans of Tax Tuesday.
Eliot: Yup. We’re going to have Barley there.
Amanda: Barley will be there.
Eliot: And some of our other tax advisors, so we’re going to have a whole bunch of people there. Of course all the presenters, and most importantly, of course, you the clients. It is just a fantastic environment. Get asked a lot of questions. We have a lot of fun, kick ideas around, so really encourage it.
Amanda: It’s good to put faces to names too, for sure. So click this QR code. There are still tickets left, so come out and join us live. If you can’t make it, we’re sad. But you can also join us for our live, one-day webinars. The next is coming up Saturday, September 6th. You can register through our website, as well as the next one after our live event.
Actually, September 6th’s already done. Who’s in charge of these slides? What day is it?
Eliot: That’s a Patty thing.
Amanda: We have a live event, and then our next Saturday webinar will be on the 13th. So you could register at andersonadvisors.com. Those are fun too. It’s a lot of information between 9:00 AM and 4:00 PM. It’s a great starting point, though. So if you’re new to tax Tuesday, come to one of our Saturday webinars, and then once you’ve fully tried to drink from the fire hose, come to one of our three-day events where you can settle in and you can deep dive into some of these issues.
Eliot: Or just come down now this week and have some cocktails.
Amanda: They’re only 50% deductible.
Eliot: There you go.
Amanda: If you’re ready to become an Anderson client, go ahead and schedule a free strategy session. You’ll meet with an advisor. We’ll put together what we call a wealth planning blueprint, taking into account your assets, your goals, how to properly protect you from them and them from you. It’s a two-way street.
First up, “Are the fees for disregarded LLCs tax deductible on the business return or the personal return?” What did you say? Fees go with the entity.
Eliot: Exactly. We got to know which entity we’re talking about. If it’s—
Amanda: A disregarded LLC, Eliot?
Eliot: Exactly. In this case, we have a disregarded LCC, but that still doesn’t tell us exactly where it’s disregarded to. Could be to your 1040, could be to your S-Corp, could be to your 1120, your C-Corporation, may be a partnership, so we really need to know where it’s disregarded to.
The important thing, well not the only important thing, but the expenses for this, the startup organizational costs are going to go onto the entity against its activity, whatever activity’s going on in that entity. If we have a rental property in there, these expenses will be deducted against that rental activity.
Now, if it is disregarded to a 1040, well then that ultimately does fly up to our 1040, so it will show on the 1040. In that sense, it shows on both, if you will. However, if it’s a C-Corporation, maybe we’re doing some flipping. We do that a lot. If we’re flipping, that’s going to be disregarded up to a C-Corporation, so then it would go on your business returns, where you’d actually show the final effect, if you will. While it goes onto the activity of the LLC, it does flow through onto the ultimate tax return that’s showing up on.
Amanda: And let’s also talk about how we’re categorizing these expenses, because we’re thinking of the timeline, the birth of your entity. Anything prior to the date of formation, we’re going to just lump together as startup and organizational costs.
That’s going to be anything you’ve spent to go out and get the business started, any legal fees paid to the state or an attorney to set up your entity, then registered agent fees. We’re just lumping that in as startup costs.
Once your entity is formed, once your corporation is formed, anything beyond that is going to be specifically categorized. A registered agent fee, a secretary of state fee can sometimes be lumped under legal and professional fees, but otherwise they’re going to be going on the tax return for that year.
The startup cost can actually go back. What do you recommend? Usually 12, 18 months is pushing it.
Eliot: The further you go back, the more you’re going to have to have a stronger connection. You’re going to have to be able to build to show that expense was related to your business. But there’s actually nothing in the code. We could go all the way back to the 1800s if it happened to be around at that time.
Amanda: It took you a while to get your business started.
Eliot: Exactly. Obviously, that’s going to probably fail. But the point is, there isn’t any actual deadline. We do say as a rule of thumb, maybe 12 months, 18 months. We have gone back further, but it’s rare.
Amanda: It’s rare, yeah. When you’re talking about before your entity’s created, you’re using your personal credit card, your personal funds to pay that. How are we then tracking that once our business is created? Are we treating it as a capital contribution, reimbursing us under an accountable plan, or some other option?
Eliot: That really can vary. If it’s disregarded to (say) a partnership, or if it is just disregarded directly, it’s a Schedule C, sole proprietorship onto your 1040, you’re not an employee of either of those instances, a 1065 partnership or a sole proprietorship. You can’t have an accountable plan. We’re not going to be able to do a reimbursement. That’s the first thing.
Typically in the partnership realm, anything you pay on behalf of the partnership probably goes to your capital account, what we call also outside basis. Those are two different things, but they track very similarly to your investment that you have in the partnership.
If you put $3000 in to get this thing set up, you’ll probably get some capital account in a partnership. On a disregard sole proprietorship, we don’t really track that just so that the balance sheet will equal. We may put a capital account contribution, but we really don’t consider it that. It’s really just your money because it’s disregarded to you, just is the same as you. You might have it listed there as an accounting matter, but in reality it’s just your money anyway.
Amanda: What about for an S-Corp as a C-Corp? Are we considering a capital contribution or loans from shareholder?
Eliot: We could do either, first of all. Why would we want to do one over the other? Well, the good thing on an S-Corporation, we do want to do it at least either a loan from shareholders or capital contributions, so that you have what’s called shareholder basis in the S-Corp.
