How to (Legally) Reduce Taxes with Real Estate + Crucial New Trump Tax Plans

Summary

BiggerPockets Real Estate Podcast: How to (Legally) Reduce Taxes with Real Estate + Crucial New Trump Tax Plans

Release Date: January 29, 2025

In this enlightening episode of the BiggerPockets Real Estate Podcast, host Dave Meyer engages in a compelling discussion with tax expert and seasoned real estate investor, Amanda Hahn. Together, they delve deep into the myriad of tax advantages available to real estate investors, explore advanced tax strategies, and dissect the potential impact of new tax policies under the incoming Trump administration.

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1. Introduction to Tax Advantages in Real Estate Investing

Dave Meyer kicks off the episode by highlighting the often-dreaded tax season as a silver lining for real estate investors. He emphasizes the substantial tax benefits that come with property ownership, which not only generate income but also offer avenues to retain more cash flow and offset gains from other investments.

Dave Meyer [00:04]: "But there is actually sort of a silver lining for real estate investors. Then tax season sort of makes me feel grateful to be a real estate investor because owning real estate has a ton of tax advantages."

Amanda Hahn introduces herself as a CPA and real estate investor, passionate about helping others maximize their tax savings through strategic real estate investments.

Amanda Hahn [01:57]: "My passion is really in helping real estate investors nationwide on how to use real estate to not just build wealth, but also save on taxes."

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2. Understanding Basic Tax Benefits for Real Estate Investors

a. Real Estate as a Business Entity

Amanda elucidates that real estate investors are considered business owners by the IRS. This classification opens the door to various business deductions that are not typically available to W-2 employees.

Amanda Hahn [02:42]: "Once you start investing in real estate, you're actually a business owner in the eyes of the IRS."

b. Business Deductions and Depreciation

She breaks down two major tax benefits:

1. Business Deductions: Expenses related to running the real estate business, such as memberships, educational resources, and operational costs, can be deducted from income.

2. Depreciation: A non-cash deduction allowing investors to write off the purchase price of the property over time, effectively reducing taxable income without actual cash outlay.

Amanda Hahn [03:57]: "In addition to business deductions, we also get to take what's called depreciation... tax law allows you to write off the purchase price of your building over time."

c. Practical Example of Depreciation

Amanda provides a clear example to illustrate how depreciation can shelter rental income from taxes.

Amanda Hahn [05:23]: "So, maybe our taxable rental income is only $1,000. And so what we love about depreciation is that we get to take that tax write-off regardless of what's actually happening to our properties or what's happening in the market."

Dave Meyer reinforces the value of these deductions by comparing rental income to W-2 income, highlighting the tax deferral benefits of real estate investments.

Dave Meyer [06:34]: "...the rental income is literally worth more to me because of depreciation. Because I can write off a lot of expenses that basically allow me to defer taxes on that current income."

d. Dispelling Common Myths

Amanda addresses common misconceptions, such as the fear of "losing money" due to rental losses. She clarifies that these losses are strategic tax tools that help in reducing overall tax liability.

Amanda Hahn [08:10]: "We can actually use up to $25,000 of our rental losses against our W-2 income."

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3. Advanced Tax Strategies for Savvy Investors

a. Utilizing Retirement Accounts for Real Estate Investments

One of the standout topics is the use of self-directed IRAs to invest retirement funds into real estate, allowing for tax-deferred or even tax-free growth.

Amanda Hahn [16:59]: "If you have unique insight into real estate and you think that you can do better investing in real estate than the stock market, then why not take your retirement money out of the stocks... and move it over to real estate assets."

b. Step-by-Step Process to Self-Directed Investing

Amanda outlines a straightforward three-step process to transition retirement funds into real estate investments:

1. Open a Self-Directed Account: Choose a custodian that suits your needs.
2. Roll Over Funds Directly: Transfer funds from existing retirement accounts without triggering taxes or penalties.
3. Begin Investing: Use the funds within the self-directed account to purchase real estate or other qualifying assets.

Amanda Hahn [22:23]: "It's actually super simple. We refer to it as a three-step process... open the account, roll the money over, and start shopping for real estate."

c. Benefits and Considerations

This strategy not only diversifies investment portfolios but also leverages the tax-advantaged status of retirement accounts to potentially achieve higher returns.

Dave Meyer [23:18]: "...paying for a CPA, not only just peace of mind has been so helpful, but as an investor, it helps you in year and it also just helps you plan for the future..."

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4. Navigating Current Tax Policies and the Trump Administration's Plans

With the inauguration of the Trump administration, attention turns to forthcoming tax policy changes and their implications for real estate investors.

a. Extension of Bonus Depreciation and Qualified Business Income (QBI)

Amanda expresses optimism that bonuses like 100% bonus depreciation and QBI deductions will be extended or reinstated, offering continued tax relief to investors.

