In today’s Tax Tuesday episode, tax experts Toby Mathis, Esq., and returning guest Jeff Webb, Esq., CFO of Anderson Business Advisors, discuss several interesting and complicated questions around collecting rent, refinancing your rental home, accountable plan reimbursements, and cost segregation. Submit your tax question to taxtuesday@andersonadvisors.
Highlights/Topics:
- “I am single-family home real estate investor… should I collect the rent in a separate checking account LLC” – a property management entity should be collecting and paying the LLCs. Don’t have renters pay directly to the ‘holding’ LLC. The way you’re doing it is okay.
- “If you refi a rental home can you start depreciating at the refi amount?” First of all, why would you refi now at 7%? But let’s say you do refi; your depreciation does not start over. Unless you get cash out to improve the home, that remodel depreciation starts anew.
- “Thanks for talking so much about S-corps, literally saving my business. If my business doesn’t have enough to reimburse me after the accountable plan” …no, you can’t deduct it if you haven’t been reimbursed. You can give the money to the company, creating a loss, then reimburse.
- “How do you determine the quality of a cost seg vendor… does it even matter.” – you need an actual person that stands behind the analysis, don’t just use software.
- “What are the tax benefits to writing off the rental property” – you can identify each part that is NOT 27.5 years… you’re supposed to do 5, 7 years, 15 years, for certain home element improvements.
- “I made a loan to an individual from my self-directed IRA. He wants to pay it back from a self-directed IRA. will this create a taxable event to either of us? – for you no, for him yes
- “I had a property vacant for repairs until April 2023…can I still claim my expenses?” – ‘ordinary and necessary’ can be, yes – roof replacement, repairs, etc. but not ‘improvements’. Put it into service first.
- “Can a self-directed IRA co-invest with you and not create a prohibited transaction, even if you self-manage, and may use the assets?” – yes you can set up a joint venture… but you can’t use the asset, you can’t buy a property and ‘use it’ or do any work on it.
- “What biz entity can leverage life insurance as an exec bonus plan for tax deduction?” – we can’t think of any way to leverage it, but there are ways to write it off. Talk to somebody who works on exec compensation plans.
- “When taking into account bonus depreciation on investment property – how far back and forward in time?” – net operating losses cannot be carried back…only forward, indefinitely.
- Send us your questions and check out the event schedule listed in the resources section.
Resources:
Tax and Asset Protection Events
Full Episode Transcript:
Toby: Hey, guys. Welcome to Tax Tuesday. My name is Toby Mathis.
Jeff: I’m Jeff Webb.
Toby: We are bringing tax knowledge to the masses. This is going to be another fun Tax Tuesday. We’ve done just a few of these. I think we’re coming up on 200 here pretty quick. We’ve been doing this for a little while.
Real simple. We’re going to answer a bunch of questions. We’re going to answer your questions. We have a ton of folks on to help participate and help you all. Let me just see if I can get a list here. I got Matthew, Jennifer, Dana, Dutch, Eliot, Kurt, Sergey, Jared. I have CPAs, tax attorneys, other staff, all on helping to answer your questions the way you do it.
Let’s go over the rules if I can make the screen move. Rule number one is figure out how to use the PowerPoint, Toby. All right, so you could ask your questions that you have specifically about one of your situations, or if you want a clarification, in the Q&A. Not in the chat, in the Q&A.
If you have a comment, you can put it in the chat like, hey, Jeff looks really good today. Jeff, that blue really does something to your eyes. You could do that in the chat. In fact, you should tell Jeff something good just to make him feel good.
Somebody says, great to be here. Great, thanks. How about Jeff? What do you guys think of Jeff? Howdy, folks. Jeff’s doing fantastic. Jeff, how was your health? You guys didn’t know, but some of you guys knew that Jeff had a little cancer scare. He’s been beating it with his fist and with chemo.
Jeff: I’m going to chemo treatments. The most fun thing I’ve told you about is everything tastes like poo poo.
Toby: That’s disgusting.
Jeff: But I’m still eating, so it’s all good.
Toby: Somebody said something about cancer is little. No, it’s a huge deal that it’s kicking his butt. You seem to be doing pretty good.
Jeff: Yeah, I try. I don’t want to hear myself whine all the time.
Toby: We don’t want to hear it either. We want to see how you guys think about Jeff. There are people already saying, sending you prayers. I love that. Been there, brother. We got some people there. We got a bunch of folks out there on board here.
Jeff: Thank you.
Toby: Yes, Jeff looks really good. Alright. The other thing you could do is ask questions at taxtuesday@andersonadvisors.com, which means you just send it in at any time to taxtuesday@andersonadvisors.com. In fact, that is where, right now it’s Eliot and Jeff that are picking all the questions. I don’t see these things until a couple of minutes before. They like to send annoying questions over to me that I have no idea what it means.
Jeff: I gave Eliot a lot of guff last time because of the questions that he picked out. I got to give him some credit. I think there were some interesting questions in this Tuesday’s show.
Toby: We can’t have it be the same questions every time. Look at that. Somebody’s talking about shrooms. I got to see what that is. Check out Lion’s Mane, it makes the chemo more potent. Lion’s Mane, that’s interesting.
Jeff: I actually have something to make it more potent. I have to go around for 48 hours after my chemo with that fanny pack on. For some reason, it makes it more potent.
Toby: It’s a bunch of chemo in there. Did one Lion’s Mane. You got to check out Lion’s Mane.
Jeff: I got to do that now.
Toby: Now, you’ve got to do it. Thank you, guys. All right, on to other things. This is cancer Tuesday. No, we’re not going to do that. We’re going to have Tax Tuesday. Here we go. I’m going to read out some of the questions, and we’ll get through it. Let’s dive on it.
All right. “I’m a single family home real estate investor. Should I collect the rent in a separate checking account LLC versus the parent company LLC? Note, I have a parent company LLC that owns the holding company LLC that I bought the property in, and I have an S-corp LLC collecting the rent. Is that correct?” That sounds confusing, so it must be. No, we’ll get to it. We’ll make sure that we break that one down and give you your options.
“If you refinance a rental home, can you start depreciating the refinance amount, or does that have nothing to do with the original price paid in depreciation?” Good question. We’ll get into that.
“Thanks for talking so much about S-corps, literally saving my small business.” All right, sometimes it’s that little bit. It’s that few thousand dollars, $5000, $6000, $7000, $8000, $10,000 a year that sometimes makes the difference, so good. First question, “If my business doesn’t have enough money after expenses to reimburse me on its accountable plan, can any unpaid reimburse expense owed to me become a debt to the company or treated as owner equity that will be able to be drawn on next year? “
Second question, “For the home admin office, are we just claiming mileage or also gas expense with an S-corp?” Good questions. We’ll break that down. If that’s confusing to you, we’ll make it make a little more sense once you understand some of the terminology.
