BiggerPockets Money Podcast - CPA Shares Tax Tips to Lower Your 2024 (Yes, 2024) Taxes

Starting point is 00:00:00 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 harder 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, hello, and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen, and with me, as always, is my Pulse His Weight at Tax Time co-host, Scott Trench. Thanks, many. You love Tax Time. That's when I can realize my gains. All right, Bigger Pockets is a goal of creating one million millionaires. You are in the right place if you want to get your financial house in order

Starting point is 00:00:42 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. 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 the Bigger Pockets Money podcast. I'm so excited to talk to you today. Yeah, I am excited to be here. It's tax season and taxes are top of mind for people, right? Taxes are top of mind for people. I just got my notice that my W-2 is available now. Yay. So that's one down and like nine 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

Starting point is 00:01:29 that we're in the new year to help me save on my taxes from 2024? 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. 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 we can 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, credit card statements to try to make sure you capture all of those expenses.

Starting point is 00:02:14 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 very unlikely. So certainly something that we could still do to, you know, just make sure we maximize our tax write off between now and the time we actually go and meet with our tax person. 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 numbers in order ahead of time instead of just, here's a big shoe, box full of receipts. Good luck. Yeah. You 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 to write

Starting point is 00:02:54 on the opposite side because your tax person shouldn't be like making up deductions for you. So it's really, really important. And especially with much higher, you know, 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. Oh, I didn't know that you could still use

Starting point is 00:03:40 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? 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 on time, but there are actually a lot of instances and, I guess, reasons why it could be beneficial to go on extension too. You're saying basically you buy a property, let's say in December or, you know, Q4, 2024. And let's say it's a million dollar multifamily or whatever, right? And

Starting point is 00:04:26 you're going to get one, you know, 27 and a half path of the structural value and depreciation unless you do a cost egg. So you spend the $5,000, $50,000 in the cost segregation study or whatever it is. And you're saying that if you, that, you know, that's a, you're saying that, you, that's may take you a few months. If you extend to October, you could complete your cost sag 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 a middle of tax season, peak tax

Starting point is 00:05:02 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? 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 the cost segregation study too early. An example might be, you know, is in 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 a cost segregation or not? 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

Starting point is 00:06:04 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? 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 of losses. I can use 25,000 against my WTO income. And this is true

Starting point is 00:06:50 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 W-2 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

Starting point is 00:07:38 estate professional, meaning like you work full-time in real estate, or maybe you're 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 W-2 or whatever, those rental losses can offset W-2 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-and-sate 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 an offset other future passive income. Got it. Okay. And one more question here. If I, you know, sell a business or sell stocks or

Starting point is 00:08:23 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? 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, you know, 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 when you sell it, there's a gain.

Starting point is 00:09:04 you could use rental losses, even if you're not a real estate professional. 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 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.

Starting point is 00:09:30 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 main job. So, 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

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Starting point is 00:12:46 and several Arthur Brooks' audiobooks that have been excellent for mental well-being. What makes Audible so powerful is its breadth. Beyond audiobooks, you also get Audible Originals, podcasts, and a massive back catalog across business, health, parenting, and more, all accessible in one app. If you're looking to turn everyday moments into real progress, Audible has been indispensable for me over over 10 years. Kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP Money. Welcome back to the show. We're joined by Amanda Hahn. Let's go back and recap kind of what

Starting point is 00:13:21 we learned here, right? So the rules, 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, you know, 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

Starting point is 00:14:02 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. 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 bigger pockets, for example, in the 401 case scenario, there's an employee contribution that, you know, Mindy puts in, and there's employer contribution that Bigger Pockets puts in. So the employee portion that Mindy puts in, we can no longer contribute to it after the end of the year because it had to go in with your last paycheck, basically, right?

Starting point is 00:14:42 So that were set. But the employer contribution, for example, Bigger Pockets could still decide to contribute for Mindy's benefit. Now, we don't have, you know, 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 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

Starting point is 00:15:26 year's 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 you 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. Awesome. And what deadlines did I miss and are not even worth looking into if it's now 2025? I think the only deadline you missed is probably just the employee contribution, right?

