ilmscore | Prediction Details
"one of the nice things about real estate is real estate has a lot of tax Loop or at least that's what some people call them it's really just a tax write-off or a tax rule that allows you to qualify for bigger deductions one of those loopholes rules deductions whatever you want to call it is called depreciation and what depreciation says is that you can take a piece of the value of the real estate and write it off against your rental income every single year even if a property goes up in value so here's how it works and then I'm going to show you how this can get very very powerful The way you do this now is you find out the value of the property because when you bought this single family house some of the money went to bind the land the other part went to bind the house if we assume that $100,000 of this $500,000 went to bind the land and the other $400,000 went to buy the house now we can do a little bit of math the IRS says that if I'm buying a single family house as a rental property I can deduct 1/27.5 of the value of the property each year this is not a number that you have to calculate that's just what the government says that's what the IRS says so you take one divided by 27.2 and you multiply that by $400,000 which is the value of the property not the land which tells me that I can take a $14,500 write off on paper on my taxes because that's what the government says so instead of paying taxes on $30,000 I'm going to pay taxes on about $15,500 so you still have a taxable income but it's less than what you thought but this is things can get even more interesting if you have a good accountant and you have a good attorney because now what you can do is something called accelerated depreciation right now what we're doing is the standard depreciation this is what the government allows you to do no matter what they allow you to take this standard depreciation which is 1/27.5 but if if you get a good accountant and a good attorney now you can do something called a cost recration study and now you can depreciate different pieces of the property at different rates what does that mean in simple terms well that means now instead of depreciating $14,500 in the first year now maybe what you can do is you can depreciate I'm going to cross it out you can depreciate let's just call it $100,000 in year one because remember $400,000 was used to buy the property 100,000 for the land and so now instead of waiting so long to get all the depreciation what if you could get $100,000 in year one but remember you only had $30,000 in income if you take a $100,000 paper depreciation that means you have a loss of $70,000 but remember you have $330,000 in the bank it's not an actual loss it's just a paper loss on paper you're telling the IRS hey I lost $70,000 when in reality have $330,000 in the bank here's what that means and how some people are using this strategically well the first thing is you don't actually pay any money in taxes here because well you have more loss than you have gain now what some people might say is well if one of the spouses doesn't matter if it's the husband or wife if one of the spouses has a big salary can't take this loss and take that against the salary and the answer is maybe because in order to do that you have to qualify for a Special Rule because normally the answer is no this is considered passive income your salary is considered active income or ordinary income they're two different buckets and what the IRS says is you cannot take one bucket of income you cannot take this passive income which is the money you make from your real estate properties and use that to offset your active income your ordinary income your earned income which is the money make from your job so the normal answer is no but there's a reason let me show you something there's a reason why the federal income tax code I have a copy of it right here is more than 2,000 pages long with 12 point maybe 10 point font there's a reason why this is so long it's because there's a lot of potentials and hypotheticals so let's go through one more hypothetical the IRS tax code has a special designation called real estate professional and if you are a real estate professional or you classify as a real estate professional you can now take this real estate loss and and take it against your active income so now let's piece this together one of you are earning a big salary because you work a job one of you are not working if the person that's not working is now involved in the management of the property and involved in the real estate business now because now you're managing your portfolio of real estate well now you could qualify as a real estate professional now if you do want to do this please get a good accountant because there's a lot of different hurdles you have to meet you have to meet a certain number of hours that you have to work you have to log certain things I'm not going to get into all those little logistic stuff in this video just know if you want to do this get a good accountant so now the person that's not working becomes a real estate professional because now you're the one that's in charge of managing the real estate and you're the one in charge this building this real estate portfolio well let's go through the same scenario now if you are a real estate professional either one I'm not pointing at one you are a real estate professional you lose $70,000 on paper because he did this accelerated appreciation you have $30,000 in the bank you have a negative $70,000 loss well now you have the potential to take this negative $70,000 loss and offset that salary because you're married you're married filing jointly as a couple and so now you can qualify to take this real estate passive loss against your active income so now you made an extra money but you're paying less money in taxes yes this is something that wealthy people do yes you want to have a good accountant then yes this is something that maybe you can consider if you are interested in investing in real estate and you could potentially qualify for this but again get a good attorney get a good accountant"
By Minority Mindset | January 21, 2025 | Pending
From video
The 3.5 Most Underrated Investment Opportunities To Profit In 2025 00:11:20 - 00:17:40
Interpreted Prediction
Real estate investments offer significant tax benefits through depreciation, which allows property owners to deduct a portion of the property's value against rental income annually. Accelerated depreciation, managed with the help of a good accountant and attorney, can allow for much larger deductions in the early years, potentially creating paper losses that can offset active income if one qualifies as a 'real estate professional'.

Prediction Details

Topic
Real Estate Tax Benefits

Comments

0 comments

Be the first to share your thoughts.

Like this prediction?

Join to make your opinion count.