“How do you determine the quality of a cost segregation vendor? How can you tell the good from the great? Does it even matter?” We’ll answer that one, too.
“What are the tax benefits of buying a rental property? Is it correct that taxpayers can write off the entire cost of the asset of the rental property? If so, is this the last year in which one will be able to do this?” Spoiler alert, you’ll still be able to do it, but we’re going to get into what it is on a phase up.
“I made a loan to an individual from a self-directed IRA. He is wanting to pay it back from a self-directed IRA.” Hopefully his. Maybe it’s somebody else’s, some guy down the street. “Will this create a taxable event to either of us?” Good question, we’ll go over it.
“I had a property fall vacant for repairs from July of 22 until April of 2023.” It sounds like you took it out, fixed it up, did a rehab, took a little under a year. “Can I still claim my expenses for the repairs while it wasn’t rented out?” We’ll go over that, too.
“Can your SDIRA, self-directed IRA, co-invest with you and not create a prohibited transaction, even if you self-manage and may use the assets?” I already know where Jeff’s going on this one.
“What business entity can leverage life insurance as an executive bonus plan for a tax deduction? Good question. We’ll go over what all those things are.
“When taking into account the bonus accelerated depreciation on investment property, how far back and forward in time can the losses be accounted for?” Every one of these has been a good question so far. Eliot, you get a star this time. I don’t care what Jeff says.
If you like these types of questions, come on over to our YouTube channel, my channel. Clint has a channel. My channel tends to be more focused on financial planning and tax and asset protection. Clint is real estate asset protection, almost exclusively. Depending on what you’re looking for, you’ll be able to find it on our YouTube channel.
While you’re there, subscribe. There’s a little subscribe button that looks like a bell. Click on the bell and we’ll notify you. It does not spam you. It just lets you know when there are videos up. This last week, I think I put four or five up. It’s been a pretty busy last little bit. Lots of tax news going on, and lots of things going on in finance if you’re not paying attention.
Anyway, you can go right there, aba.link/youtube. We also post all of our Tax Tuesdays there. If you see a thumbnail, if it says Tax Tuesday, that’s generally a recording of the Tax Tuesday. This one will probably be up in a few days. If you’re watching and you have to leave early, don’t worry. You can always come in and catch the parts that you miss later. Or if you have to step out, you have to make a phone call, you can always come in and catch up on what you missed at some later time, or if you just want to listen to it again, because some of these questions get a little complicated, and got to hear them a couple of times before they really sync in.
Anyway, let’s dive in. Question number one. “I’m a single family home real estate investor. Should I collect the rent in a separate checking account LLC versus the parent company LLC? Note, I have a parent company LLC that owns a holding company, LLC, that I bought the property in.” It sounds like there’s a real estate LLC that’s owned. I would generally call it a holding LLC, but it’s a parent company, so we’re not going to confuse it.
“Real estate’s held in one LLC owned by a holding LLC that owns probably various other LLCs. I have an S-corporation LLC, so an LLC taxed as an S-corp collecting the rent.” That S-corp probably has no properties in it. It’s simply acting as a manager, probably as a property manager. It’s collecting the rents and probably forwarding them down. Where should they be doing this? Should they be doing that, Jeff? If not, what type of advice would you give them?
Jeff: Ideally, our structure looks like we have our properties and LLCs. They’re owned by this holding company that we talk about, but the property manager is a completely different entity, usually a corporation. It could be an S-corporation, but I really don’t care for the S-corporation property manager.
Your property manager, if it’s a corporation or an S-corporation could collect those rents, hold it for those LLCs with properties in them, and be paying their expenses and so forth. Keeping in mind that whoever is collecting these rents, it’s not their income. It’s these properties down there that they’ll be showing.
Toby: I’m just putting R where the rental property is held and an H for the holding. The tenants are paying up right here now, and this guy is probably forwarding money to the holding. What we really care about is that those rental properties, they’re not making it to anywhere where they can find your holding. We want to make sure it’s not going to you individually.
We want to make sure that in a perfect world, they would go to the LLC that holds the rental properties. That’s the only entity they’re dealing with. When you have a management company, sometimes you just have a property manager.
Let’s say that these were Jeff’s properties. Jeff has three rentals. He has a holding LLC that holds them all, and I’m an outside property manager. I’m managing all of his properties and I say, hey, Jeff, what do you want your check, every month? He may just say, send it to the holding. What we care about is the tenancies. If they’re paying me as the property manager, they don’t see Jeff’s holding company, so I could do that safely.
What you don’t want, I think was what you just said, is you don’t want these guys down here to pay directly to the holding. We don’t want that. No, please don’t do that. The way you’re doing it is fine in my opinion. You would say, sometimes you don’t like the S. Sometimes you want to have another tax.
Jeff: Yeah. There’s nothing wrong with it, it’s just not my preferred way to do it. One of the reasons is you don’t want the holding company collecting this money. If the tenants see that and something bad happens, they sue the holding company.
Toby: But you don’t want the tenant to see where the money ends up. You really want to have an intermediary property management company. If you are your own property manager, then yes, the right way to do it is this way or having it paid directly to the LLC if you don’t have a management company. I like to use a management company. I like to have a throwaway entity that if it gets sued, you’re like, yeah. I close it down, it doesn’t have anything.
Worst case scenarios. Let’s say that something bad happens on a property. They claim that you did something as the property manager. Okay, I don’t have any assets in there, it’s pretty safe. What I want to do is make sure it’s contained within that particular entity.
Jeff: Whereas if they sue the holding company, what does this holding company own? All of those properties and those LLCs underneath that do no good at all.
Toby: Yup. We just want to make sure that we’re not putting that holding entity. The entity that owns the other LLC is at risk. The easiest way to do that is through using an intermediary company, using a property manager, doing something to make sure that there’s a blocker in between that holding entity and the tenant where their liability is.
Jeff: That property management company doesn’t have to be anything fancy.
Toby: It didn’t have to have really anything in it either. It’s not licensed. If you’re self-managing, you don’t even have to have the property management license.
Should each property have its own LLC? Yeah. The best practice, if you’re less than 10 properties, is to have them in each. This is my rule of thumb, so you can adjust it. It all depends on your ability to lose.
If I have hundreds of properties, which I have hundreds of properties, I will oftentimes lump LLCs together, because if I lose 10, it’s not a big deal. If you have three properties, and you put them all in one LLC, and you lose all three properties, that can be a pretty devastating blow if you’re building. If you have 10 properties, you may say, hey, you know what, I’m okay. Two properties per LLC, maybe you’re doing that, but we try to take that issue away for you with our Titanium program because we say, pay one fee, and then you have unlimited LLC and we’ll set them up.
The other thing you can do is use land trust, depending on your state. Sometimes land trusts have asset protection like in Florida, and you might use those, or at least make sure that you don’t have a bunch of properties in the same name. Tenant gets an inkling that they’ve been harmed. For whatever reason, you’ve evicted them. Maybe they’re just mad, maybe you give them a hard time in their mind, and they start thinking mold, or they start thinking of anything that they can claim against the landlord.