Starting point is 00:16:08 So even if you had your own S corporation, you are the sole owner and the sole employee. and you had a 401k, and 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. 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.

Starting point is 00:17:03 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. Yeah, that is also a comment. You know, I think that the vast majority of people listening to this, not the vast majority, but the 6040 will be folks that have a W-2, maybe two W-2 income households. And the tax planning there is pretty straightforward, right? You make your determination about whether you're going to put it in the wrath of the 401K first. Maybe you do your HSA. Maybe you give a little bit to charity or put into a donor advised fund.

Starting point is 00:17:39 maybe you say put some money away for college education or whatever, maybe there's a real estate property involved that 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 15th. Like those are much more bigger issues or those issues are much more common with real estate investors, full-time real estate investors and entrepreneurs, I believe. And is it pretty close to that simple for most W2 folks? Or am I overstating it? 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?

Starting point is 00:18:25 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 the, yeah, 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

Starting point is 00:19:03 to deal with any potential penalties. 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

Starting point is 00:19:32 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 fought 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 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 are set up for tax time?

Starting point is 00:20:06 Yeah, I mean, I would hope that, I have to assume this to be true, that most CPAs are doing that analysis. Because we certainly do that, and it's my hope that all CPAs at least do that. Because like you said, that's kind of the baseline, right? Even maybe terrible tax 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 W-2, just to see, like, which one is the higher one. But you're right.

Starting point is 00:20:35 I mean, you know, how many people 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 homes. 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.

Starting point is 00:21:08 So I think those are probably the two more common ones with respect to itemizing or taking the standard deduction. 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.

Starting point is 00:21:36 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. I was going to say, I'm kind of offended. So, well, you can actually still write off your home office. Home office is still a legitimate business expense. I think what you're referring to with it going away was with respect to,

Starting point is 00:22:00 to like my job as a W-2. So previously, if you worked at a job, a W-2 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 W-2 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 W-2 job, but you could still claim it against business and rental real estate. So, you know, we do have clients who,

Starting point is 00:22:30 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're 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.

Starting point is 00:23:11 So I think making sure you track a lot of these just common expenses we have is really important. I'm of the thought that, you know, 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 am already spending money on to the extent that I can substantiate their relayed 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. How do they help you in the future?

Starting point is 00:23:50 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 W-2 income. However, those losses don't go away. So if part of my loss is from, you know, my business or Bigger Pockets 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 sell a rental property for a game. 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. I know that there are some deductions that can be more of a red flag

Starting point is 00:24:38 for the IRS audits. A 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? 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 tax planning. The whole purpose of tax planning is to say, okay, I understand what are all the things I have

Starting point is 00:25:11 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.

Starting point is 00:25:28 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. All right.

Starting point is 00:25:50 We've got to take one final ad break, but more from Amanda on strategic tax advice. if you are a real estate investor. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going,

Starting point is 00:26:10 and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop.

Starting point is 00:26:29 Feel aware and in control of your finances this tax season and get 50% off your Monarch's subscription with the code Pockes. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use the code Pockets at Monarch.com for half off your first year.

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Starting point is 00:29:30 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? Definitely. There will be no more taxes going forward. You're free to use 100% of your money on everything. Oh, great. Well, I don't know why we had the rest of the episode going on with this. Thank you.

Starting point is 00:29:50 Okay. To be clear, this is called sarcasm. Oh, my gosh, someone's going to take a snippet of this and probably blackmail me. I'm sorry. I just couldn't withhold that question as we continue to interview here. Yeah. I honestly thought it was a joke initially when I saw on social media. There was like he's coming with the ERS instead of IRS, the external revenue service to assess tariffs and the IRS is out.

Starting point is 00:30:17 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 taxes. 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. 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.

Starting point is 00:30:48 And I am also planning on tax bracket. packets 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 biased towards the Roth and am happy to pay a little bit more in taxes now in exchange for 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 landscape, especially for the next couple of years. What do you think about that?

Starting point is 00:31:22 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 instinctively the way I'm phrasing it the way I'm thinking about really long-term planning in terms of tax liability? I don't necessarily disagree with that.

Starting point is 00:31:54 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 stop that you just know is going to explode. So there's always reasons for making certain decisions.

