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BiggerPockets Money Podcast
CPA Shares Tax Tips to Lower Your 2024 (Yes, 2024) Taxes
00:47:48
2024 may be long gone, but it’s NOT too late to lower your taxes for the previous year. If you have real estate or retirement accounts, you already hold the key to minimizing your taxable income and owing less to Uncle Sam. But how do you do it? We’re sharing 2024 and 2025 top tax reduction strategies in today’s show with expert CPA and real estate investor Amanda Han! Do you know about the real estate tax “loophole” that helps everyday investors cut their taxable income by tens of thousands? Got an employer-contributed retirement plan? You could STILL use it to lower your 2024 taxes! And why should you NOT take the standard deduction if you’ve bought a home in the past few years? We’re answering all of these questions so you can keep more of your hard-earned money. Finally, what audit red flags is Amanda seeing with her clients? There’s one easily avoidable audit trap that MANY Americans are falling into that could take just minutes to circumvent. Should we even be talking about...
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- [00:00]
Mindy Jensen
You might be wondering, can you start to make moves to reduce what you'll owe Uncle Sam this year? We are here to share strategies to lower your 2025 tax bill and set you up to keep more of your hard earned money going forward. And don't worry, we'll be breaking down strategies for your retirement accounts, your real estate portfolio, and everything in between. Hello, hello, hello, and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen, and with me, as always, is my pulls His Weight at Tax Time. Co host, Scott Trench.
- [00:32]
Scott Trench
Thanks, Mindy. Love tax time. That's when I can realize my gains. All right, BiggerPockets has a goal of creating 1 million millionaires. You are in the right place if you want to get your financial house in order, because we truly believe financial freedom is attainable for everyone, no matter when or where you're starting or how much you owe the IRS every year.
- [00:50]
Mindy Jensen
Today we're joined by Amanda Hahn, CPA extraordinaire, to talk about all things tax. I promise it'll be fun. Amanda Hahn, welcome to Bigger Pockets Money podcast. I'm so excited to talk to you today.
- [01:01]
Amanda Hahn
Yeah, I am excited to be here. It's tax season, and taxes are top of mind for people, right?
- [01:06]
Mindy Jensen
Taxes are top of mind for people. I just got my notice that my W2 is available now.
- [01:12]
Amanda Hahn
Yay.
- [01:13]
Mindy Jensen
So that's one down and, like, 9 million more to go. Let's talk about saving money on last year's taxes. It's 2025 when we're recording this. It's going to come out in 2025, clearly, because we don't have a time machine. Is there anything that I can do now that we're in the new year to help me save on my taxes from 2024?
- [01:34]
Amanda Hahn
Yeah, potentially. I think it depends. You know, there are certain things we could still do to change how much taxes we owe for last year in 2024. And at the same time, there are other things that's kind of like too late for us to do anything about since the, you know, the clock ran down to 1231. So what are some of the things we could still do? You know, now that we're heading into tax season, I think one important thing is sort of organize and firm up our business expenses. So if you're someone who maybe didn't have the best of records, now is the time to kind of comb through your bank accounts or, you know, bank statements and credit card statements to try to make sure you capture all of those expenses. Because if you don't capture it. The odds of your accountant, you know, finding out there's some kind of business expense that's floating out there is a very unlikely. So certainly something that we could still do to, you know, just make sure we maximize our, our tax write off between now and the time we actually go and meet with our tax person.
- [02:33]
Mindy Jensen
Okay. And I know that every CPA and every tax professional out there is saying, yes, yes, yes, thank you, Amanda, for telling them to get their tax, their, their numbers in order ahead of time instead of just here's a big shoebox full of receipts. Good luck.
- [02:46]
Amanda Hahn
Yeah, I, you know, I sometimes hear investors tell me like, oh, my CPA just writes off all the stuff. I don't even know what they're writing off. And that's also very scary too. Right? On the up. On the opposite, your tax person shouldn't be like making up deductions for you. So it's really, really important. And especially with much higher audits going on now with what's happened at the IRS the last couple of years, it's just really important to make sure that we have all the right documentation to save on taxes. But, you know, in terms of like the other sort of pillar real estate tax strategies we talk about all the time with respect to manipulating depreciation. Right. Like how we can accelerate depreciation, we can do cost segregation. All those kinds of things are still available to us. So if we bought properties in 2024, we could still use those strategies this year, even though the year is gone.
- [03:38]
Mindy Jensen
Oh, I didn't know that you could still use those strategies after the end of the calendar year. And that I would assume just like 401k contributions, that only is up until you file your taxes.