What you don’t want is they start searching for what you own. They see, oh, look, this property is owned by an LLC that owns 10 other properties, because you’re inviting the issue. As long as we can make sure that they don’t see that, whether it be with land trust, statutory trust, LLCs, then we’re accomplishing our objective, which is security through obscurity. Don’t let them see it so that it doesn’t create the issue.
Like when you’re playing with the dog, don’t let them see the dog biscuit. They see the dog biscuit, they’re going to misbehave. Hide the dog biscuit. All right. It’s probably a bad analogy.
All right. “If you refinance a rental home, can you start depreciating the refinance amount, or does that have nothing to do with the original price paid in depreciation?”
Jeff: Okay, the first question I asked, I didn’t even get past the first comma, is why would you refinance right now? Mortgage rates are 7¼% right now.
Toby: You’re being so logical. You’re such an accountant.
Jeff: Let’s say you do refinance right now. Your depreciation doesn’t start over, you continue the depreciation. The loan, as you say, later on has nothing to do with depreciation, except if you get a cash out refinancing and use that financing to improve your home. Then anything you improve, say I put $50,000 in the kitchens and bathrooms, those all start getting depreciated now, but it doesn’t reset where you’re already at with your main house.
Toby: The refi doesn’t mean anything. It’s neutral. It’s what you do with the money from the refi that matters. If all I was doing was fixing stuff, for example, I’m just writing it off as a repair expense. But if I’m adding an addition to the house, then I’m depreciating that, and I’m adding it to my depreciation schedule. It gets added.
Here’s the big one. You have a rental home, you start depreciating. Let’s say you have a rental home and you go, I need to refinance it, but I’m going to replace the roof. We’re taking the whole roof off. You’re retiring the original roof, and you’re going to take a big deduction for getting rid of that property. You’re putting it out of service.
Whatever amount you haven’t depreciated on, the old roof, the top of it, you’re going to write that off, whatever you have. If you’ve had the property for 10 years, and you’ve been depreciating that over 27 1⁄2 years, you’re going to write off the remaining 17 1⁄2 years, and then you’re going to start re depreciating the new roof, which is whatever you spent on it.
Let’s say you spent $20,000 on a roof, you’re going to start depreciating that the day you put it in service, and it’s available for use. As soon as you make it available for rent, you’re going to start reading that off over 27½ or its useful life. You fix a deck or something, and you use a cost seg, you might get to write it off even faster. But the refi itself, nada, doesn’t mean a thing.
Jeff: You may be saying, Jeff, I’m not going to refinance at 7¼%, I’m going to buy down my points. Here’s what’s something we never ever talk about. When you have points or anything that you’re paying loan fees, and you refinance on an investment property, those get amortized over the life of the loan. You cannot deduct those upfront.
Toby: They get added to your basis, and it sucks.
Jeff: Yeah.
Toby: If you’re doing stuff yourself, a lot of times, people are like, oh, I can’t write that off. And then you forget about it, you don’t add it back in. Here’s the rule. You don’t have to write it off over the useful life, but you definitely have to recoup it when you sell. Is that going to be part of your recapture?
Jeff: Usually, it’s a separate line item just for amortized loan points.
Toby: If you don’t take the write off and a lot of things, you may write it off like the roof. I may write off, but if you don’t write it off, you still have to recapture it when you sell.
Jeff: Yeah, specifically, you’re talking about depreciation. You don’t have to take depreciation, but the IRS is going to want you to take depreciation and recapture it even though you’re never deducted yet.
Toby: It’s may and must. You may depreciate, but you must recapture. Let’s see. Anyway, I think we beat that one to death.
“Thank you for talking so much about S-corps, literally saving my small business. First question. If my business doesn’t have enough money after expenses to reimburse me on its countable plan, can any unpaid reimbursements owed become a debt to the company or treated as owner equity that will be able to be drawn on next year?” Let’s answer that one first. We’re going to answer question number one, and we’ll go back to question number two.
Jeff: On the face of the first question, the answer is no, you can’t deduct it if the company has not actually reimbursed you.
Toby: Could they treat it as a debt? Hey, you owe me. You have to be an employee of an organization to be on an accountable plan.
Jeff: They can’t treat it just as a debt, but there’s a backdoor way to do that. That is, you contribute the money or loan the money to your company. The company reimburses you back, and then the company gets to deduct it. Same with what you could contribute as capital.
Toby: If it’s going to create a loss though if you loan it or you’re at an issue.
Jeff: If it’s going to create a loss, you probably don’t want to do that. You probably want to contribute.
Toby: Right. You actually give the company the money and say, here’s more money. Let’s say this is the S-corp. Let’s give money to the S-corp in exchange for stock. You’re just going to have more equity, and you create a loss, and then it reimburses you.
Is your bank account different? No. Hey, it owes me $10,000. I’m going to give it $10,000. What you just did is I went from having zero line items, no revenue, no loss, no profit, to having a negative $10,000 loss that now I can use against my other W-2 income.
Jeff: Real quick, when you take a loss in an S-corp, you have to have bases in net loss. One way to do that is for you to loan money to your S-corporation. However, when they pay you back, it’s considered capital gain. That’s why if you just contribute it to APIC, additional paid in capital, we don’t run into that at all.
Toby: Yeah. Now you have a basis in your stock, and now you’re writing it off, and now you have no basis. If you ever sell the company, you’re going to have to recognize any amount that you ended up getting.
Jeff: That’s why it sounds crazy when we say, no, make loans to your C-corp, make capital contributions to your S-corp.
Toby: The big question is, do you need the deduction? If I’m sitting it and I’m making $50,000 a year, so I’m paying 12%, it’s really not going to save me much to contribute it and take that loss. Next year, I know I’m going to make $100,000. I probably will be better off saving that deduction for when I actually get to use it or through the next year so I can use it then as opposed to contributing money and creating a loss.
Somebody says, what is an accountable plan? An accountable plan is when you are an employee of an organization, and it reimburses you expenses that you incur on behalf of the business or at the betterment of the business. This little thing right here. If it’s just me, and I’m Toby’s Pizza Place, I have to track my business use on it.
If Toby’s Pizza Place is an S-corp, it’s getting a benefit of my phone. It can reimburse me the 100% phone, data, everything, and you can do that with any employee. The employee reports that nowhere. It doesn’t get reported on your wages, it doesn’t get reported for self-employment tax. It doesn’t show up on your 1040 at all. That comes to question number two,.
Let me preface this before I give it to you, Jeff. When you are a sole proprietor, you have a home office deduction. You have a special tax form for home office deduction, where they take your gross square footage, and you get to use the portion of the home that’s used principally or exclusively for business, and you get to write off that amount compared to the total value of the structure, which stinks, or you’re doing $5 a square foot. If you have a 10×15 foot room, what is that? About $750 a year.
