Welcome to another episode of Passive Real Estate Investing. I’m your host Marco Santarelli. Well, we have a very exciting show for you today, and I have a very special guest, you know, we all love paying taxes don’t we? Actually, that’s not true. I’m kidding, we don’t. But the reality is is we all have to pay taxes at some point in time, whether it’s now or in the future, but wouldn’t it be great if you could defer, eliminate, minimize, reduce, or just put them off forever and you can, there are ways to minimize your tax impact. So today I’m bringing on a very special guest. His name is Mark J Kohler. He’s got some amazing books out there. I thought I’d put together my own list of tax saving strategies and just kind of throw it out at Mark and see what he has to say.
He’s got his own list. It’s probably much larger than mine, but, uh, let me tell you a little bit about mark and then I’ll let him chime in and fill in the gaps that I’ve missed. But Mark is a best-selling author. He’s a national speaker. He’s a radio show host. He’s a writer, a video personality for entrepreneur.com and he’s also a seasoned real estate investor. He’s a senior partner in two firms, a law firm, as well as a separate accounting firm. And I will admit and openly tell you full disclosure that I am a client. Mark is a personal and small business tax and legal expert, and he helps clients build and protect their wealth. And that’s the key thing here. And I’ll just wrap up here by telling you he’s got three amazing books that I’ve read. And I started reading the many years ago. One is a great title, Lawyers are Liars: The Truth About Protecting Your Assets. The second one, and the follow up book to that is what your What Your CPA Isn’t Telling You: Life-Changing Tax Strategies. And lastly, The Tax and Legal Playbook: Game-Changing Solutions to Your Small-Business Questions, which is fantastic with all that. Mark, welcome to the show.
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Thank you. And gosh, I just am grateful to be here and I’m so excited to hear your top 10. You know, I was like, you got to top 10. Okay. Let’s see. I want to see if maybe I’ll get a new one for my top 10. So this is going to be good. We’ll collaborate. I’m excited about it, Marco.
You and Matt are very, very seasoned at what you do. And honestly, I’ve learned a lot from you guys. So I wouldn’t be where I am today, if it wasn’t for you and Matt, your partner. So I appreciate everything you guys do. And you know, just to shout out to you, anybody listening to this really should subscribe to you on YouTube and listen to your podcast and follow you because really you put out such great advice that anybody listening to this, even if they’re not a client can really take it and run with it and do something and help themselves.
Well, thanks. And on that note, current event, justice week, it rocked our world is the Democrats finally came out with their proposed tax plan that articulates everything, president Biden ran on and for the small business owner, the real estate investor, it’s tough. It’s a little ugly now. I’m not trying to be political. Trump did a lot of dumb things. I can’t say, you know, no, one’s a perfect president, but there’s some things that are some people may say, well, it’s for only those that make 400 grand or more that are going to be impacted. No, there’s a lot in there. And so now we’re far, we’re ways out. It hasn’t even gone to committee. We’ve got, um, let’s starting in committee now and the Senate is going to chime in and we’ll see what it looks like, but everybody you’ve got to follow this because there’s an opportunity for you to send a text or an email to your political representative and say, no, I love it. I want it passed. Or you may say, no, I don’t like this provision of that provision. So I’m glad that Marco is taking the tough topics and covering them in a podcast that was great taxes who knew this would be.
Mark. So what, what was the thing that you saw or read that was a, uh, the biggest shocker for you?
Well, the biggest shocker for me, um, and I won’t say what wasn’t a shock. I’ll say the biggest shocker for me to get right to it. Cause we got a tight timeline today, is the attack on self-directed IRAs and self-directing 401ks. I was emotionally hit,seriously. Now some of you may have heard in the news, Peter Thiel, a $2 billion Roth IRA. Some people see that and go, oh, it’s the super rich playing the games again, you know, blood, blah, blah, blah, blah. You know, he built this $2 billion Roth from nothing of just the same amount you and I can contribute in our Roth IRAs, but he did it through PayPal and Facebook and some initial public offerings that he was in on the ground floor on. That’s cool. Great. But this is not a wealthy against the poor thing, uh, or strategy or concept.
All of us can open an IRA. All of us can buy real estate in IRAs. I know many, many, many listeners of your podcast. Marco invest in VRBO’s and Airbnbs and passive real estate with a Roth IRA or a 401k. Well guess what? Right? That is under attack. They wall street. Doesn’t like it either because they want you to put in your Roth money with them in wall street. And so when you put the attack on the super wealthy and wall street on main street, it’s serious. So if you’re a self-directing real estate investor and all of you should be to some degree, you’re going to have some problems with this legislation. So we should have a follow-up podcast on that. Marco is we get the Senate version and things get closer, but yeah,
But yeah, definitely we can dive into that, correct me if I’m wrong. But my personal feeling about that is there’s probably too much political heat and pressure to avoid it, passing that. So the probability, and I’d like to ask you, what do you think the probability is of that passing? Because I think there’s going to be too much backlash from business people, entrepreneurs, and I mean, even wealthy people in passing such a change that pushes taxes up.
Well. Yeah, but, but see, even the tax cuts and jobs act now, even if you hated Trump, if you’re a small business owner, you got a lot of neat provisions on a silver platter. Even before he left office, he gave us a hundred percent dining deduction for two years. Oh my gosh. Huge, beautiful. The auto deduction. Great. So again, whether you love or hate your current party in office, you got to look at this subjectively, sorry, objectively as a real estate investor and go, okay, what’s in here. That’s good for me in the problem is it’s always a compromise. So even with the tax cuts and jobs act, we had the 1031, that took some beating, and also Roth conversions. So being able to convert your Roth, your IRA to Roth at year-end, and then being able to reclassify and back out what you didn’t want to pay tax on later, before you filed your tax return, that’s gone.
That’ll never come back. And so wherever there’s, you know, Republicans and Democrats fighting over things, there’s going to be certain provisions that we don’t want to have to give up on. And so that’s why being an active participant in any lobbying that you can as a real estate investor, even with the national association of realtors and other lobby organizations, have your voice heard, get it out there. And so is this gets closer to being passed. We’ll send you information mark on what people can do to say, you know what? I don’t like that. I want to be able to get a stepped-up basis when my family dies and that got a beating. So, you know, there’s a lot of different things we need to talk about. So it’s good.
Yeah, for sure. And we’ll never be able to cover it in 30 or 60 minutes, but these political footballs are just, you know, all the time brought back up, it seems like every administration has, uh, you know, their tax proposals and tax changes good or bad or otherwise. But so here’s what we’re going to do. Mark. I put together about 10 different tax strategies. I say strategies and air quotes. Cause they’re not necessarily a strategy per se. And I ranked them from the most simplistic to the most comp complex, if you will. So let’s just take these one at a time. We don’t need to spend a ton of time on it. I wanted to bring awareness to people so they understand the possibilities, what they should be doing or could be doing. And then, you know, they can always talk to their tax professional asset protection people and whatnot, your firm or otherwise to make sure that they’re taking advantage of all these, the first one is overly simplistic, but a lot of people, I think miss out on this.