Amanda Hahn [24:43]: "The Trump administration has signaled pretty strongly that they want to bring back 100% bonus depreciation in some form or fashion."

b. Potential Changes to SALT Deductions

The State and Local Tax (SALT) deduction cap of $10,000 is under scrutiny, with potential increases or complete elimination on the horizon.

Amanda Hahn [34:22]: "Trump has talked about increasing that from $10,000 to higher numbers, but he's also floated around the idea of getting rid of that cap altogether."

c. Capital Gains Tax Rates and 1031 Exchanges

Discussion moves to capital gains taxes, where Amanda predicts that rates may remain stable or decrease under Trump, and 1031 exchanges are expected to continue offering tax deferral opportunities.

Amanda Hahn [39:30]: "I feel like under Trump's administration they'll probably remain the same or go down. I don't expect capital gains tax rates to go any higher."

d. Impact on Property Values and Market Dynamics

Amanda anticipates that favorable tax policies could lead to increased real estate investments, especially in high-tax states like California and New York, potentially driving up property values and encouraging reverse migration trends.

Amanda Hahn [37:40]: "If you paid $15,000 in state income taxes and another $15,000 in property taxes, now you can write off the whole $30,000 rather than just the current $10,000 limitation."

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5. Final Thoughts and Strategic Planning

Concluding the episode, Dave and Amanda emphasize the importance of staying informed and proactive in tax planning. As tax laws are dynamic, continuous education and consultation with tax professionals are crucial for leveraging available benefits and adapting to new regulations.

Amanda Hahn [42:34]: "Being proactive really will go a long way to helping you to protect against any negative changes and helps you to take advantage of any positive changes."

Dave Meyer wraps up by encouraging listeners to engage with Amanda's expertise through her books and upcoming sessions at BiggerPockets Momentum 2025, ensuring that investors are well-equipped to navigate the evolving tax landscape.

Dave Meyer [41:02]: "Thank you so much, Amanda, for sharing your knowledge with us and your predictions about the tax code..."

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Key Takeaways

• Real Estate as a Business: Investors benefit from business deductions and depreciation, significantly reducing taxable income.

• Advanced Strategies: Utilizing self-directed retirement accounts can amplify investment returns through tax-deferred growth.

• Policy Awareness: Staying abreast of potential tax law changes, especially under new administrations, is essential for strategic planning.

• Professional Guidance: Collaborating with CPAs or tax professionals is highly recommended to maximize tax benefits and ensure compliance.

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This episode serves as a comprehensive guide for both novice and seasoned real estate investors seeking to optimize their tax strategies and stay informed about imminent policy changes that could impact their investments.

Transcript

[Amanda Hahn]

Foreign.

[Dave Meyer]

What's up, everyone? It's Dave. We are, of course, past the new year, which we are just counting down the time to everyone's least favorite day of the year, April 15th. Because of course, paying taxes really sucks. But there is actually sort of a silver lining for real estate investors. Then tax season sort of makes me feel grateful to be a real estate investor because owning real estate has a ton of tax advantages. Properties, of course, make you money, but they also help you keep more of your cash flow and it can even offset gains from other investments or your ordinary income. It is a lot of paperwork, but let me tell you from some very expensive experience that it is worth thinking about and talking about this stuff because you are almost certain to save more money if you just invest a little bit of time and money into optimizing your tax strategy. So today on the show, we're getting ready for tax season with our guest, Amanda Hahn. Amanda is a cpa. She's also a real estate investor herself and she specializes in helping other investors reduce their tax burdens as much as possible. In today's episode, Amanda is going to talk us through the basics that every investor should know before filing their taxes. And she's even going to share a few more under the radar style tips that only pros really use. Then in the second half of the show, we're going to get into a question that's been on my mind and from the questions I get, it's on a lot of other people's minds right now. What does the new Trump administration mean for taxes going forward? Are we going to pay less? Are there going to be any changes to the many tax benefits we enjoy as real estate investors? Let's find out with Amanda Hahn. Amanda Hahn, welcome Back to the BiggerPockets podcast. Thanks for being here.

[Amanda Hahn]

Yes. I'm so excited to be here with you, Dave.

[Dave Meyer]

Well, you are a frequent guest and friend of the show, but for anyone who's new around here, could you just give a brief intro?

[Amanda Hahn]

Yes. My name is Amanda Hahn. What I tell people is I am a CPA by day and real estate investor by night. So like most of you guys, I invest in real estate and my passion is really in helping real estate investors nationwide on how to use real estate to not just build wealth, but also save on taxes. So I'm so excited to be here because it's tax season. Taxes are top of mine.