Otherwise if we didn’t do that, then if we tried to do it, because now you are an employee, if we reimbursed you that money under an accountable plan, you’d have no shareholder basis. Therefore, when the entity, the S-Corp took the deduction, you wouldn’t be able to take the loss on your personal return because you have no shareholder basis. Here we’re going to have to call it a capital contribution or a loan from shareholder, or you do get shareholder basis. It’s going to be one of those two.
What’s the difference? Well, one is a loan. You got to treat it as a loan. You have to have all those formalities. We talked about a lot of those formalities. Any ideas what some of them are?
Amanda: Interest rate. Got to charge yourself an interest rate. With the way interest rates are now, maybe you don’t want to charge yourself an interest rate because you’re going to have to turn around and claim that as interest income.
Eliot: Different story from back in early 2000s when there weren’t very high interest rates. We saw a lot of these loans from shareholders. Incidentally, we do the same thing on the C-Corporation a lot. Nothing wrong with it, it just means that we got to make sure that we’re treating it, charging interest. We have a written document, a promissory note. Got to have all those formalities.
I’d say probably more so in the case of an S-Corporation might possibly face a little bit more scrutiny if it got relooked at, so you want to make sure you’re actually making payments and things like that.
Amanda: From a legal perspective, there’s a difference between a capital contribution and a loan from shareholder when there are potentially the business’s family or there are other creditors involved as well.
Eliot: Correct. If you already have a loan there, it might be a first loan, so maybe might be more difficult to get other loans in there. One of the reasons that we turn it to stock, to clean up the liability section on your balance sheet so that you can get more investment in there. That would be one difference between the two.
Amanda: Question number two. “Will the PadSplit co-living model give you the same advantage as short-term rentals?” Let’s first start off by defining what PadSplit is for those of you who haven’t heard of it. It is essentially rent by room. We were talking about this earlier that it is…
Eliot: Say it.
Amanda: I can’t pronounce it. It’s called trademark erosion or genericized, which is a special case of antonomasia, where a trademark name replaces the common concept.
For example, tissue. A lot of us just call it Kleenex. Kleenex is the brand, tissue is the actual product. So PadSplit is a platform (so to speak) where you can rent out rooms in a home, similar to Airbnb. Some of us will just say we’re Airbnb-ing it. Well ‘we’re short-term renting’ is the actual terminology, but Airbnb is so prolific that we’re now calling it that. The same is true for PadSplit. It’s essentially rent by room. How does that work?
Eliot: Generally under PadSplit, if you look at the data, your rents are a little bit longer. It’s not going to be under 30 days, certainly not under 7. Why do we care? Well, 7 days or less or 30 days with…
Amanda: Significant substantial services.
Eliot: …that’s going to be considered short-term rental. Some different rules. We don’t see that in the PadSplit. Typically we’re looking at what they call midterm rental, which really, that’s not a term that exists in the tax code. It’s just long-term rental. The effect there is that you’re going to have different amounts of depreciation, commercial versus residential rental typically.
That’s one little bit of it, but there’s really no advantage between the two. It’s going to, as far as deductions, all your operational expenses, we presume they’re the same, you’ll be able to deduct those either way. The big one, the ticket item will be the depreciation.
Again, under short-term rental, it’s going to be commercial, 39 years. Under residential rental it might be 27½ years. So a little bit of difference there. But the big test is probably people are going to want to do a cost segregation that speeds up the depreciation. With bonus depreciation, there we might get a difference because normally at the first act when it comes to a rental activity like this, it’s passive.
As we’ve talked about many times, if you have passive activity and you get a big loss because of depreciation, you can only take that passive loss against other passive income.
We have a problem here. If we can’t turn that passive activity into active activity, we don’t get any tax benefit. That’s where the big difference happens. If it’s a short-term rental, you only have to materially participate, typically 100 hours more than anybody else is what you’re putting in. You’re managing it yourself. A whole different story when it comes to long-term rental. What do we got going on there?
Amanda: With long-term rentals, it’s passive activity. Any losses, it won’t offset active income. I think when they’re talking about, and this question specifically the same tax advantage advantages, short-term rentals, I really do think that this person’s asking about that short-term rental loophole, where if you materially participate in your short-term rental 7 days or less or 30 days plus substantial services, then it turns into non-passive. So any losses generated by accelerating depreciation, using bonus depreciation would then go to offset your other active income.
In this case, the PadSplit model, it comes down to just how long you’re renting each room even. Typically, it is not necessarily a year-long lease. Sometimes, it’s week to week, but if it is a shorter term but it’s the same renter.
Let’s say we have a client who does this type of rent by the room. They have properties along a railroad, so the railroad workers, when they do their stops for the night, will come and rent. If they were to stay there for a week and then for some reason had to stay another week, it’s not two different seven days stays, such that it would fall into these short-term rental rules. They’re going to stack those stays correct together.
Eliot: That’s the big difference between the two. That’s what, again, typically is not short-term rental activity. We just don’t see that from the numbers out there, from what people are reporting how long people stay. It’s not that it couldn’t be, but it typically is not.
I think the tax advantage really comes down to if you’re going to be able to materially participate under short-term rental or you meet real estate professional status under the PadSplit.
Amanda: I know that the questions frame PadSplit/co-living model. To me, co-living is more like house hacking, which is going to be completely different.
House hacking is where you live in a portion of the property, and typically we see this with duplexes or perhaps even with a home with an ADU or a casita. The home owner actually lives in part of the property and then rents out other rooms. That’s not going to be able to qualify for short-term rental status because you are living there. You’re not going to be able to use that short-term rental loophole there.
