Real estate was a big winner in the tax reform bill passed in December 2017. So, how exactly do the new laws impact us as passive multifamily investors and syndicators? And how can we take advantage of the new regulations and use the available incentives to reduce the amount of money we owe the government?
Tom Wheelwright, CPA is the CEO of WealthAbility, a community of CPAs dedicated to reducing taxes and creating wealth for their clients. As a Rich Dad Advisor for Robert Kiyosaki, Tom is a well-known keynote speaker in the realm of wealth building and tax strategy. He is a regular contributor to publications including Forbes, The Huffington Post, Entrepreneur Magazine and Inman News, and Tom is the author of Tax-Free Wealth: How to Build Massive Wealth by Permanently Lowering Your Taxes.
Today, Tom joins me to explain how to shift the way you think about taxes, viewing the law as a roadmap to reducing how much you pay. He discusses the new laws around bonus depreciation, describing how both passive investors and syndicators benefit from the revised guidelines. Tom also shares the regulations around the 20% deduction and the changes in Section 179 that impact residential and commercial real estate investors. Listen in for insight around qualifying for the status of real estate professional and learn how to significantly reduce your taxes as a multifamily investor!
Key Takeaways
How Tom came to start his own network of CPA firms
- Experience creating courses on reducing taxes
- Worked for Fortune 500 company, as ASU professor
- Founded own firm (goal to expand to 1K in 5 years)
How to shift the way you think about taxes
- Incentive for doing what government wants
- Professional investor can get to zero in few years
The new laws around bonus depreciation
- Real estate now qualifies with new/used equipment
- Cost segregation of contents, land improvements
- Example—30% of $1M investment = $300K
How the new tax laws affect passive investors
- Leverage 70% or more = no taxable cashflow
- Convert ordinary income to capital gains by investing in syndication
How the new tax laws may impact syndicators
- Hold carried interest for 3 years to get capital gains rates
- Consider 1031 exchange to plan for potential 3-year issue
The changes around the 20% deduction
- Applies to positive taxable income from real estate
- Example—earn $100K, only taxed on $80K
The changes to Section 179
- Deduction for new/used equipment applies to residential real estate
- HVAC units, fire/security alarms and roofs in commercial properties
How to qualify for the status of real estate professional
- Spend more than 750 hours during given year (15 hours/week)
- Spend more time than other business, investment activities combined
- Must meet qualifications every year and keep good documentation
The tax benefits of being a real estate professional
- No passive losses from real estate (active can offset any income)
- 8% Medicare tax doesn’t apply when sell property
- 20% rule only applies to real estate that is trade or business
Connect with Tom
Resources
Tax-Free Wealth: How to Build Massive Wealth by Permanently Lowering Your Taxes, Second Edition by Tom Wheelwright, CPA
Financial Freedom with Real Estate Investing: The Blueprint to Quitting Your Job with Real Estate—Even Without Experience or Cash by Michael Blank
Podcast Show Notes