1. Hold Properties for More than A Year
Holding properties for more than year question, why should you do that? And I’m assuming that you’re a buy and hold investor, not necessarily a flipper, but holding properties for more than a year, obviously has some tax advantages.
Yeah, that’s a good one. Okay, cool. And then what’s going to be fun. And your top 10 may not be my top 10. So this is going to be fun. Um, and Corey, not my studio for those of you listening on podcast, we may go to the whiteboard at times. Um, I’m going to do my best to explain what I’m talking about visually as well as verbally here so that you don’t have to go watch this on video, but I know it’ll be on Marco’s website and he always produces great stuff on his YouTube channel. So get over there and watch that at one point, Corey and my studio does a great job here, but I need a rockstar Corey and a yellow pad. Cause I want to write these down as Marco’s was doing this, we’re going to prick them, make this rock. We should do a joint blog on this.
You know, like just draw blog post. I can feel it. This is, this is going to be good. Okay. Number one, hold property for at least a year. Yeah. I’m good with that. You get long-term capital gain for those that don’t know, you may be new to real estate. Long-term capital gain rates are lower. Obviously they can be down to zero in as high as 20%. You can have the Obamacare, Obamacare tax on top of that. And I know some people think that’s a politically charged word. I don’t mean to make it that way. Call it the affordable ACA healthcare tax, whatever, but you’ve got state tax as well. So even if you get long-term capital gain, you’re really just reducing your ordinary income rates. So if I’m in a 30% tax rate and I can hold it at least a year, I’ll probably drop down to 20 or lower. So that’s good. Also when you hold things longer than a year, it opens the door for a 1031 exchange, which is good. Also, if you’re going to do any Oz property investments, that’s opportunity zone investments, you need long-term capital gain to do that. You can’t do it with short term. It’s warm. What the freak, I’m warm rockstar. These still are worth it. I got to get my promo in here. Marco,
They’re going to sponsor you one day, Mark. I swear.
Oh, they will. They will. They’re they’re dying to be because I’m going to a tax attorney rockstar. And so why shouldn’t I be sponsored by rockstar? You know? Okay. And we’re trying to keep this light too. So bold things a year. I think it opens a lot of doors for long-term capital gains, 1031’s, opportunity zones. But one thing I’ll say is we never want to let the tax tail wag the dog, right? If you’ve got a property that it’s the time to sell right now, we know it’s a sellers market and you’re like, man, I want long-term capital gain. Well, what the freak, if you, if you’re looking at a 10% difference in tax rate, but you know, you may be plateaued on a sales price and you’ve got an active buyer ready to go. Don’t hold out for a tax strategy when you might lose out on more actual revenue.
Part of the reason I was asking this as most of our audience are buy and hold long-term real estate investors. They’re not looking at the short-term, they’re certainly not buying to sell. And if they do sell it’s years down the road for various reasons, but there are a percentage of people that listen to my show. And I know this that are buying, fixing and flipping and taking profits to roll into down payments, to buy long-term rentals. And that’s great. That’s a great strategy. If you’re running a side hustle or a business that’s flipping property, but then there’s also those people who are not completely aware that there is a tax impact. If you buy a property, fix it or not, and sell it within one year because you’re going to get hit with short term capital gains. And we don’t want that to happen. You’re better off just waiting a year in a day.
Yeah. And I’ll throw this out for those of you doing real estate in your Roth, IRAs, your 401ks or traditional IRA’s, it, you, by holding it less than a year and you do too many of those, you might be subject to what’s called UBIT tax, unrelated business income tax. Because now the IRS says your IRA is a flipper. Even though you may not be a flipper, you’re moving too many properties through your IRA. So you gotta be careful. The longterm hold is a good strategy inside your retirement account as well. When you say, well, I don’t pay tax on my retirement account anyway. Well you might, if you’re doing too many deals. So, and I’d say this again, I’m a passive holder. I’m a flipper too, see don’t put yourself in a box people. If there’s a deal that comes along and you just bought a place that you plan on holding five years, but some idiot comes along and offers you sick money for it. Take it. Don’t be a long-term hold. If you’ve got a killer deal in front of you. It’s so just be careful putting your own self in a box too.
So let’s take that even one step further. What about the whole self-employed dealer classification?
Well, yes, that’s right too. So if you’re flip, here’s the rule and this is what our firm, we stand by. And if we sign your tax return and we’re wrong, we’ll pay the bill. So we, we stand behind what we say. There’s a lot of people out there searching on the web for the answer they want, but those people aren’t signing your tax return. So when you listen to our podcast or read our books or whatever, and you’re talking to us, we stand behind what we say, cause we’ll sign your fricking tax return and prove it. But on that note where we stand is about three flips. If you’re going to buy and sell property more than three and under a year, hold in a given year, you may have fallen to that dealer classification and fine. We can solve it with an S-corp. You might have UBIT insides, an IRA.
So be careful there. Good example of this Marco. Once I had a client that came in and I said, what’s, what’s your business? Oh, I, um, buy and sell land. I just buy and sell land. I don’t even do rentals. I just buy and sell land. I’m like, okay, cool. You’re not go short-term long-term he goes, whatever. Some are long-term. Some are short-term I’m like cool. And I saw his tax return on his schedule D a D as in David that’s where you would put your buy and sells. He had like 35 deals in one year and his, his accountant had called it either short term capital gain or long-term capital gain. That’s it I’m like, dude, this is not going to fly. The IRS is going to say, hell no, you’ve either got to run those short-terms through an S-corp because you got ordinary income on those and the long-terms we can do long-term capital gain. So the schedule D as in David, again, I don’t want to see more than three short-term holds on that. I want to see everything 12 months or longer. It’s it reduces your chances of an audit. There you go. There’s another reason. See, you didn’t even know that Marco you’re number one, reduce your chance of an audit too.
Oh, there you go. I love it. That’s a great, great, great.
What’s your number two. I’m dying to know.
2. House Hacking
Okay. Well, two segues from number one. And this is for those people who, uh, like to house hack and essentially it’s, you know, you want to live in a property for at least two years, right? So I’ll just kind of throw it over to you at this point, because I’m trying not to answer the question for you, but you definitely want to leave the property for at least two years before you move on to the next one. And this is great for those people who are, you know, what we call house hacking, buying a property, maybe fixing it up, living in it for awhile. And then they move on to take advantage of preferred capital gains treatment. So I’ll let you dig into that one.
Yeah now,love it. Now house hacking, that’s a kind of a term that’s been thrown around out there in the geek, IRS accountant world, tax lawyer. We call that sale of home exemption. The sell of home exemption only applies. If it’s been your personal residence for at least two years, now you could hold it in your trust. You could hold it individually or inside an LLC, but you better darn well be able to prove that you slept there predominantly the last two years as your primary residence. Now assume you say, well, I’ve got a second home or a third home or whatever. You can only have one primary residence because one place you slept more than anywhere else. So you may say, so keep that. You may say, well, I got a home in Nevada too, or I’m a part resident of Nevada and I’m playing kind of a SIM state income tax strategy, their game there.