If it’s an administrative office, I can reimburse you, under any reasonable method, the amount that goes to the benefit. That same scenario, I’m no longer using gross square footage. I’m going to use net square footage at a minimum. More than likely, I’m going to use a room method to figure out how many rooms are in the house, and how many rooms am I using for my business.
At that point, I can reimburse all of my proportionate expenses, utilities, property taxes, mortgage, even depreciation. What happens is you go from having $750 to much, much more, $5000, $6000. It’s not uncommon. You don’t report it anywhere. Whereas in a sole proprietorship, you have that extra form, which I think gets them audited.
The audit rates, when you compare an S-corp versus a sole proprietor, the audit rates are, in some cases, 1600%-1700% higher, for the sole proprietor if you put them side by side. It’s not even close. It’s hundreds of percent to thousands of percent higher when you’re a sole proprietor, and it’s because you’re basically just putting a big old bullseye on your back.
You’re supposed to track everything that’s business use, and nobody does. How do we know that nobody does? Because 94%-95% of the time, the IRS wins the audit when it’s a sole proprietor, and those numbers are drastically different for an S-corp.
Second question. “For the admin office, are we just doing that for claiming mileage, or do we also get to claim some of the expenses?”
Jeff: The admin office does all the stuff you just talked about. It deducts a portion of your home. One more bit of craziness between the home office and the administrative office, home office, you’re required to include depreciation. And you have to recapture that when you sell your property.
Toby: You mean I have to pay tax, even if I have a 121 exclusion that would keep me from having…
Jeff: Yes, sir. In an admin office, you can include depreciation, but you don’t have to recapture it.
Toby: Yeah, so you don’t have to report it anywhere. You don’t have to recapture it. You just can’t double dip.
Jeff: We don’t know why.
Toby: If you’re writing off your property taxes, you can’t reimburse yourself and not have a tax event, unless your property taxes are more than 410,000, in which case, then you probably could.
Jeff: When we talk about administrative office and personal mileage, they’re really two different things. The administrative office is for having an office in your home. It is not your principal place of business, typically.
Toby: It’s used where you’re doing your management activities. If you’re a typical Anderson client, and you have your business, you have your real estate over here, but you’re doing everything from your home, you have the Wyoming entity, but you’re sitting in Washington, that’s perfect. That’s an administrative office in your home, and the company should be reimbursing the proportionate area of that home.
Based on the room method, if it’s a three bedroom, two bath, you’re probably talking about 20%, you’re probably talking about 1/5, because you look at the living room and the kitchen area. You need to call those rooms, three bedrooms, five rooms, one of them is being used for business. It’s 20% of everything. If you have a cleaner, it’s 20% of the cleaner. If you have property tax, it’s 20% of that property taxes.
What’s the depreciation that I would have been able to do if this was being used as a rental? I get to reimburse myself 20% of that, plus I can write off. If I fix up the room, paint it, put new wiring in it so I could make it into my studio or whatnot, get to write all that off. Or the company reimburses you, and you don’t have to recognize it as income, the company writes it off.
Jeff: I’m going to make it a little crazier. If I fix up my kitchen, I get a chunk of that as an indirect expense on my administrative office.
Toby: Isn’t that weird? It doesn’t matter what you’re doing. The only area that really gets funky is if you’re doing landscaping, but you don’t have anybody coming to your home, then there’s a good chance the IRS is going to disallow that.
Jeff: Yeah, they’re going to disallow a lot of the stuff that happens outside your front door or back door.
Toby: But if you’re seeing people in your home, you actually can write that off, especially if you have a separate entryway, it’s all decked out, and you’re putting some nice plants and stuff, and you’re maintaining it, yeah, you might have an expense. That’s a direct expense. You’d write that off 100%, you don’t even have to take proportionality.
Back to the question. They want to write off mileage. Let me explain why this is an issue. Let’s say I’m a realtor, and I have an office across town. I’m just not doing an administrative office in the home, but that’s where I work. I don’t get to write off my mileage from my home to that office.
Every time I go from my home to the office, that’s commuting. I don’t get to take a deduction. I can’t write off miles or actual expense method. But if I have an administrative office in my home, and I have a place to work anytime I travel between them, now I can reimburse myself the miles. The question here is, do I just do the mileage? I think it’s 65½ ¢ right now or something around there.
Jeff: Yeah, it just went up in June.
Toby: You get to right off the amount or whatever it is posted that the IRS allows you to. You just track your miles. I would use MileIQ to make it really simple. It’ll track it GPS wise, and you get to reimburse yourself that amount. You don’t have to recognize it. The company gets to write it off. It’s 65½¢.
Sherri is one of our accountants. No, she’s one of our clients. She’s really cool. Thank you, Sherri. You may as well be one of our accountants. Somebody says, way to kick that peach, Toby. I’m a realtor. Yes, Greg. That’s what we want to do. We want to write off.
You guys need help right now. I slowed down a little bit. You guys need every bit. Yeah, 65½¢. All right. But you can’t do both. You can’t do the actual expense method and mileage. You have to pick one.
Jeff: This is a good time to remind people that you need to track when you had your mileage, especially this year, because they cut the year right in half, and there’s an interest rate now that’s 65 1⁄2¢. But before July 1st, it was 58¢ or something like that. You need to track your mileage for the first half of the year versus the second half of the year.
Toby: Yup. Isn’t that cool? Now you know. Don’t be a sole proprietor. That’s why this guy’s probably like, hey, thanks for talking about S-corp, because I rail on this stuff all the time. Seventy percent of the businesses out there still set up sole proprietors. You’re an audit risk, you’re going to lose, they make it really hard. Realistically, the rules are no different for a sole proprietor and S-corp as far as record keeping. It’s just the rules are way different for what you can write off.
Jeff: Yeah, we see people put some questionable items on Schedule C, and they get nailed for it all the time.
Toby: There’s Jerry saying, MileIQ is the best, I put monthly reports and expenses. Hi, Jerry. Good to see everybody. It’s like a little party with everybody that I know. They come on. They’re rock stars. Jerry, you’re a rock star, you’re always so nice.
All right. “How do you determine the quality of a cost segregation vendor? How can you tell the good from the great? Does it even matter?”
Jeff: I will let you deal with this one, because you have to figure out who we like working with.
Toby: There are lots of choices, but what I look at is the IRS and what they tell us. They’re looking, and there are two things I look at. (1) I don’t want to have to worry about the IRS auditing us. If we do get audited, I want to make sure that we have our Ts crossed and our Is dotted. But even more importantly, I want to feel so confident that I can be aggressive and write off on the higher end.
Let’s say that Jeff buys a property. Jeff buys a million dollar property, and its land value is $200,000. He’s got $800,000 of depreciable assets, and he’s got a bunch of other things that he’s doing. What I look at is I go, a good basic cost seg is going to get you somewhere in 20%. I’d get a $160,000 deduction. Okay.