“Last year, I purchased a three-level eight-bedroom house with one kitchen and one bathroom on each floor.” I would not like to just live there. That’s a lot of cleaning. I don’t like to clean one kitchen, let alone three. But we digress. “I rent the floors as separate apartments, except for one level where I rent two rooms separately.
I put the house in service in January 2025. It is listed as my primary home, but I never actually lived there. Can I perform a cost segregation and take advantage of bonus depreciation?”
Let’s first start off by addressing, ‘I listed it as my primary home, but I never actually lived there.’ There isn’t really a registry with the IRS of what your primary home is. Most likely, if you have listed it somewhere, it’s with the county in terms of the homestead exemption.
The homestead exemption is two things. It’s a state constitutional protection of the amount of the equity in your homestead. Depending on where you live, that can protect 100% of your homestead, in the cases of Texas and Florida. In other places, I’ve seen it as low as $10,000.
You typically do have to apply for that. I think where we live in Las Vegas, it’s a simple postcard even. It’s nothing very complicated. Although for tax purposes, there may be additional benefits if you fall within certain categories, such as being elderly or disabled veteran or even a first responder.
We have clients in Georgia where they’re disabled veterans and they pay zero property taxes, which is great. It’s definitely a benefit we should be giving to all of our veterans, but you have to have a registered homestead in order to get those benefits, or a tax cap.
We’re both in Clark County, it’s a 3% cap here. Even though people are flooding in from California and raising our property taxes and our homes are reassessed every year where your primary residence is registered, it will not go more than 3% here in Clark County. That percentage varies in different parts of the country.
Now, if you have listed the house as your primary home but you don’t actually live there, that’s technically real estate fraud. You’re getting a benefit that you are not entitled to. Typically when you are sending in that registration, you’re having to sign under penalty of perjury, and there are penalties, fines, things like that for misrepresenting your primary home. In terms of your primary for residence tax purposes, filing purposes…
Eliot: They wouldn’t really know or care, unless we’re going for the 121 exclusion later on.
Amanda: But if you don’t live there, we suggest you don’t try to claim any primary residence homestead benefits. Save that for your actual homestead where you do live.
Eliot: A lot of people do that for lending purposes. Another big one.
Amanda: That’s actually in the news now.
Eliot: They’re getting a little bit tighter on that, so just be careful.
Amanda: It’s not uncommon for the lender, if it’s even a second home or an investment property, to try to get you better lending by classifying it as your primary home. But technically, if it’s not, again, mortgage fraud.
Eliot: But back to the rest of the question, as far as we have these different rentals going on, another consideration here is if these floors are completely independent, they have their own address, they have their own electrical hookups, and we’re not having any shared areas or common areas, it could be those are independent apartments.
Why do we care? Maybe some of these are a mix of short-term rentals and long-term rentals like we talked about. It’s still in one building and what you really do is you count up whether they’re short-term or long-term independently, and then you look at over 80% of the gross income comes from residential rental that is your long-term rentals. then we just consider the whole building as a long-term rental basically. Why do we care there? Because again, the depreciation’s going to be 27½ years typically.
Getting to your question on the cost seg advantages of bonus appreciation, you certainly can take those. You’re allowed to, it’s a business asset. You’ll have to look at the years of, here we placed it in service on January 25. Why do we care there? It needs to be January 20th or later to get a 100% bonus for 2025. If it happened to be in that first week of January, we’re going to be stuck with a 40% bonus. So there is a significant difference there. That’s another consideration.
But yes, you can take the cost segregation, can take the bonus depreciation. Again, whether it’s short-term or long-term, also will determine the status of whether it’s going to be a passive activity or a non-passive activity, based on whether we materially participated in the case of a short-term rental, or do we meet that REP status in the long-term.
Amanda: It really is going to depend. January 2025 is significant because of the recent legislation with the Big Beautiful Bill. Before that was passed earlier, only a couple of months ago, actually, the bonus depreciation was down to 40%. With that passage of the Big Beautiful Bill, bonus depreciation jumped back up to 100%.
There are timing rules there, and if it was too early, as Eliot said in January, then you would be stuck with the 40% versus the 100%. Still a great benefit, but maybe not as much as you were expecting.
In terms of can I perform a cost seg and take advantage of bonus depreciation, the rules there just need to be business use property. Now, whether or not you’re going to actually get a benefit from generating all these additional losses, will depend on whether the property’s the short-term rental and you fall within the short-term rental loophole, or if you can qualify for real estate professional status and you can materially participate on this rental specifically. So a lot of unknowns there. We’re going to go into real estate professional status later on, so we’re not going to deep dive into it right now.
Question four, “I paid freelancers to put up a fence slash year. I didn’t get a receipt. Can I write off any of the costs of this fence? I use my company credit card or bank checks to conduct business with vendors in stores. I’m bad at keeping receipts,” as many of us are, “but I print my bank statements.” I don’t know who does that still. “Can I use my statements as proof of purchase for tax purposes?” Eliot, what is the first rule of tax planning and tax prep? It’s the three Ds.
Eliot: You got to keep receipts, first of all. If you’re going to have a freelancer, a 1099 independent contractor, you want to have a W-9. Got to send that Form W-9 out.
That’s just a form you sent to them. They’re going to tell you how they’re taxed. Maybe they’re a corporation. You don’t have to send them a 1099 then. But if they’re independent, they’re disregarded, or it’s just them individually, you have to have that form so you have all their information from a tax perspective. We saw you can get some fines if you don’t do that.