- [03:49]
Amanda Hahn
Yes, yes, great question. So, yeah, you have all the way up until you file your tax returns to do the accelerated depreciation, contribute to retirement accounts. And that's one of the reasons we actually encourage a lot of our clients to go on extension. I know for some people extensions is like the bad word. I just want to do it by April. I don't want to find time. But there are actually a lot of instances and I guess, reasons why it could be beneficial to go on extension too.
- [04:17]
Scott Trench
You're saying basically you buy a property, let's say in December or Q4, 2024, and let's say it's a million dollar multifamily or whatever, and you're going to get one 27 and a half path of the structural value and depreciation unless you do A cost seg. So you spend the 5, 10, $15,000 in the cost segregation study or whatever it is, and you're saying that that may take you a few months. If you extend to October, you could complete your cost seg in June or July and still take that accelerated depreciation on your 2024 purchase, significantly saving you a lot of money on taxes. So if you don't have all your ducks in a row, for example, and you're reacting to this message right now, you don't have to find a cpa, hire them in the middle of tax season, peak tax time, and conduct your cost segregation. You can just extend and then begin doing that. Is that the right way to think about what you're saying?
- [05:10]
Amanda Hahn
Yeah, exactly. You're exactly right, Scott. And in fact, I'll go as far as to say, for a lot of our clients, we actually don't recommend they do segregation study too early. An example might be, you know, your example, like, hey, I bought a big multifamily. Well, before I even pay for a cost segregation, I want to know, am I able to use that tax benefit? You know, if I'm working full time, I'm married, and my spouse also works full time, if I'm not a real estate professional, then I probably don't get to use all of that benefit anyways. And so that's a common mistake. People are like, yes, I heard about cost. Like, let me just do it. Well, oftentimes we want to wait until the end of the year when we know, have you met the hours? Do you have the right facts? And then take the step to say, okay, should I do cost segregation or not?
- [05:55]
Scott Trench
Maybe we should take a quick tangent here and just do a very brief refresher on what kinds of losses can I use in real estate to offset ordinary income. Give us an overview of this rep situation and all that kind of stuff. The real estate professional status. But what in general are the rules I should be thinking about if I'm a normal person who's not a real estate professional?
- [06:14]
Amanda Hahn
Yeah. Would you have eight hours? Just kidding. Okay, so let's talk about the kind of. The general rule is that if you're someone who makes $150,000 or less, you can use rental losses to offset all types of income. However, there's a cap of about $25,000. So what does that mean? If I make $100,000 of other income and I have rental losses, let's say, you know, through accelerated depreciation and write offs, I have 30,000 losses I can use 25,000 against my W2 income. And this is true for everyone. Regardless of what your occupation is, it's strictly based on like what your income is. So between 100 and 150,000, we kind of have a specific dollar amount of losses we can use. What we don't use are considered passive and we kind of carry it forward. Now here's the hurdle. The hurdle is if you're someone who makes over $150,000, then the default rule is rental real estate losses are passive in nature, which means they cannot offset taxes from your W2 income anymore. The good news though is we don't lose it. We get to carry it forward into the future indefinitely until a future point where we can utilize it against passive income or when we sell a property. Right. So that's kind of the rule for, I don't know, 99% of the people who are maybe listening now. Alternatively, if you are a real estate professional, meaning like you work full time in real estate, or maybe you are married to a real estate professional who, you know, full time in real estate, manages their own properties, then as a real estate professional, regardless of how much income is made from a W2 or whatever, those rental losses can offset W2 and other types of income. So that's the reason, you know, for a lot of high income earners, being able to become a real estate professional or marry a real estate professional is pretty key because that's the difference in the ability to write off rental losses against W2 income now or having to wait into the future to have it offset other future passive income.
- [08:16]
Scott Trench
Got it. Okay. And one more question here. If I, you know, sell a business or sell stocks or have another capital gain, do the losses, do I have to be a rep status to declare real estate passive losses against those types of gains?
- [08:32]
Amanda Hahn
It depends on whether you're a real estate professional or not. So if you are a real estate professional or you're married to a real estate professional, then yes, rental losses offset all types of income, including gains from stock, crypto, whatever it is. If you're not a real estate professional, then stock and business sales, you typically do not get to offset stocks. Almost never. You know, crypto almost never can offset businesses sometimes if you like, we have clients who invest passively in businesses, and if those business is passive to you and you sell it, there's a gain. You could use rental losses even if you're not a real estate professional.