A better cost seg is you got a good engineer with a CPA firm, and they’re actually doing this the right way. They might be 27%. A great company that does this day on and that’s all they do, is going to be closer to 35%. Now I have to figure out what 35% of 800,000 is.
Jeff: I was hoping you were going to look at me.
Toby: I should have done something that was 35. It’s 280,000. I added $100,000 more deduction. To somebody, that might be $20,000 or $30,000 that’s in their pocket, that they saved today.
I’m looking at it going, I’m probably going to go with the folks that I know what they do, you want engineers, you want a CPA to stand behind it, and we don’t even do cost seg studies. We outsource to a company that was a CPA firm that all they do is energy credits and cost segs. Do you know what they do really, really well? Energy credits and cost segs.
Do you know what I can do? I can send people to them and I say, get them the max amount. I can depend on them. We haven’t even had one really that came under attack. Are there any that you could think of in the years that we’ve been doing this?
Jeff: No, none as far as cost segregation goes.
Toby: You give them the report and you’re done. But you get to take a hard line. People are like, oh, cost segs, you’re going to get scrutinized. They may ask to see the report, they have a right to do that. Are you attaching the report to the actual return?
Jeff: Yes.
Toby: They’re looking at it. You don’t even realize it. All you know is that, hey, we’re never getting molested by this group. Then people are out there like, oh, my gosh, there’s all this bad stuff going on in that area. Yeah, there usually is when people are doing it the wrong way.
You want to get audited. Small businesses get audited more. No, actually, they don’t than individuals or this, that, and the other. Sole proprietors get audited a lot, multiple times higher than an individual. S-corps actually get audited less than individuals, like a fraction of 1%. An individual is around 2%. I think last year it was 0.12 or 0.25. It was like ¼ of 1% and below. It was an asterix in the IRS report last year.
They just stopped looking at them. Why? Because there’s nothing to get. They’re looking to see, al right, where can I get the money without getting too technical? The IRS loves to audit poor people because poor people pay the most. They don’t like to audit rich people, because rich people bring accountants, attorneys, and drag it, and they don’t make as much.
You just want to make it to where, hey, I have a cost seg study, I obviously paid for it. I have the engineering study right there. They’re never going to mess with you. We have done tens of thousands of returns over the last few years. Thousands upon thousands that involved cost segs.
Somebody’s saying, now who do you recommend? I’ll point you to Erik. We actually have a link. If somebody wants to put the link for CSA, I don’t know if anybody has it. Free report. That little link that Troy just put out there to everybody, if you ever want to cost seg, they’ll look at it for free, they’ll do the analysis for free, and then you could decide. They’ll tell you what it cost and what you’re going to get out of it.
Jeff: A lot of the companies will do an estimate of how much you’re going to save and all. What I found with CSAs is they’re asking a lot of questions to see if this even makes sense for you before you even pull the trigger and give them any money. If you’re not going to get anything out of it, they don’t particularly want to do the cost seg. They have plenty of businesses already.
Toby: Erik Oliver. If you look on YouTube, and you want to see some of the real estate tax, just type in real estate tax and go through. If you see Erik Oliver, if you see a big guy, slightly hair challenged, a super nice guy—Erik’s awesome—we go over it, but we also use their simple methodology. Seven times your money. I always look and say, I want a seven time return.
The juice worth the squeeze to me is 7x, 10x. If it costs me $2000, I want to save at least $14,000 in my pocket. Here’s a good one. Somebody says, I use CSA for two properties last year, Cost Seg Authority. Let me see if I can get to it. How much did it save you? Erik does a great job. Somebody else just said it too.
Lila, how much did it save you last year? Over $65,000. That’s what it comes down to. I’m not going to ask you how much it costs, because it was obviously worth it. But $65,000, that’s some nice money in my pocket.
That’s generally why you do it. Otherwise, you’re giving the government an interest free loan. I could make that over there. We did three cost segs over $600,000 in bonus depreciation. How much does that save you? Whatever your tax rate is, that can be a high amount.
Jeff: If you’re doing it constantly on a commercial property, the rules are a little different. They’re a little more stringent. A company like CSA can do cost segregation, but you have to have an engineer. They actually go in, look at the property, and so forth.
Toby: They do. CSA actually sends the engineer. You have to. It’s not a question of should I. Could I just use the software? There are some software peddlers out there that are going to charge you. They still ain’t cheap, they’re just not going to do it right. I would much rather you do it right.
Somebody says they just did a virtual tour, so they had somebody look at it. Great. As long as there’s somebody standing behind it that has credentials, you’re good. What drives me crazy is people will go out there and do the software, and it will get them a 20% deduction, versus they could have had a 30% or 35% deduction with somebody else. And that’s what you want.
You want to have somebody’s going to stand behind it and defend it too. Cost seg is just a fancy way of saying, breaking a property down into its components. What’s the five-year property? What’s the seven-year property? What’s the 15-year property? What’s the structure? What’s the 27½ or 39-year property depending on the type of property it is. You just get to figure out whether or not it makes sense to you.
Some people, if you do a cost seg, you’re not bonused depreciating anything, you’re just not having to pay a lot of tax on your rents for a lot of years. Maybe 10 years rents come in tax free. I’ll take that action.
Somebody says, “I’m on my third cost seg and definitely worth it. Got a $50,000 refund each year. Real estate investors, I love you guys”. It’s never small. Real estate investors, that’s always the fun.
Did we already do this one? “What are the tax benefits of buying a rental property? Is it correct that taxpayers can write off the entire cost of the asset of the rental property? If so, is this the last year in which one will be able to do this?”
Jeff: I’m not crazy about people making major investments for tax purposes. There are much better reasons to buy rental property. You have the cash flow, you have the increase in value.
Toby: Anything below the amount, you have to pay Uncle Sam. No offense to Uncle Sam, but he beats us with a stick.
Jeff: But typically, unless you’re a real estate professional, it’s not going to lower your taxes.
Toby: It’s going to save you from having to pay tax on the rental. I get tripped with this every year, Jeff. Clint and I got all these properties coming out. You sit there and every year, we’re like, what’s going to be the taxable amount? We’re not real estate professionals.
Jeff: Do you have other jobs?
Toby: Yeah. We just want to make sure we don’t pay tax on the rents that we received.
Jeff: That makes sense, but you’re accumulating wealth through that real estate. You didn’t buy the real estate to necessarily save on taxes.
Toby: No, you’re buying it because you want the cash flow. But once you get into real estate, you start buying real estate, so you don’t have to pay tax on the real estate that you have.
Jeff: You mean another cost seg.
Toby: How about the guys that do the syndications?
Jeff: True.