And I’m not opposed to that, but just remember you can only have one primary residence where you primarily live as the majority of time. Keeping that in mind, if you live there two out of five years, you can turn it into a rental at that point in any gain that you accumulated during that first two years, you’ll never be taxed on well, up to 250 grand. If you’re single of gain or 500 grand, if you’re married, turn it into a rental. Now see again, this was an old rule. We loved that you could turn it into a rental and do play that sale of home exemption. Or if you had a rental go and live in it for two years and then call it a sale of home exemption. And so you had this attributed gain while it was a rental that kind of disappeared on your tax return. And the IRS is like, so you now have to create a kind of a line. When was it your home? When was it a rental? And you get to exclude the gain during the personal residence time period. Then you’ve got to claim the gain. When is a rental, when it’s not your primary residence, but love it. It’s a great one. And we’ve done a podcast herself on turning your primary residence into a rental. Every time you move, don’t sell it and turn it into a rental, strip out the equity refi, move on. What’s the
What’s the best strategy there? They live in the property for two years or more. Move on to the next one, keep it as a rental and do the same thing over again, where you’re in the new residence. You’re living there for two years and you’re always kind of resetting if that’s the right word, your exemption on those capital gains?
Yeah. The good thing is you can do this every two years. So yes, the old rule up until mid two thousands was you can only do it once in a lifetime. So now every two years you can hit, reset and sell another primary residence. The thing you’ve just had at Marco, if I may is correct you there, as you said. So the best thing to do is X. Well, I would say it depends on each person’s situation. If you’ve got a chance to cash in on this property and it really went, cashflow is a rental. They go orange county down there, right? You’re like, hell I can’t cashflow this with a decent cap rate. I’m just going to sell it and go buy my next personal residence. The classic California 401k. So, you know, my home is my biggest asset. So in an area where home values are very high and cash flowing rentals is tough.
Keeping it as a rental won’t work now for other places you just have to analyze. And this is where I would say, analyze it separately, say, okay, if I sell a home exemption cash in no tax, that’s cool. Then ask independently, would it make a good rental? Ooh. Yeah. And I’d refi, pull your equity out, go buy another home or another rental or two more if they’re like rabbits. Right? So I would just say we have a lot of clients that do both. They cash in on the sale of home exemption by a new primary residence and move on and others keep it as a rental. And it just depends on your situation.
Right? Yeah. Well, that’s more of a strategic question that you need to have a discussion with either your investment counselor or your tax advisor, whoever it may be.
Yeah Marco, Marco, I got another one to add to your number two. What about your parents? See parents? That’s a big one. You may have an aging parents that want to go apply for Medicaid. And so now they’re like, well, I got my home. As an asset here, you can buy the home from your parents cash in on the sale of home exemption. Parents pay no tax. You now own it and rent it back to mom and dad wait the time period in your particular state. Now they’re available eligible for Medicaid with no reach-back or clawback to take that home equity away from the parents. They sold their home, right? It’s not a prohibited transaction for you to buy the home from parents, whatever value you want it, that’s reasonable. And they’ve got their sale of home exemption. Now you’re getting the best of both worlds. They can apply for Medicaid, uh, and elder law strategy. The home is out of their asset list. You’ve got a home. Now that’s a rental property. Whenever you go visit mom and dad, it’s a tax. Write off to go check on it. You can gift rent back and forth. You don’t, don’t, that’s a whole other strategy. We’ve done podcasts on that too. But I think buying mom and dad’s home and turning it into a rental to take it off mom and dad’s balance sheet can be a great strategy to, and number two.
Interesting. Never thought about that. That’s really good. Good stuff. I love you, Mark. This is great.
3. Maximizing Your Deductions
I’m going to start tearing up here. Okay. All right. So the next one is going to sound ridiculously over-simplistic and it’s really about maximizing your deductions and you know, maybe from where you and I sit, we think, well, isn’t that obvious? Of course you’re gonna maximize your deductions. One of the advantages of real estate investing is that every real expense and some paper expenses are tax deductible. But I personally believe that there are real estate investors either because of ignorance or because they’re working with the wrong professional or not taking all the deductions that they possibly can. So I don’t know. I just, this is more of a, can you comment on this rather than let’s break it all down and talk about every single deduction that’s out there?
Yeah. Well here’s what I would summarize your point number three, being okay. Many real estate investors. Don’t realize that first and foremost, they’re a business owner. Right? I just got chills when I said that this is spiritual. So here’s the thing. If you’re a passive real estate investor, you may think I’ve got this passive investment. Yeah, sure, sure. But you’re a business owner. You’ve got a rental property. You’ve got revenue. You got fricking expenses. I want, I want home office. I want auto. I want dining. I want travel. I want computers, electronic cell phones. I want a board of advisors on your LLC. I want all of your family involved, repairs, maintenance, HOA’s, tool, supplies, equipment, anything at best buy anything that home depot boom, the whole list. Yeah. That is being a business owner. So when you’re a passive investor, do not somehow think that you’re passive. No, you better be actively involved in managing your business. It’s a fricking awesome tax strategy. Love it.
Yeah. Very, very well said. So takeaway I take from that is expand your horizon and think about everything that could be tax deductible, because it may relate to your business of real estate investing, but you’re not thinking about it that way. Yeah. So I love that.
I titled it. Remember you’re a business owner first.
Yeah, I love it. Yep. And I always say treat real estate investing as if it was a business. Like treat it as a business, not as a, just as an investment, but as a business.
Totally, totally, yeah.
4. Maximize Your Depreciation
Okay, cool. Okay. So again, this is going to sound overly simplistic, but depreciate your properties. And I was guilty of this myself long ago. I did not appreciate some of my properties that I purchased and put in into an LLC. I didn’t flow it through. I didn’t do anything with it. I just held him there for title holding purposes only. But I think it’s important to depreciate your properties properly. And depreciation is a beautiful thing. It’s a, it’s a zero cost expense. Is it not?
Yes. Uh, uh, zero cash expense, it’s a on the books expense, no cash transaction. Now let me ask this. In your top 10, are you going to bring up Cost SEG?
There’s two that are not on there that I would like to bring up cost segregation and opportunity zones, which I just thought about as we were talking.
Okay, well let me throw this out. Cause I didn’t want a torpedo one of your top 10. So if cost SEG is not in your top 10, let’s address it now. Okay. What I would say for those taking notes out there, number four, maximize your depreciation carefully. Now why I say that in those, with those particular choice of words, there are yahoos out there that get all hot and bothered about cost segregation. And I think unjustifiably so, meaning Cost SEG is not everything it’s cracked up to be. Now, do I do Cost SEG analysis? Do we help clients spend it on their tax return? Sure. But it helps about one out of every hundred passive investors. It is not as sexy and as great as everybody thinks now, does that mean we give up on depreciation in total? Nope. Are we going to look at bonus depreciation?