- [09:08]
Mindy Jensen
I just want to clarify really quick. Real estate professional is an IRS designation. It's not just oh, I'm an agent. So therefore I'm a professional. And I think that people who are kind of on the the fringes of it may not realize that this is it's actually really difficult to get. I work at Bigger Pockets which is real estate related more than real estate related. I am a real estate agent and I don't qualify for real estate professional status because I work more hours at my Bigger Pockets job which is not considered real estate for the irs. And I have a bone to pick with you irs, but it's not considered real estate and I don't work more hours at my real estate agent job than I do my my main job. So it yeah, it's not an easy designation to get and if you get it, do whatever you can to keep it. We need to take a quick ad break, but if you're eager to get started in real estate investing, a smart first step is to partner with an investor friendly financial planner who can help you get your house in order and ensure that you are set up for financial success from the get go. Go to biggerpockets.com taxpros that's T A X P R O S to get matched with a tax professional or financial planner in your area.
- [10:25]
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- [11:00]
Mindy Jensen
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- [11:34]
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- [12:10]
Scott Trench
Welcome back to the show. We're joined by Amanda Hahn. Let's go back and recap kind of what we learned here. Right. So the rules we are, I think a lot of people are familiar with the general concept that the rules get really interesting once you become a real estate professional. If you're involved in real estate and there's some serious games you can play with losses, there's also some serious danger where a lot of folks are now trapped essentially in real estate portfolios that they have to continue to defer gains on basically for life in order to avoid realizing major in order to actually harvest the equity that they're building up and the taxes that they're deferring on there. But that's another topic for another time. For most people coming into 2025, the headlines are you can still contribute to certain tax deferred or tax advantaged retirement accounts through to your tax filing deadline right. In April 15th, is that correct? So that's the first thing. If you missed it in 2024, you can still do it now if you want to. Right. In many of those accounts you should go check that.
- [13:11]
Amanda Hahn
Is that yes. For certain types of accounts we still can. So, you know, if we just have like a regular job. Right. Working at Biggerpockets, for example, in the 401 case scenario, there's an employee contribution that Mindy puts in and there's employer contribution that BiggerPockets puts in. So the employee portion that Mindy puts in, we can no longer contribute to it after the end of the year because I had to go in with your last paycheck, basically. Right. So that we're set. But the employer contribution, for example, bigger Pockets could still decide to contribute for Mindy's benefit. Now, we don't have the owners of bigger Pockets on this call, but we kind of, you know, take that example and apply it to a real estate investor. If I am, I run a property Management company. I am the employer and the employee. Well, I could potentially still have my company contribute retirement accounts for me all the way up until my property management company files the tax returns for me. They changed the law actually a couple of years ago where before you had to at least open the account by the end of the year. You know, the role was if you didn't own the account, you cannot contribute after the year is over. But now they've changed it so you can literally, like, if this is the first time you're hearing about this strategy, you could still go out and open an account. And also funded all the way up until the date you file your tax return. So if you have like a legal entity that's like an S Corp or something, you have all the way until September 15th to open and fund. If you're doing it as a sole proprietor or your personal return, we have until October 15th to do that. So lots of time to still save a significant amount of taxes for many people.
- [14:51]
Scott Trench
Awesome. And what deadlines did I miss and are not even worth looking into if it's now 2025, I think the only.
- [14:58]
Amanda Hahn
Deadline you missed is probably just the employee contribution. Right. So if, if you like, even if you had your own S Corporation, you are the sole owner and the sole employee and you had a 401k in it, it's too late for you to contribute yourself because that was the only one that had to be done by December 31st. But, you know, if you're sole proprietorship, you can actually contribute both as an employer and an employee, all the way up until October 15th. If you file extensions and, you know, wait to file your tax returns until then.
- [15:27]
Mindy Jensen
Ooh, let's talk about extensions really quick. I think that there is a lot of people who are under the misunderstanding that if the extension to file is October 15th, they don't have to pay until October 15th. The extension is the extension to file, not the extension to pay. Your taxes owed, if any, are due on April 15th and they are late starting April 16th, and you are accruing penalties and fees all the way up until you pay it. So even if you don't know how much you owe, you should have a good estimate and send the government a check so that you're not paying them even more when you do actually file.
- [16:06]
Amanda Hahn
Yeah, that is also common.