Amanda: The trick here is that you get the W-9 before you pay them. If they’re still waiting for that check or that cash or whatever form of payment you’re giving them, then they’ll give you the W-9. But once you’ve paid them, the clients that we see trying to chase down their independent contractors to get that W-9 information, it’s much, much harder.
If you have paid somebody $600 or more, you need to issue them a 1099. That includes services as well as materials by January 31st of the following year. If you do not file that, if you’re late by 30 days, the fine is $60 per form, per 1099. If you are more than 30 days late, but still before August 1st, the fine is $120 per form, so doubled. If anytime after August 1st, or if you don’t file the form at all, it’s $330 per form.
Now on top of that, intentional disregard of filing requirements, meaning you just knew about it and you just were not going to do it, the minimum penalty for that is $660 performed with no maximum limit. So this can get quite costly.
You can file an extension, that’s Form 8809, application for extension of time to file information returns and request 30 additional days. Those will be granted automatically. If you have reasonable cause for being late, then you may be able to…
Eliot: Squeeze by.
Amanda: Ask for forgiveness. But you do have to have acted in good faith. What they consider reasonable cause for delay is going to be something like sickness, natural disaster, some system outage, things like that.
Given those fines, and we talked about this, say you missed the deadline and you’re going to have to pay a lot, how does the IRS know that you are late if you just actually don’t file at all?
Eliot: I don’t think they really do have a direct way of knowing that you didn’t give a 1099 to an independent contractor. However, your tax preparer may not allow you a deduction on the return. They don’t have to put it on there. It might be more of a conversation of saying, well, we’ll put it on there, but you’re on notice that the IRS comes back and audits, that’s on you not on us as the preparer.
That’s a delicate situation you have to work with the preparer, but it is important. You really need to send those W-9s out for the 1099 to know how to fill it out. It’s just imperative that you do.
To this point, strictly talking about we’re paying an independent contractor, we didn’t keep a receipt, so to speak, we didn’t get the W-9. Could we use our bank statements to show? Well, you could use that to back up to show how much you paid them. But again, that will not at all qualify on the IRS standard of having gotten the W-9.
Now, a lot of other expenses going on here, perhaps. Maybe you had to buy boards or something, nails, whatever it is that we’re putting this fence together with paint, things like that. You’d like to have a receipt, but maybe the bank statement, if it has enough information to date what we purchased, a good enough idea of what it was for that type of thing, well then you probably could get by with it. But nothing really beats the receipt. If it’s that problematic, just take a digital picture.
Amanda: We walk around with a tiny computer in our pockets all day every day. Snap a picture. It’s even easier if you’re using some accounting software that comes with an app. I did it last weekend traveling for an event. I would take a picture immediately, upload it to our expense platform, and had no expense report to do when I got back.
I get it. Expenses and expense reports are not what we are good at when we are the business owner. That’s not where our strength lies. So just get good at keeping receipts because in the case of the audit, that’s what will save you.
When I would work in the tax court, you don’t have to have your bookkeeping in a specific way. We would argue cases against individual taxpayers that would walk in with a box of receipts. But if you are using a legitimate CPA—Anderson, for example—we will not accept your box of receipts to do your taxes. So it’s best for you, for your sanity, for your tax, for your CPA or tax preparer sanity to just start keeping good business records.
Eliot: We did have one client who brought in, it wasn’t a shoebox, it was a tackle box full of receipts. That was about eight years ago and it just sat there in the back. I was sharing a room with one of my colleagues, Eric Day, and he just look at it, grumble, and was putting it off. It was not fun. When he opened that thing up, they just flew out.
Amanda: Was it a used tackle box or new?
Eliot: No, it was brand new. Probably a receipt in there for that too.
Amanda: Maybe they were at least organized into the little…
Eliot: No. It was all thrown in there and just slammed shut. When he opened it up, they just popped out everywhere. He was so angry.
Amanda: At least it didn’t smell like bait, though.
Eliot: No. That’s good. That was a win.
Amanda: All right. You’re on Toby Mathis’s YouTube channel. Please smash that subscribe button. You’ll get notifications when we go live for Tax Tuesday, which is every other Tuesday, or when Toby uploads a new video. Lots and lots of great tax content there.
Also Clint Coons, our real estate asset protection–focused channel. This is another one of our founding partners. He’s going to be down here. They’re both going to be here. Toby’s in Vegas, but Clint’s coming down for our TAP event, which is live at the Durango Hotel. A little free publicity for them.
If you’re ready to move forward with Anderson, please click this QR code and schedule a free strategy session. This is 45 minutes. It’s a $750 value, 45 minutes sitting down with somebody one-on-one.
Most of our advisors have been doing this collectively probably 250 years over all of them, working with all kinds of business owners, all types of investors, traders, real estate, syndications, everything. Tell us what your goals are, what your assets are, what you’re worried about, and we can set up a blueprint and a wealth plan for you.
We’ve mentioned this. Come on out and see us. I know it’s a late invite, but click this QR code. We’ll be in Las Vegas September 11th through 13th for three full days of all Tax and Asset Protection. We do some estate planning.
We’ve got our vendors, Cost Segregation Authority, a lot of cost seg questions, 100% bonus depreciation. Erik Oliver from CSA will be there to answer your questions directly, as well as several of our investment partners.
Eliot: It’s just a great deal.
Amanda: It is so fun. It is not the three days in Vegas that you may have had in your 20s, but it’s close. It is that fun. So come out and see us.
All right. “I’ll be receiving profits from the sale of cryptocurrency investment that I’ve held for five years. I’m retired and receive social security as my only income. How will this crypto gain be treated from an IRS perspective?” Crypto’s unique. It’s not a security, so it’s not a stock.