Are we going to look at 179 depreciation? Are we going to maximize any improvements on the property through specialized cost SEG depreciation? Absolutely. But remember folks, if you’re a passive investor, we’re up against the passive loss rules, which is not a bad thing. I’d love the passive loss rules. And I love that real estate professional rules. They just come with different different rules. So, but cost SEG does not work. If you’re a passive investor, it doesn’t. Cause all you’re going to do is rack up a bigger loss in your bucket and you’re getting some nut job selling you a cost SEG analysis that you don’t need. So be careful with depreciation. And it’s a wonderful thing. You got to take advantage of it, but don’t get hopped up on it. You know, pretty soon you’ll be in rehab. You don’t want to intervention for depreciation. It’s tough.
Here’s what a tangent but related question to that and something that I’ve never really figured out myself when determining the land value of the property, is there an official or reliable source for that or do people just go to the county records and see what they are valuing the assessor is valuing the land at?
No and no, there is no reliable one-stop place source and no, I just not do not go to the assessors opinion. Evaluate when you go to depreciate, it is true Marco. By the way, I’m throwing down some of my best jokes. Marco. I’m not even getting a smile here. I mean, you got to work with me. I mean, this is really tough.
You know I am serious on this stuff. It’s taxes.
Geez, chill out. All right. All right. Well, okay. No. Okay. Now everybody, what Marco getting at is in fact, let’s go to the whiteboard. I promised it and it’s kind of fun. So we’re going to go to the whiteboard cause I, I can’t teach without doing whiteboard. So if you’re watching on YouTube or go into the website, you’re going to see, we’re going to draw a little house here. Now this house is our rental property. I’m going to write that off to the side rental property. Now I’m going to draw around the house, the land. So I’m trying to do 3d representation as best I can. We’ve got this lot. We’ll call that the lot. And we’ve got our rental property. Now, when you go to put this on your tax return, the home is, is you’re allowed to depreciate it for those that are new to this.
You’re on a single family, home SFM or SFR single family residence. I got all these different terms applied there, but um, single family residence, you’re living, going to depreciate the home value, whatever that is over 27 and a half years, that’s the general rule. Most accounts are going to go straight line. Let’s not get into all the, you know, double depreciate, blah, blah, blah, all that crap. Let’s just go 27 and a half years. So if I buy a home for a hundred thousand dollars, I put that up in the left-hand corner purchase price. Most accountants, Marco general rule is going to do, we’re going to do an 80% allocation of purchase price to the building and 20% to the land. Now let’s just kind of a general rule, right? Then if we are in a market where that is too conservative or too aggressive, and your accountant may be too conservative and too aggressive in people, you’re the captain of your ship.
If your accountant is allocating way too much to the land, you want to reign them in. And if they go, I don’t feel comfortable with it. Do you want to be my accountant or not? This is my freaking tax return. So if I want to do a 90, a 90-10 allocation, 90% of the building and 10% of the land, then that’s what I’m going to do. If you don’t want to be my accountant, you tell me, don’t let your accountant push you around people. And now they’re gonna say, well, that’s not realistic. Really? Have you gone out and tried to rebuild a home right now? You can’t even get a contractor because return your call for the next two years. You so screw you, you know, buy land is not as valuable as my building right now because you can’t find a contractor on this green earth to do a build anytime soon.
So you’ve got some arguments in your back pocket. So this is a subjective analysis. Meaning I’m going to look at the assessor’s property valuation versus the building. I may look at the appraisal when I bought the place because the appraiser is going to come up with their own allocation of the building versus the land. And you want to look at comps in the area, want to look at the current climate in the market, how expensive would it be to rebuild? And I want to look at the area, how much does a lot go for versus build. And you’re going to look at all these factors and come up with an allocation. The more you can put towards the building, I’m going to draw the building in dark. Now the more value I can allocate to the building better right off. That’s the rule. So you want to be as aggressive as you can, within reason, not off your accountant and trying to get as much allocated to the building as possible.
The land just sits on your books. It’s non-depreciable. The cost SEG analysis comes into play. When you want to divide up the house after you buy it, but what’s easy is in year two or three, you go buy a new furnace. I don’t have to do a cost SEG analysis for that. I can just bonus depreciate the furnace. If it works in our favor, I don’t have to do a cost SEG analysis when I buy new equipment that attaches to the building, but that’s a whole other topic. But anyway, I don’t know. Does that help at all, this little diagram?
No, that’s great. This is beautiful. What I like about what we’re doing is I literally just put down 10 bullet points. I have no notes to go off of and we’re just taking it wherever it takes us. So this is great. I mean, depreciation is important. And one thing about some of the coastal states is that land values are so high that I don’t think you’ll ever see this 80, 20 ratio that you’re talking about. Land value, like in California here, coastal, California makes up. I don’t know what percentage, but a significant portion of the purchase price.
No, I hear you, I hear you.
And so I think you’re losing out.
So yeah, it’s very regionally based, but again, it depends on cost of construction too, which is crazy right now. And so just how to act. Here’s what I would say to all you passive investors out there. Don’t take what your accountant says as gospel period. I have so many clients that come to me go, you mean I can debate this with my accountant? Yes. But these accountants out there that have something stuck up there, but because they think it’s their way or the highway, they work for you people, they work for you. And they’re like, well, Mark Kohler’s too aggressive. Really I’ll sign your tax return. I’m licensed by the ACP, AI CPA. I’m licensed in seven states. We’ve got CPAs. We’re doing tax returns on track. Do you think I want to get audited? You think I want to pay the bill? No, it’s just, I can fricking stand up and be tough once in a while. But the IRS will, you need to pay your fair share. That’s just the way it is. Oh, that sounds like an account is getting fired to me. So be tough people. This is your tax return.
5. Own Rental Real Estate in a Self–Directed Retirement Account
Don’t pay any more than you have to. That’s really the bottom line here. Cool. Moving forward here. So this is something that I think there’s a lot of unknowns, confusion and ignorance around, but a lot of people don’t realize that they can own property in a self-directed retirement account, like a self-directed IRA. So obviously there’s two kinds of, you know, you’ve got your Roth version and you’ve got your traditional and there’s a lot you can do there. And this is a big topic. In fact, this can be one episode or show by itself, but let’s just kind of talk a little bit about it and talk about the opportunities and the option to actually own rental real estate in a self-directed retirement account.