- [16:08]
Scott Trench
You know, I think that the vast majority of people listening to this, not the vast majority, but the 60, 40, will be folks that have a W2, maybe two W2 income households. And the tax planning there is Pretty straight straightforward, right? You make your determination about whether you're going to put it in the roth of the 401k first. Maybe you do your HSA, maybe you give a little bit to charity or put into a donor advised fund, maybe say put some money away for college education or whatever. Maybe there's a real estate property involved that you're going to not you're going to take a passive loss on for that, but you're not really getting into this type of structure where you're talking about, hey, I have an S corp, my employer can contribute to my 401k through October. Those are much more bigger issues or those issues are much more common with real estate investor full time real estate investors and entrepreneurs, I believe. And is that, is it pretty close to that simple for most W2 folks or am I overstating it?
- [17:08]
Amanda Hahn
Yes, I think it's. If you're like you said, someone just has a job, maybe you have one or two passive rental properties, pretty straightforward, especially if you're high income, right? Like the rental real estate is just, it's not going to touch your W2 at all in terms of tax savings. And then that's probably pretty easy for you to know throughout the year how much you're overpaying or underpaying. Right. So maybe what I always tell people is like, okay, so in either case you want to have an idea whether you're pretty on par with what you expect to owe. Because if I'm expecting a refund, right, I certainly don't want to go on extension because that's just more interest free money that I'm giving to the irs. And if I owe, then yeah, I want to make sure I'm paid in by April 15th so that I don't have to deal with any potential penalty.
- [17:58]
Scott Trench
Got it. One call out I'll suggest for some folks is in the rising interest. So most people probably taking the standard deduction. You tell me if this is right, but I think this might apply to some small minority of bigger pockets money listeners. You can deduct interest on the first $750,000 of your home mortgage, but the standard deduction is now so high, thanks to the last Trump administration in there, that most people just take that standard deduction and do not declare primary mortgage interest because it's only up to the first $750,000 in that mortgage. But now that interest rates have risen so much, if you bought a home in the last two years, you may want to do that, right? Like that's something that Probably a lot of people have not thought through that. It's like, oh, if you're one of those people that just bought a home and you bought a higher interest rate and your mortgage balance is reasonably high, that's a gotcha, right? Are there any other kind of gotchas or changes that, that like that, that are subtle, that maybe have snuck up on people in America when they're thinking about their tax, how to file their taxes or set up for tax time?
- [19:00]
Amanda Hahn
Yeah, I mean, I would hope that I don't have to assume this to be true, that most CPAs are doing that analysis, because we certainly do that. And that's my Hope that all CPAs at least do that. Because like you said, that's kind of the baseline. Right. Even maybe TurboTax will do it is to say, okay, the standard deduction, you at least tell me what your mortgage interest, property taxes and state income taxes I just get from your W2 just to see, like, which one is the higher one. But you're right. I mean, you know, how many people are. Have fallen victim to, you know, just kind of the standard deduction being even higher than itemizing? I think a lot of our clients, we see people who are retired, right? They paid off their home, so the loan is very, very small. And then I think also people who live in states where it's very low tax or low, low state income tax or no tax. Right. Because you don't even, you know, that's one of the write offs in terms of itemized deductions. So I think those are probably the two more common ones with respect to itemizing or taking the standard deduction.
- [20:08]
Mindy Jensen
What are some things that people are missing in their write offs? I know that there's also some things that you can't write off anymore. You used to have the home office deduction, and that went away several years ago. I was watching an old movie and they had the accountant in. The movie was like, oh, how much of your office, how much of your house is your home office? You can deduct that. Now I'm like, no, you can't. No, you can't. But I think there's people that don't keep up with this all the time because they're not tax nerds like the three of us are.
- [20:39]
Amanda Hahn
I was going to say I'm kind of offended, so. Well, you can actually still write off your home office. Home office is a. Still a legitimate business expense. I think what you're referring to with it going away was with respect to like my job as a W2. So previously if you worked at a job, a W2 job and you were working from home, you had a home office, we could actually use it to offset taxes as an itemized deduction against W2 income. They have, you know, in recent years they have limited that. So current law is you cannot claim a home office if it's related to your W2 job, but you could still claim it against business and rental real estate. So you know, we do have clients who use that pretty effectively in terms of, you know, claiming a home office or if you use your car for business purposes, you could claim that as an expense against your rental income. Regardless of whether you are a real estate professional or not a real estate professional. I think a common misconception is people tend to think I can only claim the business miles when I'm driving to a property or to and from a property. But if we think about it, there are actually a lot of other business uses that we have with respect to being an investor that's outside of just to and from the property. Right. If you have to shop for materials, supplies, Home Depot, going to banks. So I think making sure you track a lot of these things, just common expenses we have is really important. I'm of the thought that, you know from a, for effective tax planning, we're never trying to spend more money just for tax write offs. Because that's silly, right? If we don't need it, we don't need it. But what I do want to do is to make sure that the stuff I'm I am already spending money on to the extent that I can substantiate that related to rental real estate, I want to make sure that I'm capturing those because they will help me save taxes. If not today, because I'm still working W2 and this is passive, they will still help me in the future. So I want to make sure I capture all that.
