Taxing times for states spells opportunity for real estate investors …

Most people think of tax season as January 1 to April 15.

After all, that’s when most people close the books on the previous year, issue and collect tax documents, prep returns, and settle up with the taxing authorities.

But for a host of real estate investors and entrepreneurs, the REAL tax season is right NOW.

It’s a HUGE opportunity to dramatically improve your bottom line. And it just got BETTER …

States Fail to Overturn SALT Deduction Caps in Court
Forbes, 10/1/2019

Yes, that’s a wonky headline that may not convey intelligible information … much less exciting opportunity for the casual reader.

But before you wander away bored, invest a few minutes to dig a little deeper

For those unfamiliar, the recent Trump tax overhaul put a cap on the amount of State And Local Taxes (hence, the acronym SALT) that a taxpayer could deduct from their federal income tax bill.

There’s some political disagreement about whether this is good or bad, or what the motivations might be … but the bottom line is it’s the current law, and for now the courts are upholding it.

So what does it mean?

In short, high-income earners in high-tax states are now bearing the full weight of their tax bills at the federal, state, and local level.

High-income earners in high-tax states are paying MORE taxes.

As you might imagine, they’re not happy about it. So while a few states banded together to fight the law in court, Main Street folks are fighting with their feet …

Americans abandoning New York, New Jersey, other high-tax states
Fox Business News, 4/25/19

But according to our friendly neighborhood tax strategist Tom Wheelwright CPA… this is largely unnecessary.

After all, your state tax liability is primarily derived from your federal taxable income anyway.

So the secret to reducing your federal tax is less about deducting state tax than it is about reducing or eliminating your federal tax liability altogether by carefully following the instructions provided in the tax law.

And just in case you think that’s unpatriotic and you’ll starve your deserving federal government from much needed revenue, consider this amazing admission …

The necessity … to tax … to maintain … solvency is true for state and local governments, but not true for national government.

Two changes … have substantially altered the position of the national state with respect to financing its current requirements.

The first … is … the … central banks. The second is the elimination … of the convertibility of the currency into gold.”

This remarkably candid admission is a quote excerpted from an article titled, Taxes for Revenue Are Obsolete, which contains the transcript of a speech made by then-Chairman of the New York Federal Reserve, Beardsley Ruml.

But if taxes aren’t needed for revenue because the Fed can print as much money it wants … what ARE taxes for?

Chairman Ruml says …

“Federal taxes can be made to serve … these purposes ….

… to express public policy in the distribution of wealth and income

… to express public policy in subsidizing or penalizing various industries and economic groups …”

So when Tom Wheelwright says the purpose of the tax code is to coerce you into doing what the government wants you to do, he’s not just making it up.

The good news is the government wants you to be an entrepreneur and investor.

They want you to start businesses and make investments in real estate and energy.

When you do, they reward you with huge tax breaks.

So much so, that when you do it right, you can eliminate virtually all your federal (and therefore state) income taxes.

And THIS is the time of year alert investors are making smart moves to capture those tax benefits before the end of the year.

Of course, as a savvy real estate investor you probably already know all about the tax benefits of real estate.

You might even be aware of how to use energy investments or a solo 401(k) to create big write-offs fast.

But MANY high-income earners don’t.

This creates a BIG opportunity for syndicators to put together tax advantaged deals to help high-taxed earners reduce their tax bills.

And if you happen to be one of those highly taxed high-income earners, before you back up the moving van, take a closer look at the tax law

… not as an obstacle, but as a road map to reorganize your affairs to reduce or eliminate your taxes.

When you do, you’ll realize owning a business and investing in real estate are two of the smartest moves you can make.

Until next time … good investing!


More From The Real Estate Guys™…

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America’s MOST messed up state …

You may have heard … Illinois is a mess … at least financially. 

Of course, there’s opportunities in there for real estate investors paying attention.  So let’s take a look and see what we can learn …

Rauner: Tax burden driving Illinois businesses, people to flee state– Lake County Gazette, 6/7/17

(Bruce Rauner is governor of Illinois)

“As businesses leave, so do people.”

“The problem, Rauner argued, is the hostile business climate in Illinois, including high property taxes.”

“ ‘We have the highest property taxes in America.’ ”  

How Illinois became America’s most messed-up state – CNN Money 6/29/17

Illinois is on the verge of becoming America’s first state with a junk credit rating.”

“ … the inevitable result of spending more on pensions and services than the state could afford — then covering it up with reckless budget tricks.”

Illinois is now grappling with $15 billion of unpaid bills and an unthinkable quarter-trillion dollars owed to public employees when they retire.”

The budget crisis has forced Illinois to jack up property taxes so high that people are leaving in droves.