We’re setting up LLCs everyday here, the third sister company that is just a huge part of my life and a part of our operations for all of our clients is the directed trust company, directedira.com. And you can get over there and check it out. Here’s the, just have a copy on my desk here. This is The Self-Directed IRA Handbook. Second edition written by my partner, Mat Sorenson, the bestselling book, the most sold book in the country on self-directing your retirement account. Get a copy. Start learning about this. We have a podcast called the Directed IRA Podcast and you can find out any of those platforms for podcasting. Please check it out. The first 10 episodes we take you through the basics. But the point is, if Merrill Lynch tells you, you can’t buy real estate in your IRA or all they tired, try to sell you some REIT say, oh, I can self-direct it’s that they can’t self-direct their platform in wall street. Doesn’t allow for you to set up your own LLC owned by your IRA to buy real estate. And you can do it all freaking day long. We’ve been doing this for 20 plus years here at our firm. We’re the leaders. We feel at least in the law firm and the trust company level combination. There’s no one like us in the country and we stand behind what we teach in. And so if someone, some custodian out there west coast or east coast tells you, you can’t be the manager of your own LLC, the wrong, the wrong. That is their internal policy because they’re scared of their own shadow. They probably, you know, go fishing with your other accountant is scared to do depreciate. So you can manage your own LLC. You’re not going to take a salary. We give you a list of prohibited transactions. You can’t rent your property to your kids in college or your grandma or your mom and dad, but there are all so many opportunities. So awesome. I’m mining crypto in my IRA. I’m I own cattle in my IRA. I own duplexes in my IRA. I own section eight homes in my HSA. Uh, the list goes on and on I’m doing it. My clients are doing it. Peter Thiels’s doing it. Everybody’s doing it. Get on board and you don’t have to be rich to do it. So self-direct.
So Mark, what do you say to people who say, and I used to say this myself, but it’s not worth investing in real estate in your IRA because you lose the tax benefits of the real estate.
Oh my gosh. Well, and I’ll call them out because he, they’ve talked about this at Rich Dad, Poor Dad forever. And Robert Kiyosaki says, I think it’s stupid to buy real estate in your IRA because you don’t get the write-offs. Do you remember the other side of the equation that I don’t pay taxes when I sell the property either. Right? It’s a double-edged sword. I don’t get the write-offs. You don’t pay tax when I sell it. Right. So sure. Yeah.
So it’s like a wash.
Yeah. What I want my ideal scene and my successful clients do this. They do both. I own rental property in my own name. I own rental property in my IRA. I do both. Depreciation is only and the write offs of your rental property is only one factor. Everybody listened. Could you, all of you listeners out there, could you, if we were out to dinner and I know you’ve done it, if you’re listening to this podcast, you’re believer how many of you gone to dinner and wrote it down on a nap written down on a napkin for your friends? Why you own rental property? You probably have five to 10 reasons. Well, not every one of those reasons falls into a perfect equation when it’s your own rental, some of them make even more sense inside an IRA. It’s a combination of benefits in different vehicles. So don’t get stuck on the fact that I lost appreciation and I shouldn’t buy real estate. If real estate is a good fricking investment, why aren’t you buying in your IRA? Oh, you’re getting 20 to 30% returns and ROI. I know in that mutual fund of yours, that’s just kicking by knock yourself out.
Right, right. Nuff said!
Boom! I got to do a pin drop. I can’t do a mic drop. I’ll do a pin drop.
Yeah. I’d like to drop mine, but I can’t. It’s attached to a boom.
All right. Number five. Self-directing
6. Use a 1031 Exchange
All right. So here’s one of, yeah, so and so here’s one that gets a lot of attention, especially now it seems to be a bit of a political football. And that’s the whole thing about deferring taxes with a 1031 exchange. And we as real estate investors love this, but I know there’s still a lot of people. Cause I get questions all the time about it via email and whatnot that they don’t know what a 1031 is or they’ve heard of it a million times and they just don’t know how to take advantage of it. Well, the beautiful thing is, is you could literally defer paying taxes almost indefinitely. So Mark, oh, I’m going to let you comment on it. And when is the right time and place for us to be using a 1031 exchange?
Well I think the 1031 exchange is still alive and well, what the tax cuts and jobs act did was shoot down 1031 exchanges for personal property. You used to be able to defer like say you were a doctor and bought an MRI unit and depreciated it. And then you went and bought a new MRI unit. You could 1031 exchange or say you had some assets that were personal property, not real estate. Those got shut down. So if anybody tells you out there, 1031’s are not alive and well, they are still very alive and well in the real estate realm. So that’s point number one, there a way to defer taxes down the road, buy or sell a property. Now take the gain, kick it down the road into another property. You can sell Mississippi swamp land for downtown LA high rise. You can sell a duplex and buy a single family home. You can sell an apartment building and buy raw land. You can even do buy water rights, mineral rights, all sorts of different real property interests in a 1031 exchange. So learn the basics. Um, I’ve got some great YouTube videos out there and blog articles with little diagrams of how the 1031 operates. There are some timing rules. You want to think about this before you enter the sales transaction. When you’re listing the property with your realtor, just let them know. I might want to do a 1031. That’s all you have to say. And then there’ll be an addendum in the sales documents that say, I might do a 1031. And in that leaves the door open at closing to consider that option. I learn about them. I think they’re awesome. I’ve got podcasts on them too in depth.
And they’re great, but they’re not for everybody. Sometimes you want to pay the tax, rip the bandaid off and then take the gain and go do something else. I’m a huge fan of Dave Ramsey. I want my clients out of any sort of personal consumer debt, sometimes selling a rental property to just pay off debt or student loans. That’s okay. Pay the tax, get that pain over with and pay off debt that you shouldn’t be carrying on your books next round. Defer it. Do a 1031. So some people I talk them out of a 1031 because they’ve got some things they need to use that money for that’s more wise. So don’t think they’re the get all end all and one size fits all.
So from a strategic perspective where I like to talk about the 1031 is for people who are what I call equity rich and cashflow poor. And these are people who are often in the coastal markets like California and New York and whatnot, where they’ve had property maybe for, you know, a decade or more. And they’ve got a lot of equity that they can tap into. And of course they can do a cash out refi and use that equity in the form of a loan purchase, more property. Or they can just do a 1031 out of that property again. And this is not their principal residence, but now they can tap into that equity and leverage that dormant equity and turn it into a portfolio of properties that are cashflow positive that have expanded their passive income and still retain that equity. And I think that’s a brilliant way to use a 1031.
Yeah. And a lot of people don’t realize, I hope the CRT is on your top 10, but a lot of people don’t realize that you can use the 1031 in whole, or in part you may have a property. I had a client that was selling their home on a piece of farmland that had a stable, that was a rental property. So we were able to do the sale of home exemption on the home piece, do a (inaudible) trust on the farm piece and do a, a 1031, no, sorry. So we did the 1031 on the farm piece, and then we did a CRT on the ranching piece. And so you could do a variety of strategies on one parcel, depending on what you’re dealing with. Get a second opinion again, if your accountant, you know it, when your accountant is a little stodgy, a little conservative and a little too careful, it doesn’t mean you fire him.
I find your aunt or uncle they’re nice people. So you’ve got to talk to them at family reunions, but, but it does doesn’t mean you can’t go get a second opinion. And that doesn’t mean Googling for a second opinion. That means actually painted adviser to freaking tear it apart and give you some strategies. And we’re swamped. I mean, we’re two to three weeks out on a consult because clients have figured out, holy crap, these guys attacks and lawyer all in the same head and they have a team that can give me some other ideas, man. That’s money in the bank sometimes. So find a tax law firm out there that’s small business, real estate oriented that can help you get a second opinion on the 1031. Love it.