- [22:42]
Mindy Jensen
How do they help you in the future?
- [22:44]
Amanda Hahn
One of the things I was talking about with respect to passive, right. If you're someone who's W2 full time two rental properties, my rental losses are passive to me which means I don't get to use it to offset W2 income. However, those losses don't go away. So if part of my losses from, you know, my business or biggerpockets membership or went to bpcon, that loss carries forward from year to year. So in 2024 it's passive. 2025, maybe it's still passive. 2026, let's say I saw a rental property For a gain. Well, guess what? I can use those passive losses to offset the tax on that property I just sold. Right. So that's one example of how do I use it in the future?
- [23:28]
Mindy Jensen
I know that there are some deductions that can be more of a red flag for the IRS audit. So real estate professional status can sometimes trigger an audit more frequently than a return that doesn't have that. What are some of these red flags? And when is it, like, worth the gamble to use? And when is it not worth the gamble to use?
- [23:48]
Amanda Hahn
You know, I think everyone has a different risk tolerance level. For me, I would say it's never worth it to gamble. You're either able to claim something or you're not able to claim something. Right. And that's the purpose of. Of tax planning. The whole purpose of tax planning is to say, okay, I understand. What are all the things I have to do to legitimately qualify for writing something off for claiming real estate professional, I want to be able to make sure I qualify. So if you qualify, you should certainly take it. If you don't qualify, I never recommend taking a gamble, although I know some people do it. They're like, I don't know, I think I'm real estate professional. I've heard enough webinars. Got it. Let's go. The issue with that is when we talk about real estate tax benefits, like something you said, Scott, earlier, the real estate tax savings are generally pretty decent, sometimes massive. So you don't ever want to be caught. Like you don't want to ever be audited and lose an audit because you weren't actually able to qualify for the tax benefit.
- [24:43]
Scott Trench
All right, we've got to take one final ad break, but more from Amanda on strategic tax advice if you are a real estate investor.
- [24:51]
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- [25:28]
Mindy Jensen
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- [26:03]
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- [27:37]
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- [28:14]
Scott Trench
Today or yesterday, Donald Trump said that he's going to abolish the federal income tax. Should I stop withholding my federal income taxes on a go forward basis?
- [28:25]
Amanda Hahn
Definitely. There will be no more taxes going forward. You're free to use 100% of your money on everything.
- [28:31]
Scott Trench
Oh great. Well, I don't know why we had the rest of the episode going on with this. Thank you.
- [28:35]
Mindy Jensen
Okay, to be clear, this is called sarcasm.
- [28:39]
Amanda Hahn
Oh my gosh, someone's going to take a snippet of this and probably blackmail me.
- [28:43]
Scott Trench
I'm sorry, I just couldn't withhold that question as we continue the interview here.
- [28:47]
Amanda Hahn
Yeah, I honestly thought it was a joke initially when I saw on social media there was like he's coming with ers instead of irs, the External Revenue Service to assess tariffs and the IRS is out. But I mean the reality is yes, there is External Revenue Service now coming in, but IRS is still going to stay around, right? The vast majority of tax revenue is going to be still from income tax. Will that change in, I don't know, decades maybe, but certainly would not stop withholding taxes. I don't think we'll get out of it that easily.
- [29:21]
Scott Trench
I am going to continue to accrue and withhold taxes from my paycheck on a go forward basis despite that announcement from our fearless leader this week. And I am also planning on tax brackets going up over the next several decades on ordinary income and probably long term capital gains and other forms of income as well. And that is why I bias towards the Roth and am happy to pay a little bit more in taxes now in exchange for, you know, a reasonably high probability of no taxes or less taxes later on. And why I'm not personally afraid to realize capital gains in the current current landscape, especially for the next couple of years. Years. What do you think about that? That's kind of like a big long term bet where I'm paying the IRS and the tax man now and that results in me having higher basis on whatever I'm exchanging or reallocating or whatever gains, I'm realizing. But you're trained as a CPA to basically avoid those things for the most Part I wonder if you're feeling that, oh no, why would you realize more income right now? But what do you think about that from instead distinctively, the way I'm phrasing it and the way I'm thinking about really long term planning in terms of.