Toby: You have a syndication. We just exited a syndication, I just got $200,000 of tax, I’m like crap, and you buy another syndication or another real estate product, where there’s passive income, and you have passive losses, the passive loss will offset the passive capital gain that you have from the previous exit. Then you’re buying stuff sometimes with the tax appetite because you’re like, you know what, I would have to pay $50,000 of tax on this. But if I buy this property, I will save $50,000.
I’m looking at it going, I got to factor that into my equation. It’s not the only thing I’m looking at, but it’s like, I saved $50,000. That’s like a discount on the property that I’m buying, and sometimes it’s enough to push you over.
Somebody says, how will bonus depreciation affect cost seg? It doesn’t. Bonus depreciation is on assets that have a useful life of 20 years or less. You can bonus this year, it’s 80% of whatever that depreciable amount is in the first year.
Jeff: Even if there was no bonus, you’re still taking a 27½-year asset and turning it into a five, seven, or maybe even a 15-year asset. In other words, depreciate it much, much faster.
Toby: And you’re avoiding the recapture. I always use this as an example because it’s so disgusting. Imagine a rug that you’ve had for 15 years. The IRS will make you pay tax on the value of that rug the day that you bought the property when you sell that property. You’re going to have to pay that 25%. Why am I paying 25% of this crappy rug? It looks nasty if I let it sit in there for 15 years?
Jeff: I’m not selling you the rug, here, it comes with the house.
Toby: It doesn’t have any value, so you shouldn’t be paying.
Jeff: Can I write off the entire amount? Yes and no. If you pay $100,000 for a house, the portion of that $10,000- $20,000 will go towards land. You can’t write land off. The rest will be depreciated. If I have a remaining $90,000 in the house, I’m going to write that off, but over 27½ years.
If I do cost segregation, especially on a little more expensive house, I might be able to pull stuff out of that $90,000 and say, oh, this is a five-year property and this is a seven year property. My cabinets, that’s not 27½-year property, and I can write those off much quicker and take bonus depreciation. You can’t take bonus depreciation on the structure itself.
Toby: Right. The easiest way to think about this is if you walk into somebody’s house. The next time you walk to a neighbor’s house, you get invited to dinner somewhere, or you go into somebody else’s house even trick or treating, whatever, you’re walking up, you look, and you see their driveway, there’s some fence, there’s a nice little shrubs, you walk into the house, you see the carpet, and there’s some tile or linoleum, and there’s some new cabinets that looks nice, and you see they just redid the backyard, your accountant mind should immediately be going, the fence is 15-year property. Those are land improvements. That’s 15-year, the driveway is 15-year, the carpet is five-year property, those cabinets are five years.
All of a sudden you’re realizing, wait a second, most of this house, a good chunk of it, is not 27 1⁄2, but your accountant will have you write it off over 27 1⁄2 years if you’re not careful. It’s actually an inappropriate method to write it off over 27 1⁄2 years. You’re supposed to do a cost seg, but they don’t make you do a cost seg.
Somebody says, there’s something about an AC unit. HVAC is not included as a bonus item. For bonus depreciation, it has a useful life of 27½ years if it’s residential. If it’s commercial, you can depreciate it, I think, under 179.
Jeff: Yeah, there’s a new roll that came out a couple years ago for that. Air conditioning, if it’s a window unit, that’s five-year property.
Toby: Yeah, that’s an appliance.
Jeff: If it’s outside of the interior of the house, especially on a pad or on your roof, we got a lot of lawn roofs here, 27 1⁄2 years.
Toby: Somebody says, if it’s commercial. Commercial, you actually have it. I think you can 179 it. You can write that off under a different section. Anyway, can you write off the entire cost of the rental property? The improvement, yes. The only question is over five, seven, 15 years, 27 1⁄2 years if it’s residential, 39 years if it’s not residential.
Jeff: I say, you can’t write off the land. People mentioned condos. I live on the 17th floor of this condo.
Toby: I learned that this year. I was this year old when I learned this, by the way.
Jeff: The IRS says, a portion of what you purchase is the land that the property sets on no matter where it is, in the tower, in the duplex, or whatever.
Toby: But they use the appraisal. They’ll let you use the assessed value or the appraised value.
Jeff: Yeah, it’s usually fairly small.
Toby: It was zero.
Jeff: Really?
Toby: I was sitting there looking at it. I was arguing with an accountant because he was like, no, we’re going to use zero. I said, that doesn’t make sense to me. But if you say so. He goes, look it up, Toby. I learned this this year the hard way, because I’m looking at it going, there’s no way. You can write off the entire deal. They said, yeah, the IRS is using the assessed value.
He said to me, was like, look, I’ve been doing this a long time. I don’t tend to invest in condos, because they have association fees that I don’t like that usually go in rentals, but whatever. I was like, oh, man. I was trying to figure it out.
I had a client that had an appraisal and an assessment both at zero. I looked at the IRS, and they said they follow the assessed value or the appraised. They said, sometimes there’s no land value, because it doesn’t have any intrinsic value. They built everything on it. Otherwise, they had no value. It’s like, okay.
Jeff: You didn’t argue?
Toby: I’m not going to argue. Write the whole thing off. All right, what do we have?
“I made a loan to an individual from my self-directed.” It says a self-directed IRA, I’m going to assume that’s your IRA. You loaned it out of most likely a self-directed IRA. “He is wanting to pay it back from a self-directed IRA. Will this create a taxable event for either of us?”
Jeff: For you, no. For him, yes. Here’s a real quick rule, IRAs cannot have loans, so you had to give money to him. Your loan had to be to him. If he’s repaying you through his IRA, he’s actually taking distributions which are taxable to him, unless it’s a Roth IRA that he’s held for at least five years.
Toby: Yes, or he’s receiving back the money that he contributed into the Roth IRA. We’re just being annoying at that point, or actually, not we, me. There’s always little nuances there, but the fact of the matter is Jeff just nailed it.
You can loan as long as they’re not a disqualified party. I made a loan to an individual. As long as that individual isn’t your kid, your parents, or your spouse, you’re okay. However they pay it back, it doesn’t matter to you. You don’t care.
Jeff: One other real quick thing is, there’s not a whole lot of differences between self-directed IRAs and IRAs. The rules, as far as the IRS is concerned, are the same. It’s just what the custodian is going to allow you to have in them.
Toby: Yup. A lot of people are like, hey, I have a fidelity IRA. They said, it’s illegal to buy real estate in an IRA. I’m like, no, they just don’t let you do it in theirs, and they’re just scaring you.
Jeff: They don’t want to deal with it.
Toby: Yeah. You can buy whatever you want. Just be careful if it’s collectibles, art, and stuff like that. You got some different rules. You can’t deal with disqualified parties. I don’t care. You got a kid that’s got a rental property. I don’t care how good of a deal, I’ll sell you a million dollar property for a buck, it’s prohibited.