[Dave Meyer]

I am glad you are excited about taxis.

[Amanda Hahn]

Somebody has to be.

[Dave Meyer]

So let's just start with what are like sort of the big picture Things. If anyone is new to this and maybe not as familiar with some of the tax benefits for real estate, what are some, like, two or three things that you think real estate investors should be thinking about as we head into tax season?

[Amanda Hahn]

So I think as a real estate investor, especially for those of you who are new to real estate investing, it's important to understand that once you start investing in real estate, you're actually a business owner in the eyes of the irs. So what that means is whenever you hear people talk about business deductions, the definition of business also includes real estate. Whether it's rental properties, if you are doing your first bird property, or you're flipping real estate, wholesaling real estate, those are all businesses, which means if you're involved in those activities, we can start to write off our business expenses against that income, which is kind of different. You know, if you just have a W2 job, maybe. Historically, we were very limited in terms of what we can write off. So it kind of opens up a whole new world about what we can deduct and how we can plan ahead now to make tax time a little bit more fun.

[Dave Meyer]

Good. I love to make tax time a little bit more fun. And that. That totally makes sense. Yeah, like, just as a business owner, you get to spend money on your business, and a lot of that is tax deductible. But there are also additional things that are sort of unique to real estate beyond just being small business. Right. Can you share with us some of the big buckets of, of tax laws that people should familiarize themselves with?

[Amanda Hahn]

Yeah, for sure. I mean, one of the, you know, the benefits of real estate investing is not only do we get to take business deductions, you know, business deduction are just like, we spend money on maybe like a bigger pockets membership. We buy a tax book to learn about real estate investing or, you know, memberships you pay, or just regular expenses. In addition to that, we also get to take what's called depreciation. And depreciation is basically a paper write off. We call it a paper write off because you're not actually losing money. But tax law allows you to write off the purchase price of your building over time. And so when you hear, a lot of times when people talk about real estate tax benefits, real estate losses, I think for those people who are newer to real estate, they kind of get alarmed, like, why am I losing money? Why do I have tax losses? So it's really important to understand that when we talk about tax benefits, we're not saying lose money on the investment. Right. In fact, hopefully we're getting cash flow and appreciation and making a lot of money. But with tax planning, we're using things like write offs and depreciation specific to real estate to then create a loss that in turn helps us to save on taxes.

[Dave Meyer]

Can you tell us, just give us an example. Like if you were making say $500 a month in cash flow, right. So you profited about 6,000 dol in a year from a single rental property, how could depreciation help you shelter some of that from immediate tax?

[Amanda Hahn]

For sure. I mean, depreciation is just an additional expense that we can write off. So you obviously, if we're saying we're cash flowing $500 a month, that's after we've paid all of our operational expenses. But if you have a property and let's say your depreciation is going to be $5,000 for the year, well, instead of paying taxes on $6,000 worth of income, we get to write off that 5,000 against it. So maybe our taxable rental income is only $1,000. And so what we love about depreciation is that we get to take that tax write off regardless of what's actually happening to our properties or what's happening in the market. So it could have a property where it's actually appreciating in value. Well, it doesn't matter because for tax purposes we still get to write it off because that's the tax law. And you know, also I think too when you hear people who say, like, hey, I pay so much taxes on my income. Well now as an investor, we get to make more income like rental income without paying a lot of taxes on it. Right. And that's, that's all of our goals.

[Dave Meyer]

Right?

[Amanda Hahn]

Create more income without working harder, but also creating more income that I don't have to pay a huge amount of taxes on.

[Dave Meyer]

Yeah. And just for everyone to understand, like I work full time, I have, you know, I pay full regular ordinary income tax on my W2 job here at Biggerpockets. I also get rental income and not just like in terms of long term benefit, but the rental income is literally worth more to me because of depreciation. Right. Because I can write off a lot of expenses that basically allow me to defer taxes on that current income. Which means it's worth, depending on your tax bracket, like somewhere between 20 and 35% more. Right. Because you're not paying tax on your rental income like you are on your W2. It's just one of the Many benefits of real estate tax, for sure.

[Amanda Hahn]

And if you happen to live in a state that has high income tax rates, you know, I live in California, although I have fines nationwide, but I'm in California. And if you're a high income earner in California, you're losing over 50% of income to taxes. And I love what you said, Dave. So it's like, hey, if I'm making $6,000 from my job and $6,000 for my rental income, well, guess what, on my rentals, I probably get to pocket the whole 6000.

[Dave Meyer]

Yeah.

[Amanda Hahn]

Versus on my W2. I don't know, maybe I get to pocket 40003000 of it after taxes. And that's why it's such a precious bucket of money.