Yep. And it’s definitely worth pointing out that the asset protection side and the tax side are joined at the hip. They have to go hand in hand. You can’t do them separately. And I’m sure you agree with me on this Mark, but you need to work on those two aspects together.
Yep. Okay. We’ll do a quick diagram again for those that want it. Okay. This is a simple way to do a 1031 explanation for all of you that might enjoy this. And for those of you that are seasoned 1031 investors, this is a great little diagram. You can throw on a napkin out at a dinner party. People crowd around you being a nerd is very powerful at the bar. I mean, people are like what the life I want to say. Yeah. Yeah. Okay. So you’re going to have a taxpayer on the far left. You’re going to have a seller on the far, right? Cause there’s a property you want, but they don’t want your property. You just want their property down at the bottom. You have a buyer and the buyer is going to be the grease that gets this engine really off the ground here.
So you’re going to sell a property. So my I’ve take my taxpayer property here. And it goes into this queue. I qualified intermediary. That’s a box in the middle. So this is kind of the magic box in the middle of the Alps. It’s called a QI – Qualified Intermediary. They’re very affordable, usually 250, 500,750 per transaction, depending on how complex and what you’re doing. But the taxpayer puts the property under contract and sells it to the buyer. So I have an arrow going from left to right into the box. And then down the property goes to the buyer. The buyer’s not going to give me the money. Buyer puts the money into the QI. So it goes, sits there in the qualified intermediary bucket. Think of it like a title company until I find the property I’m going to buy. And if you’re going to do a 1031, I tell you to start shopping now. I don’t want to be up against a 45 day rule. The 180 day rule unless I have to. And then when you pull the trigger, the QI is going to send the money over to the seller. That’s on the far, right? And the seller is going to take that money and give you the exchange property. So that property is going to come back through the QI into, to end up in your lap. And I’m going to call that the exchange property, the EP. So you’ve got your new property over here. After the deal is all said and done, and you didn’t pay any tax in the process. That’s a basic 1031. Now you could sell three and buy one. You could sell one and buy three. You could do a construction, 1031. You could do a reverse 1031 by the property before you sell your property.
I’m going to, oh my gosh. The list goes on and on. You want to go to a boring seminar, go to a 1031 seminar for two days, but I do it for you. People. I do it for you. I take one for the team and then come back and can distill it on a napkin. That’s my job.
That’s beautiful.
Right, man. If you’re at 1031 is your sixth, most complicated. I’m excited to see what your 7, 8, 9 and 10 are. Cause I would have put those in my 9 and 10. So this is cool. All right.
Well, the last thing I’ll say about the 1031 is it’s a way to, uh, essentially leverage and use the equity that you have to grow your portfolio, increase your cashflow and take advantage of more of the benefits that real estate provides you. So it’s something to seriously consider, especially if you’re one of those people who I lovingly call equity rich and cashflow poor.
Right. Okay. So this is number seven. What’s that number seven. So this is related number seven.
I’m excited.
7. Installment Sale
These are not that complicated mark and was actually not for you, but what about installment sales? So I think that’s related to a 1031, but what if you want to sell and defer taxes and sell a property, you know, with what some people might call just seller financing, but defer the payments that you get from it over time?
Okay. number seven, installment sale. It’s funny. I did a training with some of my attorneys today on the installment sale, which is closely related to the CST, the deferred sales trust.
You can talk about both of you, if you want to.
Was deferred sales trust on your top 10?
It’s not. So you’re not torpedoing anything here.
Good, good. It shouldn’t be, it shouldn’t be. So I’m going to make some enemies, but guys, I, I call it like I see it. So I’m the empire. The coach comes out and that’s a kickstart on my shoes and because I call it like I see it. All right. Installment sale. The big picture approach to the installment sale is you’re now becoming a note investor more than you are a real estate investor. And there’s nothing wrong with that. There’s a lot of arguments out there that good real estate investors should also own some first trustees. They might have some notes in their portfolio. It’s a hedge against inflation. You’ve got a fixed payment. And when you become an note holder, typically it’s tied to a property you sold and you became the bank. You’re carrying the paper on a sale. The beauty of that from a tax perspective is you don’t pay capital gain all at once.
You just pay capital gain as you receive the money. Um, now you’ll pay interest on taxes on the interest you receive, but that’s why you’re doing this. You want to hedge against inflation. You want a fixed interest rate. Maybe there’s a variable rate against the prime. I don’t know, whatever you design your note. Maybe there’s prepayment penalties, maybe not. And there’s a lot of great experts. I know Marco’s had them on their show on note investing in note, investing as a whole their strategy, but that’s where the installment sale begins in my mind is that you’re a rental property owner. And you’re like, you know what? I’m going to convert this rental property to paper. And sometimes you’re praying the default, the default, and you just go take the property back and resell it to some other bozo. That’s great. And so, I mean, there’s nothing wrong with being a first trust deed holder because if they default you get the property all over again and hit reset.
So there’s, as long as they don’t destroy your property and that’s a whole other topic. But I think being a lien holder is a great strategy, holding notes, holding paper, um, in it, that’s an installment sale. And talk to your attorney. That’s very, very attorney driven because you want to make sure you’re protected. You’re going to act like a bank and make sure the property is not being destroyed or wasted or depleted and all these different words. Being involved. And, uh, so yeah, I’m good, installment sale, number seven. What would you say? I’d like you like that?
8. Equity Stripping
So I think it’s important to point out that this is not an all-inclusive list. This is not necessarily top 10. It’s just 10. I mean, we could have made this list 20 or 30, and I know you could certainly add to it. It’s just 10 that I came up with that I thought these are worth talking about and we could always append to it, you know, on another day. So let’s talk about number eight and it’s, again, this is somewhat similar to some of the stuff we talked about, but realizing appreciation by borrowing and not selling the property. Would you consider this a tax strategy of any kind?
Say it again, I’m going to sit back and let my property, so,
So you’ve got a property it’s, it’s appreciated a lot. You have a lot of equity in it and you don’t want to sell it, but you can realize some of that appreciation by borrowing against it rather than selling.
Yeah. And sorry, the term I would use that just comes to mind for me and I, it’s a title chapter of my book and all this as equity, stripping equity. Sure. No, the term equity stripping. Yeah. I think that that term resonates with me. Okay. Well, by the way, I got to go back to deferred sales trust. I didn’t make my enemies on that one yet, but equity stripping, number eight, write that down, everybody. Um, and there’s a lot of people that are big fans of equity stripping. You know, you’ve got this equity sitting in your property, you’ve had it awhile. Um, you’re like, I’m just going to, I’m not going to sell it. I don’t want to sell it. I don’t want a 1031. Right? I don’t want to carry paper. I just want to get that equity out and go buy two more rabbits, you know, and, and cool equity stripping is a great deal for that.