“I had a property fall vacant for repairs from July of 2022 until April of 2023. Can I still claim my expenses for the repairs while it wasn’t rented out?” It’s sitting vacant. What do I do with my expenses, Jeff?
Jeff: I’ll start with the easy ones. The ordinary and necessary expenses as they call them, you can deduct those. The repairs, and we’re not talking about improvements. You redo your kitchen, that’s probably going to be an improvement. But repairs to replace the roof like what you were saying earlier, or you have bad tenants that tore cabinets off the wall, stuff like that, those are repairs. You can deduct those. Improvements, you’re going to have to capitalize and depreciate. Other expenses, what are your feelings on this?
Toby: Here’s the thing. If you have a vacant unit, you’re not going to get to take losses on it. I believe that if you have a vacant unit that you can’t create loss. Am I thinking that right?
Jeff: Yes, I believe you are.
Toby: You’re going to still take your repairs and everything else just like you would normally, but you’re not going to be able to use those losses. Can you still claim your expenses? Yes. When you make improvements to get to write those off? No.
If you cost seg, this is why Erik would always say, put it into service first, because once you have it into service, we’re good. Then do your cost seg, now we can see all the improvements and write those off. They’re treated like personal property, so it’s not like I lost July until April, I can’t use any of the depreciation from that.
I’m writing it off if it was in service. During 2023, I’d write off 80% of any item that was a five-year, seven-year, or 15 year property. I do this big improvement. In 2022, it’s not really going to help me. In 2023, I’m going to get a big fat deduction. I’m going to take that action all day long.
Jeff: One thing I wanted to point out was this was a property that was taken out of service by the landlord. This wasn’t a property, where I couldn’t find a renter because I’m charging way too much.
Toby: Yeah. This isn’t isn’t available property for rent. This is out of service. When you do rehab, you’re just out of service. It’s not, oh, I wish somebody would rent my property.
Hey, look, the Tax and Asset Protection workshop, you can absolutely sign up. Clint does a great job of going over land trust, LLCs, corporations, how to structure things from a real estate standpoint. I go over the tax section and legacy planning. You’ll learn about living trusts.
You’ll learn all about a bunch of stuff we talked about today, but we’ll get into some more detail on some of the real estate treatments for things like Subject 2, wholesaling. We’ll go over some studies side by side of different taxpayers, and how the same dollar might be taxed differently depending on how you structure it. There’s a bunch of fun stuff that we do during those workshops.
There’s two that I could see right here, August 17th and August 26th, that are virtual events. They’re just sitting in your sweats all day. Watch, interact. We have a whole bunch of attorneys on and other folks on there to support you and answer questions from accountants too, and then we do a live event this is September 14th through the 17th in Las Vegas right here where Jeff and I are located.
Just about 10 miles from us as we’re sitting here today, we’re doing a live event from September 14th to the 17th. Tickets are still available on that. There’s a small fee for those, because we’re running out of a huge casino hall. I think we’re at the Virgin Hotel, which is the old Hardrock.
First day is going to be a lot on stock investing, real estate. If I can, hopefully we might do some other business, fun stuff. It’s all how to make money. The following three days are on all asset and tax topics. You’re going to learn all about nonprofits, you’re going to learn about LLCs, Wyoming, corporations, you name it, but we’re going into deep dive and we get to hang out. It’s always fun.
I think Troy is coming up and doing some bookkeeping on Sunday. It will be fun. I think Jen just posted the link. If you’re thinking about it, you should come to Vegas and hang out with us. It’s a lot more fun when we can see eye to eye. You get to hang out with a whole bunch of really cool people. I know it’s hundreds of people that have already registered.
We sold out last year, December. I think we sold out earlier this year. And then we did one in Orlando that was really, really jammed. But if you ever get a chance, come out to our live events. It’s just a different experience. The virtual ones are fun too, but they’re over before they start. You only have five, six hours.
All right. “Can your self-directed IRA co-invest with you and not create a prohibited transaction, even if you self manage and may use the assets?” Jeff, what do you think?
Jeff: Answer to the first question is absolutely, yes, you can do that. You set up a joint venture between the two, probably one in LLC, to protect both of you.
Toby: That trips people out. It’s not a prohibited transaction to go into a joint venture with your self directed IRA or 401(k), but you can’t keep doing multiple transactions. It’s one and done, you’re done. They invest, you invest, that’s not prohibited. But then once you’re done with that, you can’t start dumping more money in from one side or the other.
Jeff: Correct. Neither you nor the IRA can contribute more money, which means you have to contribute enough to cover all those expenses.
Toby: Yup. You’ve got to make sure you’re thinking ahead, give yourself some buffer, and then maybe look to see if you can’t get some credit even so that if the worst thing happens, you’re not stuck.
Jeff: But then we go to the second question. Even if you self-manage or maybe use it personally…
Toby: All right. I know you’re thinking. You can’t use the asset. I can’t get a, hey, let’s get this really cool house in Vegas, and I’m going to make it a rental, and then I’m going to have a party in it. No, you don’t get to use that ever. But you can self-manage. By self-manage, you can’t get paid. You can’t receive any personal benefit from your labor.
You could be a telephone tough guy and manage it through another property manager or through your custodian. You’re just not allowed to get paid for it. You can’t get any personal benefit out of it, nor can you go pick up a hammer and start.
Jeff: I was going to say that. You can’t work on the property. You can manage the property unpaid, but you cannot do anything that might increase the value of that property.
Toby: I’m going backwards because a whole bunch of people are asking about which one wants to live one and which one was the virtual. There you go. It says live event. There, live. The other ones are virtual, this little thing right there.
Clint does a really good job, by the way, on both of them. Clint’s been my partner for 25 years, 26 years, a long time. I would encourage you to come spend some time with us because we actually have a good time. I like meeting people. Wife’s always yelling at me, because I go hang out with everybody. It’s like, yeah, they’re fun.
All right. Next one. “What business entity can leverage life insurance as an executive bonus plan for tax deduction?”
Jeff: I read this question, and I couldn’t think of any way to leverage life insurance as a deduction. What we talked about, Eliot and I, and again, you and me, is you can pay out bonus that’s not subject to FICA taxes, Medicare taxes.
Toby: You can do an executive compensation plan. Let’s say I was giving Jeff life insurance, and I was paying into that. I was paying $20,000 a year. Jeff still has to pay tax on the $20,000 because it’s his policy, but I don’t have to do employment taxes on it. We could avoid the payment of old age, disability and survivors, and Medicare.
There is a way to write off life insurance. It’s really complicated. There are two ways. There’s doing a transaction, where the insurance is purchased by you, funded by a loan, out of a qualified public charity that you are an employee of. There’s that way, or you do what’s called corporate-owned life insurance, where generally speaking, you don’t take a deduction ever for life insurance. But in that particular case, you could choose to take the deduction, but then the death benefit is taxable.