[Dave Meyer]

Yeah. Like in California, you would have to earn $9,000 in W2, basically, if you're a top earner, to get the same thing as $6,000 in rental income. So that's, that's just one of the great parts of depreciation. And as you said, it's sort of a misconception for some people. Are there other common myths or misconceptions you hear about real estate tax?

[Amanda Hahn]

What a lot of people don't know is that not only can rental losses offset taxes from rental income, but sometimes we can also use it to offset taxes from our W2 income as well. Especially if you're someone who makes under $150,000. Like if your W2 total income is $100,000 and you own one or two rental properties, you can actually use up to $25,000 of your rental losses against your W2 income. And that's just the tax law that everybody who invests in real estate.

[Dave Meyer]

Is that true for married people to 150 is the limit?

[Amanda Hahn]

Yes, unfortunately, it's a marriage penalty. Yeah. So normally if, you know, if you're. If your income. So yeah, again, if your income is under 100,000 or between 1 and 150, you can generally use up to $25,000 of rental losses to offset that income. And it's really, really impactful for people in that income range group. Right. Because if you think about it, if I can make 100,000 of W2 income, you know, and not pay any income taxes and use all of that money to then reinvest in real estate and kind of rinse and repeat every year. Yeah. I can grow my wealth so much faster. Right. Than paying taxes on the whole thing. But yes, for those who are married or people whose income is over 150, the laws are a little bit more complex in terms of who can use the losses against what type of income.

[Dave Meyer]

Are these types of advantages like depreciation and cost segregation studies, are these things that people can do themselves, or do you need a CPA or like a real estate specific CPA to be able to figure this out for your own filings?

[Amanda Hahn]

You know, I've seen both. I think the answer to that question depends on the investor's knowledge when it comes to taxes. I would say that, you know, if you're pretty well versed in tax law, then yeah, it's okay, probably okay for you to do your own tax return, especially if it's pretty simple, you don't have partners, is maybe just you or you and a spouse owning a rental property. It's not that difficult to do. But if you're trying to do accelerated depreciation, if you're taking advantage of some of the more complicated or advanced tax law, then oftentimes it makes sense to have a CPA or an enrolled agent, you know, a professional to help you do the tax filing. Because, you know, when we talk about real estate tax benefits, we're generally not talking about saving $500 or $1,000 in taxes, right? We're talking about, you know, 5, 10, 15,000 or more in taxes. And because the tax savings are so significant, if you make a mistake and you're caught, the penalties and interest are also very significant. So, yeah, it's not that to say you can't do your own taxes. You certainly could if you're someone who's very knowledgeable. But if we're talking about larger numbers, typically recommend that you go to a professional.

[Dave Meyer]

That is a very modest answer. And I understand why you're. You're not just telling people to go out and hire CPAs. You're being very kind and encouraging. Encouraging people. I'll just do it for you. Go hire a cpa. Honestly, it's so much better. I have tried to do my taxes by myself and it is humiliating how confusing I felt like it was. And paying for a cpa, not only just like peace of mind has been so helpful, but as an investor, it helps you in year and it also just helps you plan for the future in a way that I think is extremely valuable to your overall portfolio strategy.

[Amanda Hahn]

Filing tax return is kind of the necessary evil where we have to report what we did or didn't do last year. But when you work with the CPA and you can focus on tax planning, like what should we do this coming year to make sure I have the right portfolio, the right investment. Save on taxes. That's really the key, right? That's the value your CPA brings to you.

[Dave Meyer]

Yes, totally on board. Definitely consider this very strongly, especially if you have more than one rental property. Amanda, we do have to take a quick break, but before we do, I wanted to ask you something. As we're talking about taxes, you're joining Biggerpocket's Momentum, right? You're coming to our new virtual summit.

[Amanda Hahn]

Yes, I am. I'm so excited. It's going to be my first time.

[Mindy]

Oh great.

[Dave Meyer]

What are you. I assume it's about taxes, but what are you going to be talking about?

[Amanda Hahn]

Oh man. So fun. Mindy and I were just chit chatting yesterday. We have a lot of cool things planned because I know our audience will be made up of people that do different types of real estate. So we're going to be covering tax strategies, legal entity structuring strategies for long term investors, midterm, short term flippers, and maybe also passive investors too. So really excited about that.

[Dave Meyer]

Awesome. Great. Well, if you want to check out Amanda's session at Momentum 2025 or any of the other great sessions or mastermind groups that you get with that, go to biggerpockets.com2025 and grab your ticket. We'll be right back.

