02/22/15: New Tax Regulations Every Real Estate Investor Must Know

It’s said the only things which are certain are death and taxes.

We think this could be modified to DEBT and taxes….especially when you consider the relationship between the two.  BUT…we’ll put our tin-foil hats in our lead cased fire-proof safe and focus on the tax…er, task…at hand.

We were out in the Phoenix area to visit Robert Kiyosaki and decided to pay a quick visit to a nearby friend and tax guru.  We’d heard there was a new regulation all real estate investors need to know about…

Talking taxes in the top of office to Tom’s tower…

  • Your regular host, Robert Helms
  • His irregular co-host, Russell Gray
  • CPA, best-selling author and Rich Dad Advisor, Tom Wheelwright

Let’s face it…taxes are NOT the most titillating topic.  After all, we’d all much rather focus on MAKING money, than spending dozens of hours and thousands of dollars tallying up how big a slice to send to the tax man.

And of course, just when you think you’ve got everything dialed, the tax man changes the rules of the game and hopes you’re not paying attention.  It’s a constant and unproductive game of cat and mouse.

SO…

If you decide to play, you’ll need to find a way to keep up on the changes.  And then organize your activities to utilize EVERY deduction you’re entitled to.  That’s why you want a great tax advisor on your team.

Robert Kiyosaki makes a lot of money.  The guy he depends on to minimize the tax bite is Tom Wheelwright.

Tom Wheelwright CPA is the author of Tax Free WealthTom’s a bit of a nut job.  He actually LIKES taxes.  Weird.  But there’s no accounting for taste.

But thankfully, guy’s like Tom are out there.  And he pays attention to all the things that affect real estate investors.  So when he called and told us about some new tax regulations, we wanted to learn more.

Of course, we brought along our microphones and captured the conversation…because that’s what we do.

Keep the Main Thing the Main Thing

When it comes to taxes, it’s so easy to focus our efforts on paying LESS.  Sounds good, right?

Of course, the easiest way to pay less tax is to make less money…so be careful what you wish for.

Tom says your focus should be on MAKING MORE MONEY…and that’s also true when selecting an advisor.  That is, your advisors are investments…just like your real estate…and you should select them based on their potential to MAKE you money.

It’s a subtle, but important difference.  Otherwise, the temptation is to think of them as an expense…hire the cheapest, and get costly results.

The goal is to INCREASE the amount of money you pay for advisors, taxes, interest and insurance…and have those investments decrease as a percentage of your income.

To Change Your Tax You Must Change Your Facts

This is no different than the person who buys a horrible property in a terrible area and rents to the tenant from hell…then shows up at some poor property manager’s doorstep with a problem they need fixed.

In other words, if you want the property’s performance to improve, the conditions and circumstances need to change.  A property manager can only do so much with a bad situation.

The same is true for your taxes.

To get a beneficial tax result, you need to create better factual circumstances.  But it’s much harder to rewrite history, so it’s wise to understand basic taxation principles in ADVANCE, and then conduct your affairs in such a way that you create the most favorable tax result as you go along.

Obviously, this means getting an education and working closely ALONG THE WAY with your tax advisor.

Duh.  But knowing you need to do it and actually doing it are two different things.  So DO IT.

This Promises to Be a Crazy Tax Year

Tom tells us there are a number of items which are making tax filing a little more…taxing…this year.

The biggie is the new repair regulations.  Without getting lost in the weeds, the short version is that the IRS has issued new regulations designed to clarify a specific area of tax law which affects ALL real estate investors and most small business owners.

It has to do with how certain expenses are classified and whether they are treated as capital or ordinary expense.

Yeah, we don’t get it either.  That’s why you need a guy like Tom.

The point is that if it affects you…and if you own investment real estate, it probably does…then you’ll have to file one (or more!) of Form 3115 Change of Accounting Method.  So be sure to ask your tax advisor before you file for 2014.

The Affordable Care Act is making things more complicated for individuals and small businesses this year also.  But that’s been all over the news, so you’re probably aware of it.  If not, your tax advisor will help you.

A couple of other items Tom says to keep an eye on are President Obama’s proposal to charge capital gains tax at death (yes, it’s true…death and taxes together again);  and a proposal to change the “carried interest rule”, which would effectively cause real estate developers to pay ordinary income tax on certain items which are currently classified as long term capital gains.  Ugh.

So listen in to CPA Tom Wheelwright and find out what’s happening and how it affects you!