- [30:35]
Amanda Hahn
Tax liability, I don't necessarily disagree with that. You know, everyone has, everyone requires a different set of tax strategies. It's never a one size fits all. Right. So certainly if your expectation is tax rates will be higher for regular taxes, capital gains taxes, your income will be higher, then yeah, it makes sense to pay taxes now, lock it into a tax free environment. In fact, we have clients who are currently in high tax rates where we suggest, hey, let's convert to Roth. An example could be because you're going to put it in a property that you know will quadruple in value in the next 12 months. Right. Or a stock that you just know is going to explode. So there's always reasons for making certain decisions. I think the important part of it is to make that decision with careful analysis to the determination. Right. Like what do you think is going to happen? What's going to be your profile in the future? You know, we have a lot of clients who sort of do a little variation. So somebody who is very high tax bracket right now, working full time, but also building real estate on the side. One strategy we use frequently is to say, okay, well let's fund pre tax retirement account now because you're at 37% tax bracket, if you live in a high taxing state, you're over 50%. Right. So we'll save 50 cents on the dollar for all the contributions towards retirement. And in a couple of years, if your plan works out, you're going to stop working and you're going to be full time real estate, real estate professional with a big portfolio of properties. What that time? Because I have no income and a bunch of losses, maybe I then take my traditional 401k or IRA, I convert that to Roth and pay no taxes or convert at 15%. Right. So everyone kind of has a little bit different fact pattern. And that's the fun part of tax planning for us tax nerds.
- [32:28]
Scott Trench
Would you say that, that most people though bias towards how do I defer or pay the little, the smallest amount of possible tax now and figure out the next, the next deferral piece later rather than. It's a, it's a rare strategy to, to realize now, assuming that tax rates will go up, it'll make it harder later. Is that, is that relatively Rare it would say yes.
- [32:49]
Amanda Hahn
Like the, the, the more common narrative is how do I pay less taxes right today and make my money grow for me? Rather than how can I pay more taxes now and save money later? Yeah, I would agree that's most people. But again, it's not necessarily, there's not necessarily a right or wrong answer. It just kind of depends on so many different fact patterns.
- [33:12]
Scott Trench
Let's go back to a little bit of a couple of more things on real estate. One is, can you remind us the brief history of Opportunity zones and what those benefits used to look like and what they look like today heading into 2025 for folks may be interested in.
- [33:30]
Amanda Hahn
Looking into that Opportunity Zone. So Opportunity Zone came out several years ago and the rules are, the current rules are if you sell something and you have capital gains, so it's whether selling your primary home, selling a rental property, your business, stocks, crypto. If you have capital gains, generally we have to pay taxes on that, right? There's no other, there's no other options to defer unless we're talking about real estate. In real estate, if it's rental, we could 1031 exchange. But if we're selling stocks or other stuff, we generally have to pay taxes. The benefit of Opportunity Zone is that if you have these capital gain events, you can choose to invest that amount of money into an Opportunity Zone fund. And if you invest in an ozone, we call it Ozone Ozone fund, then you can defer the taxes until 2026. And also if you hold on to that asset asset for at least 10 years, you can get up to 10 years of tax free appreciation. So example might be we don't see this a lot with real estate because most of our clients who do real estate, they just 1031 exchange. We see this more commonly in our clients who like have stock gain. So let's say you work for Nvidia, who didn't do so well recently. But let's say you work for Nvidia, there's a huge capital gains, you sold it. Um, what you can do instead of paying taxes on the game, let's say it's a hundred thousand of gain. You can take that whole hundred thousand or fifty or eighty, whatever you want to do. Let's say you took eighty thousand of it, you invested in an Opportunity Zone fund. Let's say for example, that fund invests in real estate, right? Multifamily or whatever it is. When you do that, then that means you don't have to pay taxes right now on that 80,000. So this year you only pay taxes on the difference of 20,000. That 80,000 is reinvested. It kind of grows and grows. In 2026 when you file that tax return is when you'll pay tax on the 80,000 that you deferred initially. And if 10 years later that 80,000 grows to be 180,000, then you don't ever have to pay taxes on that hundred thousand of appreciation. So those are like the two tier benefits, differing taxes and also potentially tax free growth.
- [35:44]
Scott Trench
So the real benefit to an opportunity zone investment in reality is if you tend to hold it for 10 years, never having to pay tax on that gain. There's just a small, a near term deferral as well on the recent capital gain that is, that is also mildly helpful.
- [35:59]
Amanda Hahn
Mildly helpful, yes. And it hasn't changed. It's just the years when we started, this was back several years ago, so we had a 107 year deferral. So every year that goes by now it's only until 2026. Right. But years ago, you know, we had, we had a handful of years to defer.