[Mindy]

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[Dave Meyer]

We are here with Amanda Hahn at Real estate tax expert. So far we've talked a little bit about sort of, so the basics of tax. For those of us who are just getting started in real estate or are not super privy to all the tax benefits that real estate offers, I'd like to move on to talk just quickly about some of the more advanced strategies. Then I really want to ask you about some of the current events and things that might be happening with the new administration. But first, what is, you know, I don't know if you call them hacks or tricks or loopholes, but like, what are some of the more exciting or less known tax advantages to real estate that you recommend to your clients?

[Amanda Hahn]

You know, one of the lesser known things about tax and real estate is just our ability to invest in real estate with our retirement money. You know, I think one of the, the most common questions I get a lot from investors is, you know, I would love to buy more real estate. How do I get money to buy more real estate? Where do I get money to buy real estate? And of course we always hear about, you know, creative financing, seller financing, you know, subject to all those, all those fun. But, you know, why not start with what you already have, right? I think for most Americans, a lot of our wealth is actually tied up in retirement accounts. If you have a job in the past or you currently have a job, most people have a lot of money in their 401ks or in their IRAs or Roth IRAs. And so we talk about, you know, planning ahead for our next deal, trying to fund our next deal. That's a really great resource to start looking at. And who is it good for? Well, if you're someone that real estate is sort of your expertise or you have unique insight into real estate and you think that you can do better investing in real estate than the stock market, then why not take your retirement money out of the stocks, bonds and mutual funds and move it over to real estate assets? Now, I do want to clarify, I don't mean distributing or liquidating retirement account for real estate because there are some pretty harsh taxes and penalties associated with it. The better. Or an alternative way to do it is to simply move it from one account into another type of retirement account. But still using retirement account to invest in real estate, normally those are called self directed accounts. So like if your money right now, if you have an IRA with Wells Fargo, we're not liquidating it, we're just moving it from Wells Fargo to a self directed custodian and then from there it invests in real estate. To continue to grow tax deferred or tax free.

[Dave Meyer]

And can you explain a little bit how that works? Because so basically you've contributed Money to an IRA or 401k through your career. You have some, let's just call it $100,000. Using your example in Wells Fargo, who manages your retirement account, you move it over to a new self directed custodian. And what tax advantage do you get?

[Amanda Hahn]

The concept of self directed investing, really what we're saying is, you know, we have money in the stock market and let's say it's growing at 3%, but I know if I move it over to real estate, I'm going to do a brrrr. Or just a regular long term single family rental, I can generate 6% return. Then that is the benefit. Right. Generating higher return with the money. Instead of stock market, I'm putting in real estate. When you do it correctly, we do what's called a rollover, a direct rollover. So that money, let's say it's a hundred thousand dollars, let's say it's 50,000. That money from Wells Fargo never touches your hands. It goes directly from Wells Fargo to the self directed custodian. When you move it that way, it's tax free, penalty free. Because all I've done is change it to another account. Right. And once the money is in that account, it goes out and buys real estate. Now, in the future, before you reach retirement age and start taking money out in the next several years, rental income goes back to the retirement. And the benefit of that is it continues to grow tax deferred. So you don't have to worry about paying taxes on it. Yeah. If you were to to sell that property and you wanted to trade up into a duplex or multifamily, you also don't have to worry about 1031 exchange or anything like that at all because it's always inside the retirement account. So a lot of really great benefits associated.

[Dave Meyer]

Wait, I just want to understand one thing you said. So if you generate cash flow profit, it goes back into the 401k?

[Amanda Hahn]

Yes. Yeah. If you want to continue to have it grow tax deferred or tax free, then it goes back into the 401k. You could say, well, I want to take some of that out personally. I want to use it for, you know, personal spending or whatnot. But just keep in mind, whatever portion or amount you take out of the retirement account, that is considered a distribution. So you may have to pay taxes or even penalties if you're not of retirement age yet. But the concept of it, you know, is the same. Right. Right now your 401k is invested in stocks. And so when there's stock sales and there's dividend, it goes back into the IRA or 401k. The same exact when it comes to real estate.

[Dave Meyer]

All right, And I'm sorry, I'm digging into this, I gotta be honest. I've like always known this is a good strategy and I've just, it's been low on my priority list. But I do like the idea of it. I just have two other quick questions. One is, do you have to move your whole account to a self directed or can you sort of split it between two different custodians?

[Amanda Hahn]

Great question. So we can actually move any part of retirement account over as we wish. So if you, you know, just left an employer and there was $500,000 in your 401k, you can say, well, I only want to roll out 100,000 into the self directed. The rest I want to keep in this account or I want to roll it over to Wells Fargo or Vanguard and, you know, do all different types. So it's always up to you how much or how little you want to move over to a self directed account. If you do it a direct rollover, it's going to be tax free and penalty free.