Eliot: It’s not a stock. It’s not cash, so to speak, although that’s debatable. But it is an intangible personal property. What that means under the code, because it’s not a security, then it’s got some benefits, but it does get capital gains and loss treatment.
If we sell it after a year, long-term capital gains, lower rates. If we sold it in under a year, well then it’s going to be taxed at ordinary rates. If we have losses, those losses will offset first against any capital gains. If you had an abundance of losses, you’d take $3000 maximum against any other income on your return. Those are basis, capital gain capital loss rules. But again, it is an intangible personal property, so it’s not subject to the wash sale rule, that’s nice. We’ll see that later on.
Amanda: One fun fact that we came across is try to think of what is similar to crypto. Not gold, not stamps. It’s not those things. Stamps, gold are collectibles, which are also capital assets but taxed at a different rate.
Eliot: They’re a special category, if you will, of capital gains called collectible. That’s at a 28% flat tax rate. Fortunately, we don’t have that going on. You’re just going to have 0%, 15%, or 20% depending on what’s going on in your return.
Which brings us to this situation where we have social security income coming in. The most you can have your social security tax is up to 85% of that income. It just depends how much we’re making, and that’s a very low bar, relatively speaking., $25,000, single (I think), it’s $32,000 married filing joint. You’re already at 85% of your social security being taxed, one of the criteria there.
The capital gains are probably going to be at 15%. That goes anywhere from $48,000 to $533,000 if you’re single, and just a little bit more, $96,000 to $600,000 approximately if you’re married filing joint.
We just know that there’s going to be a crypto sell here. We don’t really know the value how much. If it’s not all that much, you may want to take it over time, a little bit each year, not sell at all the first year. Almost like an installment, if you will. Get a little bit. If those tax brackets, if they would help you out, you’re going to need a little bit of tax planning on that. That would be one option.
Alternatively, if you sold it all at once, you’re going to have to look for some other ways to decrease your gains. But it is taxed for the IRS as a capital asset.
Amanda: And in terms of figuring out your gain, typically needs special software to track that. If you bought all of the crypto on one specific day five years ago, you could probably look that up.
We actually did look it up in September, 2020. One Bitcoin was $10,350. Today’s price, at least earlier today when we looked it up, was a little over $111,000. You’re looking at $100,000 gain per coin.
Now, you can of course own percentages or bits and pieces of coins. Not that many people anymore. At least now who are getting into it now own a full coin or multiple coins. But again, knowing what your original basis was and being able to determine what your gain would be, and then if it’s large enough, can split it out, spread it out over time. Kind of an installment sale type of situation.
Eliot: Exactly. But it will stack on top of your social security income that you do have to determine what bracket will be in, 0%, 15%, or 20%.
Amanda: Most likely 15% though.
Eliot: Yeah. That’s really a big range.
Amanda: Which may be lower than your regular tax bracket anyway.
Eliot: Could be.
Amanada: All right. “Can interest gained on a US savings bond be offset with a loss on a stock sale for tax purposes?” We were going all the gamut of types of investments today. First let’s talk about US bonds. You’re earning interest on these. Interest is taxed as?
Eliot: Portfolio income, which means it’s at ordinary rates. It’s going to be tax at whatever your ordinary tax bracket is. One thing that’s unique about bonds, we don’t get to talk a lot about them, but some of them you can defer. You can go ahead and not take the interest coming in until it matures. Once it matures, then you recognize all the gain at that point. Or you could pay taxes over time. You just aren’t receiving the interest. You have those options.
Something nice about it, it being a US bond, it is not subject to state tax. The state cannot tax federal items like that. Those are some aspects of the US bond that you don’t normally hear about, but it is ultimately portfolio income, just ordinary rate income.
How’s that tie in with a loss from stock sell? Well, we just learned that stocks are capital assets, and if you had losses you can take up to $3000 against any other income, which would include your interest income here. You would first take your capital losses against any other capital gains you had that year. If you still had an abundance of losses, you could take $3000 against any income on your return, which could be your interest from your bonds.
Amanda: And any additional losses are going to carry forward how long?
Eliot: Indefinitely for capital. And that can be a long indefinite.
Amanda: Hey, if you’re taking care of yourself. Medicine could be quite some time.
“If I sell a stock at a loss and purchase calls instead, do I lose my loss benefit as if I had repurchased more stock within the 30 day period?” Essentially asking, are calls treated the same as a stock? Let’s first just go over for our non-traders out there, what a call is?
Eliot: Call is the right or the option to purchase stock at a certain strike price, they call it. It could be $10, whatever the price you want to purchase that, and you’re just buying the opportunity. You’re paying a little bit of a premium, they call it, to have an opportunity at some point in time for a set period of time to buy stock at a certain level.
Amanda: Most likely if you’re purchasing a call, you’re betting that the stock will go down.
Eliot: Could be. They use these in different manners, but that could be one of the situations. However, I think the call, the question, what they’re actually looking for here, no pun intended there, is within the 30 days, that starts to ring bells about the wash sale rule. That just says that if you have a loss from the sell of stock and you do any other activity, if you buy a similar stock or substantially similar asset 30 days prior or 30 days after, then you can’t take the loss. That’s what I think we’re really worried about here.
I have a stock that I sold at a loss and I want to go out and get some purchase calls. It’s a substantially identical (potentially) item to the stock itself. So when you purchase the call, the IRS may say that’s the same as the stock that you sold. Therefore, you’re under the wash sale rule. We’re not going to let you take the loss.