- [36:14]
Scott Trench
Awesome. Well, anything else from you, Mindy?
- [36:16]
Mindy Jensen
No, I was just going to ask any final thoughts on how people can prepare for 2024 taxes or what they should be thinking about for the 2025 year. So that 2025 tax paying time in a year from now isn't a shock.
- [36:32]
Amanda Hahn
I mean I think 2024, some of the things we talked about, right, gathering up your expenses, which I know nobody likes to do, we like to talk about saving taxes. No one license the work of actual actually, you know, gathering expenses, but do take the time to do it. Talk with your tax person about a lot of these things, you know, you know, how do I use the short term rental loophole? Can I be a real estate professional? Kind of do all have all those discussions. So you make sure you are able to file 2024 in the most optimal way. You know, 2025, we're expecting it to be a year of pretty significant tax changes. Whether that will pan out to be true or not, that's anyone's guess. But important to understand that if there are no tax changes, a lot of the benefits that we currently enjoy as real estate investors, where, you know, qualified business income where the first 20% is tax free, bonus depreciation dwindles down. So a lot of these current benefits do expire at the end of this year. So we kind of have to plan for, you know, a higher tax bracket. I think Scott is really happy. He's like I told you all along taxes are going up.
- [37:34]
Scott Trench
I would certainly not be happy about that. I think, I think they could get lowered this administration, but I just think there's no reason to believe that over the next 20 to 30 years, brackets are coming down. That's more of my take.
- [37:47]
Amanda Hahn
I mean, or the opposite could be true.
- [37:48]
Scott Trench
Right.
- [37:48]
Amanda Hahn
Trump has talked about bringing back 100% bonus appreciation. I mean, Republicans generally pro business, so we could have some even supercharged benefits, more so than what we've seen in the past. So I think 25. 5 will kind of to be determined how it is going to be for taxes and real estate. But the best thing we can do as investors is, you know, keep updated on the news and what's coming out of legislation and then keep your line of communication open with your cpa. If there's one thing to take away is, you know, your CPA should be your friend. Call them, email them, talk to them about what you're doing in life with respect to investing, retirement, job change. Because it's in those very simple conversations that they could help identify opportunities for you.
- [38:35]
Scott Trench
I think it's great advice. And if we get 100% bonus depreciation, then I think a lot of career W2 income earners are going to have to get their real estate agent license, try their darndest to sell one house and then use that to off to create huge losses to turn those 4011 case into Roths in those years. So that, that'll be a fun one if that actually does happen.
- [38:57]
Amanda Hahn
Well, they would actually probably have to quit their job. Right. They might have to quit their job to actually meet real estate professional.
- [39:03]
Scott Trench
Yeah, but if you can get a 2, $300,000 loss and don't take all that out of your 401k, that may be well worth it. So we'll see. Yeah, if that, if that stuff starts happening. That'd be wild.
- [39:14]
Mindy Jensen
Okay, we'll do another episode about that if you can do this bonus depreciation thing. So Amanda, reach out if they, if, if this goes into effect. Because I, I would love to take some money out of my 401k and not pay any taxes on it.
- [39:31]
Amanda Hahn
Okay. Are we talking about both of you quitting biggerpockets right now? Is this what's happening on the podcast?
- [39:37]
Scott Trench
Mindy's going to go to 19 hours a week, I think for one year. If in the event of a 100% bonus depreciation play comes up and she's going to buy about $2 million worth of real estate, I think.
- [39:50]
Mindy Jensen
Yeah, 19 hours a week with a lot of donated time.
- [39:55]
Amanda Hahn
Oh, no. This is what happens with real estate investors. They start coming up with these crazy ideas of donated time. But you know, just in real life, though, I saw this quite a bit during COVID We had a lot of clients who are in the medical field that actually, you know, one spouse took a step back or they just took a step back. Not just for tax, obviously. You know, kids were learning from home and stuff, but really plan ahead and using it just for that one or two years. So could happen.
- [40:24]
Mindy Jensen
All right, Amanda, where can people find you if they want to talk to you about taxes?
- [40:29]
Amanda Hahn
If you want to talk more about taxes, my company is called Keystone CPA. So you can go to keystonecpa.com we have a lot, lot of great free resources. If you're looking for more educational content, I have a YouTube channel as Amanda Hancpa and I'm always on Instagram for daily tax tips as AmandaHonCPA.
- [40:48]
Mindy Jensen
Awesome. Amanda, thank you so much for your time today. It is always fun to nerd out with you about taxes. And that is a term of endearment tax nerd, money nerd, real estate nerd. That is all everybody we are. It is, it is me saying that. I see you, I hear you, and I am right there with you.