[Dave Meyer]

Me. Okay, last question. Then we'll move on to what's going on with some of the policies Trump has proposed. How hard is it to do this? Is it a pain in the butt to like open a self directed account?

[Amanda Hahn]

It's actually super simple. We refer to it as a three step process. Open an account. So the first step, believe it or not, is you want to open the account. That means interviewing different self directed custodians to see who you like. They all do the same thing, but of course, you know, bigger companies, smaller company. So find the custodian that you like. Step one, right, open the account with them. Step two, roll the money over. So let's say I opened mine with you. Direct or equity trust, they're going to have paperwork for you where you can say, hey, currently my money is at Wells Fargo. Please go over and request that the money be transferred. So that's it. You don't even have to do anything, just fill out the paperwork. They will request the transfers directly. Once the money is in the self directed account, then step three, start shopping. Start shopping for real estate, notes, syndications, you know, basically all sorts of, you know, real estate or even non real estate assets. And start Building.

[Dave Meyer]

Well, okay, I mean, it sounds like everything in my life with taxes, where I build it up in my mind to be a huge pain in the butt and it's like going to be so terrible and then it's actually really not that hard.

[Amanda Hahn]

Yeah. And you know, I think, I think you're not a loan. You know, people tend to think of tax in general or finance to even. Right. As very complicated. But I think that if you have the right tax advisor or financial advisor or just real estate coach, that's part of their job. Right. Is to help simplify it. Because you don't need to know all the rules about self directed investing. You just need to know, like, what are the things I need to do? Step one, step two, step three, and then I have an advisor or mentor I can count on that's like, like, hey, I'm thinking about doing this. Is that okay? Is it going to be a problem? And they can help you with all that.

[Dave Meyer]

All right, well, thank you. This is super helpful. I do want to turn to sort more of current events and what's changing because it does seem like there are some big policies that could be enacted in the coming year that could have a real big impact on all Americans, but specifically real estate investors. So President Trump, he's getting inaugurated, we're recording this on the 13th next week. And he's made a lot of comments about different types of tax policies and tax benefits that he's thinking about. We obviously don't know which ones are going to get enacted in what order, in what degree. But like, are there any that you feel confident are going to be enacted right off the bat?

[Amanda Hahn]

Gosh, you know, I'm a very optimistic person. So I feel pretty confident that most of the things that he actually put in place many years ago will be extended at least temporarily or come back in some form or fashion. You know, for real estate investors in our community, of course, bonus depreciation is the one that's top of mind for everyone. Right. We started out 100% bonus and now this year in 2025, we have 40% bonus. Currently it's scheduled to go to 20% next year and then zero thereafter. So the Trump administration has signaled pretty strongly that they want to bring back 100% bonus depreciation in some form or fashion. So, you know, we're really hopeful, keeping fingers crossed. Right. That's a huge one for real estate investors, especially those who are able to use real estate to offset, you know, their business income or W2 income. Qualified business income is another one, people don't talk about it as much as less sexy than bonus depreciation, but qualified business income essentially allowed up to 20% of certain types of income to be tax free. So example might be if you made $100 of taxable rental income, you only pay taxes on $80 of it. So $20 of it was completely tax free. This is also something that is currently scheduled to sunset or expire as of the end of next year, but we're hopeful that this will also be reinstated, too.

[Dave Meyer]

Okay, great. So just want to first clarify something. Back in 2017, Trump passed just a kind of sweeping tax refor reform act called the Tax Cuts and Jobs act that lowered corporate taxes, it lowered individual income taxes, and it adjusted a lot of the tax code. When that was enacted in 2017, I think it was, it was set for eight years, basically. Right. And so it was already set to expire in 2025. Regardless of what happens, Trump has campaigned on at least extending them. So, like, taking what we have today and continuing that into the future. And you said you're optimistic, Amanda? I think it's pretty likely with, you know, a Republican Congress and a Republican president that that is going to get extended at the very least. He's also, though, said that he would consider expanding it. Could you tell us about some of the policies? I know we don't know if they're going to get enacted, but, like, what are some of the policies that you think people should be keeping an eye on next year to see if they do or do not get enacted?

[Amanda Hahn]

Yeah, I mean, he, during the campaign, he talked a lot about exempting from taxes, tips. Right. Overtime pay, Social Security. And it's funny because for a lot of our clients, they're like, well, that doesn't really apply to me. You know, if I, I'm in real estate, I don't really earn any tips or overtime pays. Maybe I don't care as much. But you can imagine how for businesses and you know, business could be like a property management business or Airbnb co host. Right. You start to play around with the concept of, well, what is the definition of overtime pay? Yeah, what is the definition of tips? Is that how I want to play my employees or my cleaners? So that one, you know, those are new, right? Those, those expansions are kind of brand new concepts. That's not. We've not had in tax law before. So it'd be interesting to see which one of those paths and if so, how they define and try to confine what the definitions of each of those are, like I said, you know, what is the definition of tips? Maybe, you know, Dave's getting paid tips from bigger pockets instead of salary.