Now what happens to the loss that you had from the sale of stock? It gets added to the basis of your call. We do have an example we’ll walk through here, but just to set the table on that, it is considered the same, typically, substantially similar. There is some little bit of guidance we’ll give here in a second about that.
Amanda: But Eliot, a call is just purchasing a contract with the option to potentially purchase the stock later. How is that the same as the stock?
Eliot: It’s the same because the IRS says so.
Amanda: All right. Because I say so, for the reasons I’d use to justify with my kids. Because I say so.
Eliot: So an example, if you had 1000 shares of Tesla, you bought it at $50, that’s $5000 that you’ve put out there. That’s your basis. Now you sell, let’s say September 1st at $40. You have a $1000 loss. You sold all the shares. You could take that loss right now if you didn’t do anything else.
But now we go out and purchased some calls for the option, the contract, the right to purchase stock later on. Right now at that point, if let’s say we did it 10 days later, the loss, the $1000 from our stock, it’s going to go to the basis of that call, which is going to increase the basis.
You’ll be able to take advantage of it later on. That is the $1000 loss by increasing your basis on your calls. But you still have to wait 30 days in order to exercise that. Now, if you go back and you buy the stock, you do exercise, you get the call and you do buy the stock, then that $1000 goes to the basis of the stock that you just purchased.
Either way, we’re going to be able to take advantage of that $1000. It’s just a matter of timing of when. We just can’t take it necessarily right away within 30 days.
Amanda: If you wait 30 days, you can take it immediately. Otherwise, you have to wait till you dump the second security.
Eliot: Now it’s not always necessarily going to fall under the wash sale rules. There are some terms of art that come in here, what they call deep in the money, which means…
Amanda: Like Scrooge McDuck.
Eliot: Exactly. If the options that you’re doing are already the price is so generous that you know people, it’s an absolute that they’re going to exercise it—they call that in the money—that’s going to fall under the wash sale rule. The IRS knows that they’re going to act on it, so they’re not going to allow it. They’re going to make you defer that loss that you put from the original sale.
However, there are circumstances where if it’s not in the money, so to speak, the strike price is much higher than the current price. It’s facts and circumstances. There’s no bright line test, but you might be able to get a situation where the iris would not consider that as part of the wash sale rule.
It’s not definitive, but you are definitely getting in dangerous wash sale rule territory because you are investing (in a sense) in that same stock that you sold originally.
Amanda: Maybe it’s such a good deal that you don’t care about deferring the loss.
Eliot: It could be if the money makes sense.
Amanda: All right, this was a fun one. “We did a 1031 exchange with the building we owned, but the place we bought was $250,000 cheaper. How do we minimize our capital gains for the leftover money?” Don’t usually get that leftover money. “I know we can use the capital improvements that we have made, but what are the rules and how must we document those improvements? Can we use the depreciation schedule for the prior year’s returns?”
Lots of questions. Let’s just start at the top. A 1031 exchange is where you take a property that is business used investment property, and you exchange it for a new property. Typically the replacement property is going to have the same amount of debt involved.
In this case, the person emailing in it didn’t. The new property was $250,000 cheaper, which means that they get that $250,000 typically in cash, or it’s at least considered what we call boot. And boot is taxed, which is the point of the 1031 exchange is to defer taxation of your capital gains on the original property by just rolling it into the next one. When you sell that next one, you’ll realize all those capital gains. But for anything that you’re taking out of the deal, that’s going to be taxed as boon.
$250,000. Woo. That’s a lot. There is a way to park it, though. How does that work?
Eliot: A little bit more advanced 1031 strategy. There is a situation where you would go out and your qualified intermediary will work with what’s called an E, an exchange accommodator title holder. They’ll go out and get the replacement property. It’s not really yours. You can’t take title yet.
If there are extra funds and you set up the right type of 1031, which is called improvement or build to suit, if they expend those funds on improvements on that property before the 180 days, then you’ll be considered as having spent that money and you’ll be all right. But it’s got to be done in that 180 days and they cut it off right away at midnight that day.
Amanda: Oh yeah, midnight. In this case, the $250,000 that they didn’t spend, they could have kept it with the qualified intermediary. Then they would do an improvement to the property. So remodel a kitchen, add a casita, an ADU, something like that. Essentially get the property value up to what it would’ve needed to be had they done it.
Eliot: Spend all that extra cash, all that moved. Exactly what they’re trying. That’s exactly right.
Amanda: Do they have to spend it? Can I go and just on the 179th day, hire a contractor, have my QI write them a check and be in the clear?
Eliot: Are you going to keep the receipt?
Amanda: I’m going to keep the receipt.
Eliot: Well no, that doesn’t work. You got to have spent the funds. You can’t just have contracted them away. The improvements have to be already added to the building within that 180 days.
Amanda: The last nail has to be in the wall. It isn’t something that you can do on the fly or after the fact. You have to have already preplanned for it.
Eliot: And here—we’re talking about in past tense—we did a 1031. This would all have had to have been done during the 1031. You would’ve wanted to start this plan well in advance to get some of these things.
But here we are today now. We do have the replacement property. We know we’re $250,000 short. We’re paying tax on that. That’s a given. What about other improvements we made now that we got the replacement property and now we subsequently have added some stuff in there? Certainly we’re going to depreciate those. We talked about bonus depreciation.
Amanda: We did. When you’re doing a 1031 exchange, your depreciation schedule from the original property will continue on with the new property. But any new things, any additional capital improvements, we can start a new depreciation schedule, and then with our bonus depreciation rules we can 100% bonus depreciate those things.