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8/19/12: Surviving the Fiscal Cliff – Ramifications for Real Estate Investors

What do the ancient Mayans and today’s financial pundits have in common?

They both predict doomsday at the end of 2012.

Perhaps you’ve heard about “taxmageddon” and the “fiscal cliff” the U.S. economy is headed toward? It’s when the expiration of Bush-era tax cuts converge with across the board spending cuts effective January 1st, 2013.

As you may recall, during “The Great Debt Ceiling Debate” last summer, Congress and the Obama Administration couldn’t agree on how to reduce the deficit (much less balance the budget). But they needed to raise the debt ceiling or (gasp!) Uncle Sam’s checks might bounce.

So, they raised the debt ceiling anway (shocker) and agreed to form a committee (great…we were just running low on committees) to come up with a deficit reduction plan.  Funny, we thought it was Congress’s job (not some 12 person council) to come up with a budget, but maybe their budget building muscles have atrophied.

Anyway, the deal was that if the commitee / Congress / Obama Administration didn’t get a it done by December 31, 2012 then the Bush
era tax cuts would expire. This is a defacto tax increase heaped upon the Affordable Healthcare program (“Obamacare”), which was deemed a tax by the Supreme Court.   In short, more taxes and more money going to the government.

So that’s the revenue side.

On the spending side, there’s an across the board cut which indiscriminately reduces discretionary government spending. While we’re tempted to comment on this, it isn’t the topic of this episode, so we’ll bite out tongues (ouch!).

So what in the world does all this mean? And most specifically, what does it mean to real estate investors?

To find out, we take our mobile microphones to Scottsdale, Arizona.  Sharing perspectives on the impending end of the financial world:

  • Your main Mayan, host Robert Helms
  • Your sheer drop off in talent, co-host Russell Gray
  • Special guest, CPA and Rich Dad Advisor, Tom Wheelwright

The topic for this episode came up while we were attending a Rich Dad Advisor retreat.  Now, we’re not Rich Dad Advisors…more like
groupies…but our friend Robert Kiyosaki is kind enough to let us hang out with his team from time to time, so we found ourselves in
Scottsdale in August.  But don’t worry, we packed our parkas.

Our most burning …get it? Scottsdale in August…burning…?  Okay, that’s dumb.  So, our hottest question for Tom is: with only 4 months to go until the end of the world, what final preparations should real estate investors be making?

Tom cools us down by assuring us these tax increases largely apply only to those who actually have a tax liability. Then he
reminds us that real estate investors who are properly set up should have next to no liability.

Huh?

That is, Tom says that the tax rates mostly apply to TAXABLE income, not ALL income.  So if you use all of the great deductions available to real estate investors you can actually conform to the IRS code and still largely avoid any personal exposure to the tax increases.  Cool.

He goes on to say that most real estate investors shouldn’t be paying any income tax at all.  (But don’t worry, we make up for it with lots of property taxes!).

Of course, there are still the concerns about the overall impact of more money being sucked out of the private sector and into the public sector.

Just like running a business, if you pull resources away from the departments that generate revenue (marketing, sales and production) and spend it on those that don’t (accounting, legal, administration, etc), your business grows slowly.  Too much and it shrinks.  Keep it up long term and you’re out of business.

Now some argue that the spending cuts offset the tax increases, so the net affect on the private sector is minor.  In other words, even though businesses and individuals have less money to invest and spend,  government is using less.

But that doesn’t make sense to us.

Think about it.  If you’re spending more than you earn (which Uncle Sam does by over a trillion dollars per year), and you cut your
spending (which is good), but only by a fraction of your deficit, then you’re only going further into debt more slowly.

It’s like bailing water in a sinking ship. Unless you can bail it out faster than it’s coming in, you’re still sinking. Not that you shouldn’t try, because thinking slowly is better than sinking fast.  But it’s foolish to think that you’ve solved the problem.  You’re still sinking.

More importantly, if the government is taking more away from the private sector (tax increase) and recycling less to the private sector (spending cuts), then it’s a double whammy on the private sector while the public debt continues to grow.

So what’s the answer?  We don’t know.  We’ll leave that to the politicians and bankers (feel safe now?) since we can’t directly control it anyway.

The point is that for the forseeable future, the American economy is likely to struggle.

But you don’t have to.

Using effective tax planning, Tom says you can substantially reduce your taxes.  Then (we say) you can use the money you save on taxes to invest in helping heal America one property at a time – all the while improving your own financial strength.