- [41:07]
Amanda Hahn
Thank you.
- [41:08]
Mindy Jensen
Thank you again. It's always fun to talk taxes with you. I appreciate your time.
- [41:12]
Scott Trench
All right, Mindy, that was Amanda Hahn with some great tax tips and advice. One thing, now that I've said it, I don't know if I'm still as comfortable with it, even though it's kind of my philosophy here around. Do you agree with me that it's okay to realize gains and in a couple of cases when there could be more, attract a strategy to defer those gains based on the premise that long term tax brackets will continue to creep up over time? Do you think that's the right approach? How do you.
- [41:41]
Mindy Jensen
How do you feel about it, understand the. The thought process behind where you're coming from? I think that on terms of economic strategy and investment strategy, you and I have a bit of a difference of opinion. However, you are also far more thoughtful than I am about all of this. So I don't think that I'm qualified to say no, Scott, you're wrong. And I would definitely need to see more numbers, like actually on paper. That's how I learn best is. Is visually. So I would want to see all of those numbers to see what you're thinking and where you're going. But what I hear from you is that you've thought through it. This isn't some off the cuff whim. Oh, you know what? I'm just going to do something different this time. I'm just going to pay all the taxes now. I haven't even thought about it. You're thinking strategically, you're thinking ahead, you're making educated guesses. And what's the worst that can happen? It's not like you sell them now and then all of a sudden the government's like, hey, no more taxes ever. I don't believe that will ever happen because that will never happen. And I am happy to eat my words if I'm wrong about that, but I'm not gonna be. So will tax brackets go up? Most likely. Historically they have been lower in the past and now, you know, they're higher than they were used, than they used to be. So I think that it's a strategic, I don't want to say bet because that makes it sound like it's a gamble. It is kind of a gamble, but it's also like it's a thoughtful choice that you're making. So I'm excited to see what happens.
- [43:10]
Scott Trench
And just, just for those who are curious, the kind of way that manifests itself for me is I max out my HSA, then I max out my Roth 401k. Despite being in a higher income tax bracket. I choose to go the Roth route because of the dynamic I just discussed. And I pay more taxes now and I hopefully will pay less taxes later. As I begin withdrawing from that Roth account, I want to get as much in there as I possibly can. I'm not afraid to realize income. I'm not willing to play intricate games to defer capital gains and those types of things on an indefinite basis. I am not attracted to the idea of a 1031 exchange on rental properties for the rest of my life in order to die so that my heirs inherit property at a tens of what could then be tens of millions of dollars and stepped up basis. I am much more interested in building a portfolio that is plenty, harvesting the cash flow, paying Uncle Sam and having my flexibility in my life at an early age and maintaining it for life rather than ending with the highest possible number. And that is what drives a lot of these decisions here. And I've just observed other folks playing that deferral game to crazy extremes in my view that create situations where they have millions or tens of millions of dollars in net worth but very little in the way of harvestable cash flow. It's very hard to access gains that you've deferred for decades when interest rates rise, for example, and you can't cash out refinance as comfortably on there. So things like that, those are all things that inform my overall strategy. I would be willing to bet a lot of money, and I guess I am in some ways, that tax brackets will creep up over the long term. But I also think that I could be specifically wrong in the case of a Trump administration where opportunities to dramatically reduce tax burden over the next four years have a reasonable probability of emerging. So anyways, those are just some random thoughts around tax strategy where there's really no right answer. It's just a bunch of murky guesses on what the government's going to do with these tax brackets over the long term and how that manifests in your decision making about which, which accounts to contribute to.
- [45:19]
Mindy Jensen
Again, you're thinking this through. You're looking at many different options and you're making the best choice that you can with the information you have today and your hypotheses about where taxes are going to go. So I think that, I think that it's interesting. I think you're thinking differently than a lot of people and maybe you're right and we should have all listened to you.
- [45:39]
Scott Trench
Yeah. But I think in the most case, if you don't really have a plan, pay less taxes today. That's the if you don't really have an opinion on these things, hire a good CPA and defer because there might be opportunities at future point to harvest those gains in different ways more very tax efficiently if you have a higher pre tax net worth. So go for it. And people like Amanda Hahn are definitely good ones to talk to.
- [46:00]
Mindy Jensen
All right, Scott, should we get out of here?
- [46:02]
Scott Trench
Let's do it.
- [46:03]
Mindy Jensen
That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench. I am indeed Jensen saying Chow Willow Bow.