We could potentially be generating, if they use this whole $250,000, quite a bit of loss for them. Now again, as we’ve mentioned many times so far today on Tax Tuesday, whether or not they can use those losses is going to depend on how they’re using the property.
Eliot: It’s either going to be passive or not. You have the old carryover basis is what they call it from the relinquished property. That continues how you were depreciating it before. We don’t change anything there. The new money, which we call excess basis, you get to choose. You can either start it brand new, all of it together, or you can have that carry excess basis taxed at a brand new 27½ years, in this case if it was residential, or 39 if it’s commercial.
You have some options there, but the key here, the new improvements, you’ll have the option to take bonus depreciation with a cost segregation, things like that. Ultimately, as we’ve said, if it’s passive or non-passive, will depend on a lot of other factors.
Amanda: If your short-term rental falls within the short-term rental loophole, you can use those excess, now non-passive losses to offset active income. You could potentially be in a better position to wipe out all the tax that you would’ve paid on the boot. Or if you’re a real estate professional, again, in the same situation that passive losses become non-passive, and you could potentially just wash all of that tax that you didn’t get from the 1031.
Eliot: Yeah, that’s it. A lot involved in that one.
Amanda: Why is it called boot?
Eliot: Somebody did. It goes all the way back. They think it was a Scottish term and it was adding on to a deal. You would throw the boot in saying, hey I’ll just pay the rest or something like that.
Amanda: Like with the kitchen sink?
Eliot: Yeah.
Amanda: Like here’s the deal and I’ll also give you my boot or what’s in my boot maybe, like the coins.
Eliot: It was that extra stuff.
Amanda: Either way you don’t want it.
Eliot: No, I wouldn’t want the boot. I’m not going to wear it.
Amanda: All right. “I want to know more about the test for real estate professional status as a way to deduct expenses from other passive income. I understand that I need 750 hours, but this is very loose. I’m not sure how it is audited exactly.”
So real estate professional status, we were actually talking about this earlier. We teach a lot, and we have a lot of clients and a lot of people who watch Tax Tuesday. We say real estate professional status or REPS as a shorthand for a strategy where you are generating losses, and because of how much you participate in your real estate, it goes from passive to non-passive.
But that’s not exactly true. The real estate professional status is simply 50% of your personal services plus 750 hours in a real estate trade or business. You can be a real estate professional and have real estate professional status and not actually need to or even be able to generate some loss and non-passive activity. It’s two different things, really.
Eliot: It is. To further complicate it, those trades or businesses that you’re getting to 750 hours in, you have to materially participate in those too, and you have to own over 5%. There are a lot of other little rules to it. But as Amanda points out—this is the way Toby used to describe it a long time ago; I haven’t heard him use it recently—think of the REP status over 750 hours, more than 50% of your work week, that’s the ticket. It gives you a chance to get into the game.
Amanda: To get on the non-passive trade.
Eliot: Exactly. But whether or not you’re going to get any benefit, you have to still materially participate in each rental activity. Meaning you have to manage them personally. On that, you can use a spouse. If you’re married, both your hours can work for that. But just one spouse can get the 750 or 50% test.
Amanda: So for the 750 hours this question says, ‘but this is very loose.’
Eliot: It’s not.
Amanda: It’s not. There are 60 minutes in an hour, you need 750 of them. It doesn’t need to be in a real estate trade or business of which there are 11 categories. I have yet to really run across somebody who truly is not within one of these categories.
It’s development and redevelopment, it’s construction and reconstruction, it’s operation management, which I don’t know how those two are even different. It’s leasing and rental. Again, not sure how those two are different. It’s brokerage acquisition and conversion. So anything done within one of those categories is considered you working in a real estate trade or business, and you need to do 750 hours.
So document it. Write it down. Keep a spreadsheet. If this is your full-time job, it’s going to be pretty easy to document 750 hours just from your pay stubs. The IRS does not require us to document things in a specific way.
Generally, it doesn’t require formal bookkeeping, it doesn’t require spreadsheets. It often in many court cases allows people to just compile it after the fact, using anything from calendars to journals to anything really. Pictures, receipts, emails, things like that. But again, it’s always going to make the most sense for you. And your tax preparer will love you much more if you keep good and accurate records.
Eliot: And contemporaneous records.
Amanda: Contemporaneous. That’s true. When we see people try to establish or create those records after the fact, that’s when you usually get tagged. Your memory is not as good as you think it is.
Eliot: You’re just studying the night before the exam and everyone knows that.
Amanda: Everyone knows that doesn’t work. So 50% of your personal services plus 750 hours. Then on top of that, if you want to get the tax benefit, then you need to materially participate in your rentals.
We were thinking of situations where your material participation in your rentals would actually double count for the 750 hours. What were the examples we came up with? If you own a property management company, you own 5% of it (at least), and you spend 500 hours through your management company managing your own rentals, that 500 actually counts for the 750 as well.
Eliot: It will more towards the 750. We are a little bit more careful on the management of your own properties. That really needs to be you because the rules are there. We allow our clients to use their C-Corporation because they’re shareholders, so you really want to probably be more active on that. But to that though, if the hours that you put in the management of your own property, we’ll go to the 750. That direction works really well.
Amanda: I had a client at an event ask, who was wondering if he qualified for real estate professional status. He said, I have an HVAC company or I work at an HVAC company. Would the hours I spend working for my HVAC company count towards the 750 REP status?
Eliot: I don’t think it would. But arguably if it had to do with, what did we find aside? We said if it was repair?