You get into a bunch of weird rules. What I would suggest is that you talk to somebody who does executive compensation plans. If you’re in that level, where you have hundreds of thousands of dollars a year coming in, and you know that you want to push a bunch into a 7702 plan, which is Mutual Life Insurance, Indexed Universal Life, or Variable Universal Life, and you know you want to take advantage of that growth, the ability to loan yourself money, and not pay tax on it, some people call it infinite banking. There are all these different terms for it.
If you know that’s you, talk to somebody who’s an expert in that area. You’re not going to get generally a deduction for it, but you can get this. You can borrow money to do it. This is premium finance.
When you do that, some of you guys are aware that when you borrow money, it’s not taxable. You use it in a plan, and then you’re allowing the plan to grow. There are all these different models. I’m not going to say this is good or this is bad. I just know that when you start crunching numbers, sometimes it comes out in your favor, and you’re making an intelligent decision based off the numbers.
Jeff: Yeah, we get similar questions with disability insurance. Another thing that you don’t want to deduct anywhere because it taints the proceeds if you should ever become disabled.
Toby: Yeah. The general rule is if you want a taxable benefit, then you shouldn’t be taking a deductible…
Jeff: Life insurance, disability insurance, anything like that.
Toby: Yeah. You just have to look at it. “When taking into account the bonus accelerated depreciation on investment property, how far back and forward in time can the losses be accounted for?”
Jeff: The rules that came out in 2017 changed all of this. Net operating losses can no longer be carried back at all. We had a couple transient years during Covid, where they did allow it, but now you cannot carry back in a while. You can only carry them forward. [inaudible 00:54:41] is now, you can carry them forward indefinitely.
Toby: Yeah, forever. You’re just looking for passive income to offset.
Jeff: If it’s just passive losses rather than NOLs, nothing’s really changed with that. It does get carried forward forever, as long as you own the property.
Toby: I’m reading the question a little bit differently. How far back can I go in time on an investment property? Let’s say that I bought a property five years ago, six years ago, seven years ago, eight years ago. Whatever you put it into service is going to determine what the bonus depreciation rule is for that property.
Let’s say that I bought a property in 2019. Here I am in 2023 and I say, I’m going to cost seg that property, and I’m going to bonus the depreciation. I’m not bound by the 80% rule that’s in place for 2023. I go back to the year that I put it into service. I think I just said 2020, or did I say 2019?
Jeff: 2019.
Toby: It was 100% in 2019. That’s what I get to use, but I’m going to use it in 2023. I could actually be making cost seg in bonus depreciation decisions for last year. For last year, I could be looking at a property that was purchased 10 years prior.
I could be choosing to do the bonus in 2022, or I could sit there and do it for 2023. I have a lot of flexibility when it comes to bonus depreciation and cost segregation. I’m just making a change of accounting election, and then that’s going to get triggered.
When I look at this question, I’m like, oh, you know what, you go back to whenever you bought that property. We can apply the rule that was in place on that year that you put it into service, but we could choose to elect it this year. That’s going to break some of your brains because you’re going to say, hey, I’ve had it for 10 years. But aren’t you doing five, seven, and 15-year property? Yeah, it’s not going to be as much bang for your buck unless you’ve done some improvements.
The five and the seven year property, you’d get to write off 100% of that without even a bonus election because we’re already near 10. But whatever amount you didn’t depreciate, you’re going to capture right now.
Jeff: That’s important because right now, we’re within 60 days of two big deadlines for tax. We’re backed up, but you also have to get cost segregation completed well before October 15th.
Toby: You got to jump on them now if you want to do it, but they get it done.
Jeff: But if it doesn’t happen, you can still do it for 2023 and take it on your 2023 return. The rules, as you were just saying, don’t really change.
Toby: Somebody says, I thought 100% bonus depreciation, the property needed to go into service after September 27th, 2017. Under the Tax Cut and Jobs Act, but you look at whatever that was in place, because there was bonus depreciation prior. There was bonus depreciation in previous years. You look at the year that you placed it into service.
That’s why you talk to the guys that are experts at it. Cost Seg Authority, they’ll actually break it down for you. They look at your depreciation schedule, they look at all your improvements, and then they say, oh, here’s the benefit if we elect this, this, or this, in this particular year. Then you go, oh, that’s good.
If you like this type of stuff, again, go to our YouTube channel. There’s my channel and there’s Clint’s channel. Both of them are free. I’m posting videos like crazy lately. I’ve been doing videos with all the attorneys here, so I’m making them come up with good ideas, things that you hear about. I’m like, hey, let’s go do a podcast on it and just try to keep getting content out there so that you guys are filling your brains.
By all means, come to one of the Tax and Asset Protection workshops. Clint and I do this. Again, we have one coming up. What do we get? August 17th, 26th, and then September. I know we have more virtual events in September, I’m sure we do.
By all means, I have some really cool events, I have some really cool joint venture events that I love doing that are going to be coming up. It’s always fun. Just stick around and make sure that you’re taking a look.
When we do the educational stuff, sometimes they get some pretty cool people that are very niche. I did one, Ryan Gibson over at Spartan. That was probably one of my favorite ones. When Frank, Sherri, and I do shared housing, that’s always fun. Atticus LeBlanc from PadSplit, those things have been awesome.
I love doing stuff with Aaron Adams over at Alpine, and we’re bringing different properties to bear. You’re looking at all the different communities. I don’t know if you’ve been paying attention, but you can go back and look at my videos. See how accurate we’ve been on real estate compared to what everybody else was saying last year and the year before.
Numbers don’t care about our feelings. But for certain, in the last year or two, they definitely don’t care. But there were some people really voting for pain and suffering. I was like, yeah, it just doesn’t look like it’s going to. There’s going to be some pain and suffering, just not the way that they were thinking. I didn’t see the housing crash, that’s for sure. I was like, no, numbers don’t back that up.
If you have questions before the next Tax Tuesday, we’re two weeks away from the next Tax Tuesday, send them in at taxtuesday@andersonadvisors.com. By all means, there’s Anderson Advisors as well, Jeff, anything else?
Jeff: No, I got nothing.
Toby: You got nothing. We’re eight minutes over, so we did alright.
Jeff: I’ll take the blame.
Toby: Guys, have a good one. There’s still some questions. I want to say thank you to Dutch, Eliot, Jared, Sergey, Troy, Dana. There’s even more if I could make my cursor go up to this screen. Matthew, Jennifer. They sit there and answer questions all day long. There were 161 open questions that were written responses, as well as hundreds of requests coming through chat.
They do a really good job in the middle of tax season. These guys are working their katushes off. They come over here and do the Tax Tuesdays. I never take that for granted. I always appreciate it when other professionals will come on and share their time with other people, so thank you guys.
If there’s nothing else, then I’m going to say the last few questions that are legging out there, they will answer them, so don’t worry. Don’t stop, but I’m going to stop. I’m going to say, we’ll see you in two weeks.