[Dave Meyer]

Yeah, I mean, I will take 100 tip pay because I won't pay tax. I was actually listening to a podcast and economists talking about this and they were saying there's pros and cons to these types of things. But they were saying, like, if you're someone who's frustrated by tip culture now, if this happens, like, everyone's going to be asking for tips. You know, it's already gotten like, pretty out of control. And I actually saw this article over the weekend in the Wall Street Journal about how Americans are. There's like a backlash starting against tipping. But if this, you know, if this policy comes in place, you know, this Econ 101 people follow financial incentives, they will find a way to get tipped rather than paid. So that could be a really interesting thing to keep an eye on.

[Amanda Hahn]

Maybe the next Bigger Pockets book will be how to make a lot of tips from your next rental property tax free.

[Dave Meyer]

Yeah, exactly. Yeah. Just leave a tip jar for your tenants out to tip you for anything you do. All right, Amanda, we have to take one more quick break. After that, I want to ask you about salt taxes and how that could impact property values. But first, a word from our sponsors. Do you want to invest in cash flowing rentals but don't have the time.

[Mindy]

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[Dave Meyer]

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[Dave Meyer]

All right, we're back with tax expert Amanda Hahn talking about taxes for 2025. Amanda, one that I'm curious about is the so called SALT tax stands for state and local tax. And Amanda, correct me if I'm wrong, but from what I understand on your federal return you can deduct a certain amount of tax that you pay to your state government and to your local government, but it's currently capped at $10,000. So if you paid 15 in California, you're probably paying more than $10,000 a year in local tax and you can can only deduct $10,000 from your federal return. So how might that change in the future?

[Amanda Hahn]

Trump has talked about increasing that from 10,000 to higher numbers, but he's also floated around the idea of getting rid of that cap altogether, which would mean that, you know, if you paid 15,000 in state income taxes and let's say you paid another 15,000 in your primary home property tax tax, now you can write off the whole 30,000 rather than just the current 10,000 limitation. I think that would be very, very favorable and welcomed for all the folks who live in high taxing states. Right. California, Hawaii, New York. Because the SALT limitation has really reduced people's ability to save on taxes for, you know, the last couple of years. If you think about it, for someone who may only W2 income, let's say you don't have any rental real estate at all, you don't have a side business, just W2 income. Our ability to deduct taxes that we paid to the state was one of the few very impactful things that you could write off, right? And so, so once they limited to only $10,000, there was a huge uproar about that several years ago. I will Say, though, that this $10,000 state property tax limitation is only at the individual level for our personal thing. So personal state taxes we pay and then the property tax on our primary home, that's what's being limited. For those of you investing in rental real estate, we always had the ability to deduct whatever the property taxes are for our rentals. So that was never limited.

[Dave Meyer]

Okay, that's good to know. But didn't SALT tax deductions used to be unlimited and then this limit went in in 2017? So that maybe is something Trump is altering about his new tax policy?

[Amanda Hahn]

Yeah, like we're just going back to whatever, you know, the old law was that we used to be able to take advantage of. And the other thing I was going to say, too is, you know, I know Republicans now like a sort of control, you know, Congress too. But my expectation is a lot of these tax changes that they were to come into effect will probably still be what we call temporary changes. So kind of like the Tax Cuts and Jobs act, it wasn't like indefinitely. We get 100% bonus. Depreciation was only for a certain amount of time. It kind of dwindled down. So we do expect that to kind of be with these next rounds of changes that'll still be temporary in nature because there's a lot more they have to come to an agreement on in order for any of these to be permanent changes, which, you know, what does that mean for investors? It just means that we just have to kind of stay on top of the news and the law and be able to take advantage of whatever the new breaks are while they still exist.

[Dave Meyer]

Totally agree. Staying on top of it. Just wanted to say one more thing about SALT because I'm curious about how that might impact property values in places where this has been a significant issue, like New York or New Jersey. You said California, because I would imagine this has impacted affordability for people and that always impacts spending, gdp, you know, housing prices. And so if this does get, you know, the limit either gets eliminated or increased. Like, do you see some. Some tailwinds for home prices in those areas? Something I'll definitely be keeping an eye out on?