Amanda: It was interesting because if he had been the person going out and actually repairing HVACs, replacing them, but as he walked away, he casually said yes, I’ve been a C-suite executive with them for 20 years, and I had to then be like, whoa, whoa, whoa. Come back buddy. No, that’s not going to count because really at that point you are in management. You’re an officer of a company that just happens to do HVAC.
Just like we’re attorneys with a company that teaches tax and real estate, but we’re not real estate professionals. We’re attorneys. Slightly different thing there.
Eliot: Not real estate or professional.
Amanda: And then in order to take advantage of the material participation rules—it’s 500 hours—well there are seven ways to materially participate. What are the four that we see most often?
Eliot: It’s going to be the 100 hours or more than anybody else, or over 500. Substantially all and then all circumstances or something like that.
Amanda: Under the facts and circumstances, which is what they call a catchall, which I’ve really only seen used when they have a taxpayer who really shouldn’t be getting the status. But they’re so sympathetic that the court is just like, come on. Just let her have it kind of thing.
Then once you reach that material participation, your formerly passive activity is now non-passive, and any losses you generate offset your other active income.
Eliot: Exactly right.
Amanda: Cha-ching, baby. All right, let’s put on our arbitrator family law. Eliot, Please settle this one thing that my husband and I disagree on. I say that the maintenance on our primary residence cannot be used towards REPS. He says certain things you could count towards REPS. Would be pool maintenance, HVAC service, et cetera.
I say no because it is a primary residence and REPS is strictly how much time you spend on rentals only. I’d like him to have to sleep on the couch any longer. I would not like him to sleep on that couch.
Eliot: We got to settle this here. Court’s in session.
Amanda: This marriage depends on it.
Eliot: Exactly. Really, as we talked about it and we’re going to find out here, it can go both ways. But typically speaking, our questioner here is correct, it’s your personal residence that has nothing to do with a trade or business. Those hours are not going to count. You mow your own yard, that’s not going to have anything to do with landscaping or anything like that towards your rental.
Amanda: Just like if you hired somebody to mow your yard, you don’t get to deduct that as an expense because it’s not a business.
Eliot: Has nothing to do with the business. That would be the majority of the time the correct answer. No, it doesn’t work. However…
Amanda: We’re trying to get creative here. We’re trying to throw this man a bone. If he’s doing the pool maintenance, and he happens to also own a pool maintenance company, of which he is more than 5% owner than that one hour a week he takes his own pool.
Eliot: And he’s invoicing, it’s an arm’s length transaction, and we believe that probably that time would count. I got a feeling that’s not what’s going on here.
Amanda: Probably not.
Eliot: But we want to have marital accord, not discord.
Amanda: Maybe join him on the couch for one night and then let him back out of the doghouse.
Eliot: Yeah. He wasn’t completely wrong, but probably his fact pattern is incorrect.
Amanda: It’s probably not exactly. I doubt he has a pool maintenance and an HVAC service and an et cetera service as well. But who knows?
Eliot: But they’d have to be paying those businesses, arms length transactions for it to be business-related.
Amanda: So you’re correct ma’am. Personal residence is not business property.
Eliot: Good question, though.
Amanda: Our final plug. Please join our Toby Mathis’s YouTube channel. Click that subscribe button. You will get a notification every time we go live like we do here on Tax Tuesday. What else do we do live on Toby’s channel?
Eliot: Oh my gosh. She does all kinds of things. I wouldn’t even know where to start.
Amanda: Our quarterly tax planning, Tax-Wise.
Eliot: Yeah, we do those.
Amanda: And come on in. Join us on YouTube. Put your comments in the chat. Troy’s been doing a great job here. How many questions has our team answered?
Eliot: I didn’t even open the Q&A.
Amanda: Oh wow.
Eliot: Seventy-seven. They got 9 more coming up on 100.
Amanda: Yeah, coming up on 100. Toby’s got over 500,000 subscribers. Clint is catching up, 289,000 subscribers. Taxes are just cooler than just asset protection alone.
Eliot: What are they going to do? It’s got cool kids.
Amanda: That’s why we’re here because look, we’re the cool kids. You can also come and join us like several of our attendees in Las Vegas starting Thursday through Saturday for our live Tax and Asset Protection event. All things TAP. Only $49. Click this QR code and come say hi to us. Last time you had a lot of people coming to say hi.
Eliot:I did. Thank you. Appreciate it.
Amanda: Some didn’t enjoy our jokes and our fun-loving personalities as much as others.
Eliot: I can understand not liking our jokes, but…
Amanda: We are tax attorneys.
Eliot: What are we going to do? Kind of a deficit there.
Amanda: But come see us anyway. I promise you a good time. Not a legal binding promise of a good time, but we’ll give you a lot of information. Otherwise, you can schedule a free strategy session with one of our business and senior strategists. We’ll put together a wealth planning blueprint for you. This is a living, breathing document that will grow as you build wealth and as you build assets there.
If you’ve got any questions for us, if some of the things we’ve talked about today, it’s sparked your brain going, please send them in to taxtuesday@andersonadvisors.com. Or you can visit us at andersonadvisors.com.
Eliot: So we can butcher them in two weeks.
Amanda: Let’s give a shout-out to our team in the background.
Eliot: We got Jennifer. Again Dutch, Jared, Jeffrey, Rachel, Tanya, Troy. I forgot, we got Zion in the back running the show here, so thanks to you all. Great job.
Amanda: Thanks to our team. Thanks to you Eliot.
Eliot: Thank you.
Amanda: And thanks to you guys.