Abraham Lincoln said, “The best way to help the poor is to not become one of them.” Brilliant!

As people in American get poorer, they will need affordable housing. Right now, there’s a ton of inventory in disrepair in the wake of the foreclosure crisis.

But investors can step in and purchase these properties well below replacement cost and the outstanding loan balances. This gets the bad debt out of the way, and allows the property to be re-habbed and put back into service. That ‘s good for the the tenant, the community, the economy and the investor.

Plus, with each property you acquire, you also pick up a fresh depreciation schedule to mitigate your tax liability.  You get more properties, more income and less tax!

Very cool.

So listen in to CPA Tom Wheelwright as we talk taxes on The Real Estate Guys™ radio show!

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Ask The Guys: Can I Deduct Travel Expenses?

Here’s a question we got from Sue in California (thanks Sue!):

If we have a property manager, can we write off travel costs from CA to Memphis for us to visit the property?  If so, how many times a year can we visit and write off the costs?

Since we aren’t tax gurus, we tossed the question to our good friend, CPA Tom Wheelwright, who answers:

The rule for any business expense is that in order for it to be deductible, it must have:

  1. a business purpose;
  2. be ordinary in the course of your business; and
  3. be necessary

If you are visiting the property to check up on it and the manager, clearly this will be a business purpose.

If the amount of the expense is reasonable compared to the income you make from the property, then you should meet the “ordinary” test.

If visiting the property will help you make more money from the property (meeting with the property manager, coming up with new ideas to increase the rent, etc.), then you should meet the “necessary” test.

Each time you visit, or incur any expense for that matter, you must meet all three of these tests.  They are somewhat subjective, so be wise in how you document your expenses and the activities you pursue while you are visiting the property and/or the property manager.

So there you have it!  From the brain of Tom to our blog.

Tom Wheelwright is a Certified Public Accountant and Robert Kiyosaki’s Rich Dad Advisor® for tax planning.  Tom is also joining The Real Estate Guys™ as a faculty member for our 1oth Annual Investor Summit at Sea™ he will be teaching, talking tax and hanging with all of our Summiteers – including our very special guests Robert and Kim Kiyosaki LIVE and IN PERSON for the ENTIRE week!  Plus, Tom is a frequent guest on The Real Estate Guys™ radio show where he shares valuable pearls of tax wisdomClick here to hear the latest episode featuring Tom.

10/2/11: Zero Tax! Deductions and Benefits that Matter Most to Real Estate Investors

Active real estate investors should NEVER pay tax on their cash flow or gains..EVER!  So says CPA Tom Wheelwright, our hero with a zero (taxes that is) and Rich Dad’s tax advisor to Robert Kiyosaki.

And unless you’re Warren Buffett, we’re guessing you’d probably rather pay LESS tax than more.

Maybe when we’re multi-mega-billionaires like Warren, we’ll want to pay more too.  Give us a few years and we’ll let you know. For right now, less tax is better.  We’d rather save on taxes today and use the money to buy more real estate.  Weird, we know…but that’s just us.

The GOOD NEWS is that even while most governments’ appetites for taxes is growing, real estate investors still enjoy some of the best tax deductions and benefits there are!

To learn more about this taxing topic, we flew to Arizona and met face to face with Tom Wheelwright.  He says with proper planning, real estate investors can get their effective income tax rate to ZERO!

Manning the microphones for another exciting escapade into broadcast brilliance:

  • Your host with benefits, Robert Helms
  • Your big zero co-host, Russell Gray
  • A master of brilliant deductions, Robert Kiyosaki’s Rich Dad Tax Advisor and CPA, Tom Wheelwright

Zero tax!  Now THAT sounds pretty stimulating.  In fact, Tom says the tax code is a treasure map to a series of stimulus programs.  So to get your personal economy working better, be sure to organize your investing to maximize tax deductions and tax benefits.

Tom tells us:

  • Why the tax code is a powerful tool for increasing your cash flow and accelerating  your real estate wealth building
  • How to avoid the number one MOST COMMON MISTAKE real estate investors make on their tax returns
  • How to save money on everyday items by using the tax code to make more of your expenses tax deductible
  • Why every dollar saved in taxes is worth five dollars of real estate!

And there’s even more!  So grab a note pad and listen in as The Real Estate Guys™ interview CPA Tom Wheelwright.

Listen Now: 

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  • Don’t miss an episode of The Real Estate Guys™ radio show.  Subscribe to the free podcast!
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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.