[Amanda Hahn]

Yeah, I think so. I mean, not to say tax is the main reason people decide where to live, but it is one of the things top of mind. Right. When we think about where we want to live. And so in the past couple years, you have places like no, California, New York, where taxes are high and, you know, ever rising. And not only that, but we limit your ability to deduct what you paid, right. That's like kind of more incentive for people to move out. And so with the removal of that, maybe hopefully we'll see a little bit of a reverse migration trend. But of course, you know, there's a lot of different factors that come into play, but I do see just kind of in general, like policy impacting decisions. And for me, as a real estate cpa, I for sure see that, you know, back in a couple of years ago when we had a hundred percent bonus depreciation, our clients were very, very aggressive about what they bought and all the acquisitions and stuff. And as you can see, when the, the tax benefits of investing in real estate dwindled down, you know, harder to get into real estate with interest rates and, you know, markets tightening, that you see, you see like fewer deals being made. So it's interesting, I mean, I guess that's the intention, right, of tax law and monetary policy is to try to incentivize or disincentivize certain actions. But it's just interesting to kind of see that in real life.

[Dave Meyer]

Last question for you here is about capital gains and capital gains rates. If you're unfamiliar, capital gains is basically the tax that you pay on the sale of assets, right. Rather than your ordinary income. And so if you own stock for a year and then you sell it, you pay capital gains tax, which I think is between 15 and 20%. And for many Americans, that's lower than your ordinary income. But I feel like politically people are always talking about the rate of capital gains should go up, should it go down? Do you think there's any chance that it changes in coming years?

[Amanda Hahn]

Well, I mean, if I had to guess, I feel like under Trump's administration they'll probably remain the same or go down. I don't expect capital gains tax rates to go any higher. But yes, you're right. I mean, generally the tax strategy is if you have an asset, whether it's stocks or real estate, if you hold onto it for longer than 365 days, we get the long term capital gains rate and that's what we call the preferred rate because it's generally lower than your other, you know, like your W2 job or a business that you have. Right. So it's typically the, we call it the lower long term capital gains tax rate. Um, you know, it's interesting is every time there's an election, there's always talks about 1031 exchange. Is that going away? Is that being limited, being phased out, whatever it is, surprisingly, we didn't Hear a lot about that in the election that just happened. So, you know, I think for real estate investors, the reality is, practically speaking, capital gains tax rates are not as important or I guess are not as top of mind as 1031 exchanges are. Because if we have 1031 exchange like we do now, and assuming it's not going to change, we always have the opportunity to delay our taxes. Right. And so if we can, you know, sell a property, reinvest in another one without paying, paying any taxes, my capital gains then, then is zero because I'm not paying any taxes on it. I think we were concerned when people were talking about getting rid of 1031 exchange and increasing the capital gains rate. That's kind of like two double whammies. But for now, I feel like, you know, we'll probably continue to have both of these benefits.

[Dave Meyer]

All right, great. Well, thank you, Amanda, so much for sharing your knowledge with us and your predictions about the tax code, which is always hard to understand, but. But hopefully we can have you back. Because as with all economic policy, tax law, the devil's in the details, right? Like, we know some sort of, like, broad ideas about what might happen and what President Trump intends to do, but what investors specifically should be thinking about and doing is really going to depend on the language that actually gets passed into law. So as soon as that happens, assuming it does happen, we'd love to have you back.

[Amanda Hahn]

Yeah, I would love to. And I also think too, you know, tax law changes all the time. What I think a lot of people don't know is, is we change our tax planning not just from law change, but also from tax court case changes. You know, as we all know, there are a lot of IRS got a lot more money for audit services, right. Where they're auditing a lot of taxpayers. And what happens is from those court cases, the decisions of those court cases often impact how we do certain things. And so as an investor, you just, you know, you or you have an advisor that you can lean on to stay on top of those things so that you kind of have taxes on the back of your mind when you're making business decisions about what should I buy, where should I buy, when should I buy? Tax law change simply just means a change in strategy. And so, you know, being proactive really will go a long way to helping you to protect against any negative changes and helps you to take advantage of any positive changes.

[Dave Meyer]

All right, well, great. Thank you so much, Amanda. We really appreciate it. If you want to learn more from Amanda, her two books Biggerpockets are amazing and as we talked about, you can see her at BiggerPockets Momentum 2025. You can get tickets to that at biggerpockets.com summit2025. Thanks again Amanda and thank you all so much for listening. We'll see you next time for the BiggerPockets podcast. Thank you all for listening to the.

[Mindy]

Biggerpockets Real Estate Podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify or any other podcast platform. Our new episodes come out Monday, Wednesday and Friday Friday I'm the host and.

[Dave Meyer]

Executive producer of the show, Dave Meyer.

[Mindy]

The show is produced by Ian K. Copywriting is by Calico, Content and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. the content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk, so use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. Biggerpockets LLC disclaims all liability for direct, indirect, consequential or other damages arising from a reliance on information presented in this podcast.