Illinois loses more residents in 2016 than any other state – Chicago Tribune, December 20, 2016

“For the third consecutive year, Illinois has lost more residents than any other state, losing 37,508 people in 2016, which puts its population at the lowest it has been in nearly a decade, according to U.S. census data …”

Okay, let’s take a break (or a Valium) and process …

Illinois politicians engaged in over-spending, over-promising, using accounting tricks to kick the can down the road …

(is that part of ‘The Politician’s Handbook”?)

… and are leaning on property owners (the real estate connection) through property taxes … and now potentially all citizens (even renters) with a proposed 32 percent hike in the personal income tax …

… thus creating a “hostile environment” from which productive people and businesses flee.

Wow.  Surely there must be an opportunity in all this …

Yet another Illinois-based company flees to Indiana – Illinois News Network, September 16, 2016

“ … the Illinois Chamber of Commerce said many companies here are unhappy with their prospects in Illinois.”

“ ‘… they tell us very, very frequently that the business climate in Illinois is not suitable for them to be as successful as they need to be …’”

“ … the workers’ compensation system, which is much more costly for Illinois employers than … other states – including Indiana.

A quick glance at a map shows other cities who might benefit from Illinois business defections …

Of course, you need to do your homework.  Pay attention to taxes, regulations, worker’s comp and other payroll related expenses.  Think like a CEO … and watch what they do.

Now there’s more to the Illinois population loss than simply high property taxes and a hostile business environment. 

There’s also weather, retirement demographics, and housing affordability … issues which are occurring in other states as well.

According to the aforementioned Chicago Tribune article …

“Illinois residents are mostly leaving for Sun Belt states — those with the country’s warmest climates, like Texas, Arizona and Florida.”

“ … states in the South and West have better job opportunities and more affordable housing. Texas, in fact, attracts the greatest number of Illinois residents, followed by Florida, Indiana, California and Arizona, according to 2013 Internal Revenue Service migration data.”

That was back in 2013 and the current fiscal crisis is just adding fuel to the fire.

Bigger picture, Illinois is a microcosm of a macro problem. 

Too much spending, too many unfunded promises, too much political gamesmanship and kicking the can down the road is everywhere.

So what can real estate investors learn … and do … in response?

Lesson #1:  Starving governments will eat their citizens.

As governments are pinched, they’ll cut services and raise taxes, creating a more difficult place for businesses and people to live. 

Eventually, those people and businesses flee.  When they do, alert real estate investors can make moves too. 

Lesson #2:  Pay attention.

Fortunately, these trends usually move slowly. 

The Illinois situation has been developing for a while … three straight years of budget problems and population loss.

It’s not rocket science. There are plenty of clues in the news … and it’s easy to find supporting (or refuting) data. 

Just pay attention to what’s happening … and how decision makers (small business, big business, working class heads of household) are responding.

Lesson #3:  Do your homework and build relationships in the right places.

Real estate is a LOCAL game … right down to the neighborhood. 

You can’t possibly understand the nuances of multiple markets at the street level.  So do your remote homework. Then when things look promising from afar, build local relationships and go see the market for yourself.

That’s why we travel and promote field trips

Lesson #4:  Go where the intelligence takes you.

After 2008, we pay a LOT more attention to market drivers and dynamics … and not just the pro-forma of a deal.

It’s taken us into DallasMemphisAtlantaOrlando … and more recently IndianapolisCharlotte, and Kansas City

The idea, as legendary hockey player Wayne Gretzky said, is to “skate to where the puck is going.”

Lesson #5:  Problems are opportunities.

A BIG part of Illinois’ financial problems are under-funded pensions … at a time when the stock market is at all-time highs!

What happens if stocks tank?  Then pensions are even MORE underwater. 

And if interest rates rise, pension funds may get a modest benefit on NEW bond purchases … but will take substantial losses on their current bond holdings.

Sadly, Illinois is far from alone.  According to ValueWalk …

Government Public Pension Liabilities Are Understated By Trillions

The great news is people are waking up. 

And while it’s disconcerting to learn their pensions are in jeopardy … it REALLY opens them up to taking matters into their own hands.

Of course, some won’t have enough money or expertise to go it alone. They need help.

YOU can help people take advantage of real estate by setting up syndications …  pooling capital from multiple investors to buy deals and share profits.

This is just one of many reasons we think syndicating real estate is one of the BEST business opportunities going right now.

Lesson #6:  Procrastination is the thief of dreams.

Politicians are infamous procrastinators.  But problems don’t go away … they just get bigger. 

We’re watching a lot of these back-burner issues boiling over before our eyes. 

The key is to see the opportunity inside the problem, then take effective action to seize it. 

Politicians might procrastinate, but YOU don’t have to.  Seize the opportunity!

Until next week … good investing!


 More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.