What the debate comes in with the Dave Ramsey mentality, and this is where he and I bump heads a little bit. And I think he’s great. He’s saved the lives of millions and millions of Americans. He’s pretty much anti debt in any scenario, including rental property. I think there’s good debt and bad debt. And so for some of you out there, you may disagree with me, but I’ll my argument is that if that debt is making you money and it’s not for consumer goods, it’s not on a credit card it’s not for your primary residence, it’s debt that is making you money. Yes, then I think there’s a fair argument that, that debt is good. That it’s reasonable. Now. We don’t want to equity strip 90-10 on a property. The property goes down in value and I’m upside down and we go back to 2008 and seven and we’ve got problems. I get it.
But a reasonable equity strip where I know I can still cashflow the property and get that equity working for me somewhere else. I think that’s a smart move. Having a rental property that’s paid for. Are you kidding me? That’s an asset protection nightmare and I’ve got a three to a hundred, 200 grand, 300 grand, 400 grand of equity. Just sitting there. My ROI drops from double digits down to two or 3%. It’s just stupid down. If this is my mom, that’s 85 years old and I just want her to be a rent collector. Fine, but don’t call yourself a passive investor. Hell no, you’re a rent collector in your ROI is going to be in the toilet. So I love equity stripping within reason, being careful being wise. Love it.
And it just goes back to my comment about being equity rich and cashflow poor. If you’ve got a property completely paid off, you know, you can put that equity to work if it makes sense. So love it. By the way, as a side note, I actually know the father of the lady married to Dave Ramsey. And I know from the inside that it’s not that he hates debt. He has a lot of property with mortgage financing on it. So it’s not that he doesn’t have mortgages. He does. I just wish he would talk about it more often because he does believe in mortgage financing.
Yeah. And, and I’ve had his daughter Rachel, on my podcast. Who’s done some books for children and financial literacy for kids. And I think she they’re so bright and I get emotional talking about it. Cause Dave Ramsey has changed the lives of family members and employees of ours in my life. I think his speeches about debt are just fantastic. But think about this, who is his audience? Right? Everybody out there who’s his audience. It’s the people where debt, hey can’t handle it. Debt is scary for them. They’re going to jack their lives up now for the more advanced investor, the more advanced financially literate person debt is. Okay. But he can’t talk about it without some yahoo taking it to the extreme. So he’s got his target. He talks to him. He does a great job at it. Totally.
All right. Next one. I don’t know if you would add this on the list.
Oh, before you go there. DSTs can I just mention it?
Oh no, go for it all.
You’re back on number seven, for those that are taking notes, there’s a strategy called the deferred sales trust DST – Deferred Sales Trust. I’m not mentioning any company’s names. I’m not mentioning any individuals. I’m giving you my opinion on the strategy, deferred sales trust. There are people that I will rub very wrong with my statement. And so be it, it’s my opinion. And I’m entitled to it. The deferred sales trust is a glamorized installment sale. That’s all it is. It’s a trust structure that allows you to access your cash right away, but pay the tax over time through a deferred sales structure, through a trust. I’m not opposed to an installment sale structure. When you want to use a DST to get there. My problem is the fees that they charged to do it.
And some say, well, you still save money. I’m only taking a portion of what this tax savings would have been. Well, I still think the portion they take is, um, excessive. And so, um, if someone wants to talk about DST with reasonable fees, for the implementation and maintenance and trustee services and the role of the attorney who has to approve it and put it on their malpractice insurance and stand behind it is compensated probably more than the person promoting it. Let’s talk. So be careful when someone tries to sell you a DST, cause the fees I think can be,not in all cases can be very accessive. So be careful and just realize all you’re doing is an installment sale. That’s it? And you’re taking the present value of paying taxes over time, rather than all right now. And then they’re doing a mathematical equation to show you how much you’re saving it technically is accurate. Yes. Do they want a percentage of that savings? Sure. It’s how much you think is reasonable. There you go.
9. 20% Pass Through Deduction
And again, like you said before, get a second opinion on something like this. So if you’re already talking to someone about it, get a second opinion. All right. Okay. Number nine. Uh, is it nine? Okay. Number nine. So tell me how this fits in. And it might be in the form of a question, but the tax cuts and jobs act in 2017, introduced the 20% pass through deduction. And it’s an intriguing tax perk for small business owners. But how does this apply to real estate investors?
Generally it doesn’t the QBI or the 20% pass through deduction and I’ve written articles. I have a chapter in my book, the second edition. Let me show it on camera.
Love it. Second edition. Right. All right. Don’t forget to mention
That this is my shameless plug moment tax and legal playbook. Yeah. Second edition baby. And you know what, I’m going to say this too. Um, Marco on this show. Sure. If you want to give a, I’m going to send you a couple books and you can give them away on your show to any listener you want. So Corey, would you make sure I get two, uh, tax and legal playbooks sent over to Marco that he can give out to his listeners, um, in a raffle form or however he chooses. I’ll sign them.
I appreciate it.
Um, oh, you bet. Appreciate you having me. So the QBI basically says on my pass through income, I can take 20% of that income as a deduction against the net income. So let’s say I made a hundred grand in my small business and it’s passed through an LLC or an S Corp. I had a hundred grand of net income. I take 20% of that 20,000 and I get that as a deduction against all my pass through income. Well, your pass through income has to be netted against your pass through losses and Marku, Marco. I was going to say who. So I went Marku and who Marco, who, what do people get when they invest in real estate? Do they have passive losses or passive gains on paper?
Well, they have passive income, but they also have the deductions that come along with it that are, I mean, depreciation is a passive loss, is it not?
Yes, you nailed it. You getting passive income with passive losses on paper, right? It’s the best of both worlds. If there’s angels singing in heaven, they’re singing. When I said that passive income with passive losses. So where’s the QBI come in on passive gains, passive income. Well, unless I’m a real estate professional flipping property or realtor or contractor, I’m not, the QBI is not going to help me. And so for the passive investor, QBI is actually a bad thing in the sense that I’ve got to take these passive losses and net them against my passive income, then calculate my QBI. And so I just, we just don’t see QBI as a, as a, uh, as a valid.
So. So really the bottom line here is somebody who is a real estate investor and has a passive portfolio and is flipping properties. Then on the active side of the equation where they have a business of flipping property, this is where this can come in, into play for them. Right?
Right, right. Okay. So if I’m a dentist or a doctor or an engineer or a contractor or a plumber or electrician, and I have a small business, the QBI is powerful. Love it. But I have to also net it against my passive income, passive losses. And so the QBI is really a tricky thing. I just don’t see it as a real benefit. The real estate investor. Okay. Passive real estate investor.
10. Stepped-up Cost Basis
Okay. I’m going to get some people rolling their eyes on this one. I’m just going to throw it out there. You take it how you want, but I call this a strategy, but die, owning your properties or pass away owning your properties.
Owning what’s the strategy again? Say it again.
Just die, pass away, owning your properties. Don’t ever sell them.
Yeah. Dying. I have said before is the best tax strategy. Right, right, right. For now, for now. Right. Um, president Biden campaigned on the fact that if rich people die with appreciated property, they shouldn’t get stepped-up basis. Right. He campaigned with a million-dollar cap after a million dollars. There’s no stepped-up basis. Right. And now how that ends up in legislation is a whole other ballgame. We’ve got a lot to watch as we talked about at the beginning of the show on the house and Senate, as they debate through this. So, um, stepped-up basis is pretty cool. Um, when you die and your property is brought up to fair market value, you can sell it. Your family can sell it. You’re long gone and they can pay no tax on that. So yeah, stepped-up basis is something that I, like you said, some people may roll their eyes as a tax strategy for the, for you currently while your life. Can I throw out an alternative number 10? May I find sir?
Yeah, go for it. I really, what I was trying to focus on with that is just the step-up cost basis. And the fact that your heirs don’t have to pay capital gains. I mean, you’re not around anymore, but it’s still a tax strategy of some kind. But, but yeah, take it where you want. I love this.
And I would add to your strat, it’s not a bad one. It’s one that certainly needs to be discussed. And this is where coordinating your estate plan.
Exactly. I knew you were going to go there. This is the whole trifecta thing, which I know is a show in itself.
Yeah and we should, but I’m going to just dive right now. This is not my number 10. I want to propose to you, but we’ll just show it real quick for those that have a chance to get over and watch this on video. Here’s what the trifecta is. Your foundation is your revocable living trust RLT. And this is your 1040 tax return down here. Now I’d like river water, whatever flows downhill to me. So I split your life in half. And over on the left side is your day job W2 you’re married or single. There might be a couple W2’s. You might have an LLC for your side hustle, but eventually you’re going to graduate into an S corporation S as in small business. And that’s your short term side, fixers and flippers realtors, contractors, developers. We’re going to eventually get into that. S-corp realm real quick.
On the right side, you’re going to have your tax deferred and tax-free investments. This is where you’re going to have your solo 401k. You might have, um, a Roth, health savings account, SEPs, all these goodies. Those are your tax deferred strategies, which we know we can create LLCs foreign buy rentals. And then on the far right, you’re going to have your rental property. That’s LLCs. Maybe you have one LLC, maybe have 20 LLCs. That’s a whole other topic. I love to talk about how many LLCs do I need in my life as a real estate investor. And you might be surprised at my answers, but anyway, all of this is owned by your trust. So my home is owned by my trust. My LLC on the right side is owned by my trust, the beneficiaries of all my retirement accounts and tax deferred strategies. The beneficiary is my trust and all of this flows down into an RLT and a river runs through it.
And life insurance is over here. We’ve got our investment accounts or crypto or stocks, bonds, a little blah, blah, blah. So, but this is the trifecta left side operations, right side assets, bottom trust. Now for that stepped up basis to really make sense. You want your trust to own everything. So when your family inherits your rentals in your home and your businesses, they get a stepped-up basis to fair market value. There’s no probate and you’ve got asset protection going on over here and over here on the right side, you have asset protection on the left. We’ve got tax strategies galore everywhere. I got board of directors, board of advisors. I’ve got health care, savings, strategies, health reimbursement arrangements, HSA’s. And this, if some of you are just like, your eyes are rolling, what the hell is this guy talking about? Listen to my podcast. Once in a while, pick up the tax and legal playbook, it’ll blow your mind. And you can understand this. The trifecta should be a part of your life.
Yeah, I will say Mark, that we can leave this as a teaser for maybe a another episode we do on the whole trifecta and building that out because there’s really a lot to unpack there. I’ve listened to you for hours and hours and hours. And I get it and understand it. I could probably put it together, but the thing is, is there’s really a lot of good, good stuff there. And you can’t just gloss over any one piece of it.
So yeah, very true. Okay. My number 10. We’ll just leave this as two, another teaser for another day.
There you go.
This is number 10. Is the charitable remainder trust. The CRT is, oh my gosh. One of the most cool strategies for highly appreciated property. We’re helping clients with highly appreciated crypto all over the country, take their crypto that they bought personally. And now they’re looking down the barrel at a 50% tax rate between fed and state and they’re freaking out and we’re dropping it into CRTs. You can do a charitable remainder trust for your real estate as well. Why do a 1031? Why do as installment sale donate your property to your own charitable trust, pay zero tax on the sale, get a tax deduction for the fair market value and create a stream of income or the rest of your life asset protected and keep investing the trust the way you want to in crypto in real estate, whatever you want. We’ve got some powerful videos on YouTube, on CRTs, a whole other topic, and we’ve been doing them for years. They’re just so, so powerful. And the real estate investors out there have been using them for years. It’s what Warren Buffet. He did a $1 billion charitable trust with his buddy over there at Microsoft and Bill Gates, Maryam put together a $2 billion plan. And now everybody’s on board because it makes sense. These charitable trusts are amazing.
Well, if that doesn’t whet your appetite and get you licking your chops, I don’t know what does.
Woo. Marco. You’re so awesome. Thanks for having me.
Hey, I’m glad you came on the show, Mark. This has been fantastic. I know it was a lot to cover in a short period of time, even though we went for an hour and five minutes here, but, but Hey, it’s taxes. We’re talking about taxes and tax strategy. So anyway, Mark, any last comment, maybe share with our listeners where they can find you and your podcast and everything else.
Well, thank you. Yes. You just google Mark J. Kohler, get over to any of your podcast portals. Get on YouTube. Get on Google. I have a free newsletter every week with deadlines and articles and videos have been doing it for 10, 15 years. I would just say this to all of you is my biggest admonition. You are the captain of your ship. The buck stops with you. You’re listening to this podcast because you care about your wealth, your assets, your tax return, keep listening, keep learning, keep watching the professionals in your life. Work for you. You don’t have to take what they say as gospel, whether it’s my office or anybody else’s do your research. Don’t find the answer you like on Google and live with it. Find licensed professionals that will stand behind it with malpractice insurance. But you find the professionals that are at your risk level, your creativity level, your knowledge level. I have a lot of people that come to our firm because they’re like I grew my professional because I just know more than them. I’m sick of teaching my professional, what I’m learning on Marco’s podcast. So you upgrade when it’s time, but you’re the captain of your ship. Own It.
Boom. Well, great closing. I appreciate that Mark. So in closing here, I just want everybody to know that Mark has a great way on his YouTube channel and everywhere else to break things down and very simple to understand terms and make things very digestible. So this is why I like listening to Mark and everything he has to say. So Mark, we’re going to put links to all your sources and resources in the show notes on the website and everywhere else. So everybody can connect with you one way or the other. And I appreciate you coming on. We’ll have you on again.
And with that, if you are listening to this and you haven’t subscribed, remember to subscribe, share the show with your friends. Cause I know you have like-minded friends and family that want to learn this stuff from mark and from all our other episodes. And with that, thank you for listening and we will see you all on our next episode.
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