Starting point is 00:32:35 I think the important part of it is to make that decision with careful analysis and determination, right? Like, what do you think is going to happen? What's going to be your profile in the future? 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.

Starting point is 00:33:07 So we'll save 50 cents on the dollar for all the contributions towards retirement. And in a couple 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 the 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, you know, 15%. Right. So everyone kind of has a little bit different fact pattern.

Starting point is 00:33:39 And that's the fun part of tax planning for us tax nerds. Would you say that most people, though, buy a. towards how do I defer or pay the smallest amount of possible tax now and figure out the next deferral piece later rather than it's a rare strategy to realize now assuming that tax rates will go up it'll make harder later is that is that relatively rare it would say yes like the the the more 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, there's not necessarily a right or wrong answer. It just kind of depends on so many different

Starting point is 00:34:27 fact patterns. 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 who may be interested in, 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

Starting point is 00:35:11 to defer it 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 for at least 10 years, you can get up to 10 years of tax-free appreciation. So an 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.

Starting point is 00:35:57 We see this more commonly in our clients who like have stock gains. So let's say you work for Invidia. Who didn't do so well recently, but let's say you work for Invidio, there's a huge capital gains. You sold it. What you can do instead of paying taxes on the gain, let's say it's 100,000 of gain, you can take that whole hundred thousand or 50 or 80, whatever you want to do. Let's say you took 80,000 of it, you invested in an opportunity zone fund.

Starting point is 00:36:22 Let's say, for example, that fund invest in real estate, like 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 initial. And if 10 years later, that 80,000 grows to be 180,000, then you don't ever have to pay taxes on that 100,000 of appreciation. So those are like the two-tier benefits,

Starting point is 00:36:56 different taxes and also potentially tax-free growth. So the real benefit to an opportunity zone investment in reality is if you intend 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. Mildly helpful, yes. It hasn't changed. It's just the years. When we started, this was back several years ago, so we had a seven-year deferral. So every year that goes by, now it's only until 2026, right? But years ago, you know, we had a handful of years to defer.

Starting point is 00:37:30 Awesome. Well, anything else from you, Mindy? 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 2020. 25 tax paying time in a year from now isn't a shock. 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 likes to the work of actually, you know, gathering expenses,

Starting point is 00:37:58 but do take the time to do it. Talk with your tax person about a lot of these things, you know, how do I use the short-term rental loophole? Can I be a real estate professional? Do all have all those discussions? So you make sure you are able to file 2020. in the most optimal way. You know, 2025, we're expecting it to be a year of pretty significant tax changes,

Starting point is 00:38:21 whether that will pan out to be true or not as 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.

Starting point is 00:38:47 He's like, I told you all long. Taxes are going up. I would certainly not be happy about that. I think they could get lowered this administration. But there's, I just think there's no reason to believe that over that next 20 to 30 years, brackets are coming. That's more of my take. I mean, or the opposite could be true, right? Trump has talked about bringing back 100% bonus appreciation.

Starting point is 00:39:07 I mean, Republicans generally pro-business. So we could have some even super-characterial. 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. There's one thing to take away is, you know, your CPA should be your friend, call them,

Starting point is 00:39:37 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. 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 darn just to sell one house, and then use that to create huge losses to turn those 401ks into Roths in those years. So that'll be a fun one if that actually.

Starting point is 00:40:11 actually does happen. Well, they would actually probably have to quit their job, right? They might have to quit their job to actually meet real estate professional. Yeah, but if you can get a $200,000 loss and don't take all that out of your 401K, that may be well worth it. So we'll see. Yeah, if that stuff starts happening, that'd be wild. Okay, we'll do another episode about that if you can do this bonus depreciation thing. So Amanda, reach out if this goes into effect because I would love to take some money out of my 401k and not pay any taxes on it. Okay. Are we talking about both of you quitting bigger pockets right now? Is this what's happening on the podcast?

Starting point is 00:40:53 Wendy's going to go to 19 hours a week, I think, for one year in the event of a 100% bonus depreciation play comes up. And she's going to buy about $2 million with a real estate, I think. Yeah, 19 hours a week with a lot of, um, donated time. Oh, no. This is what happens with real estate investors. They start coming up with these crazy ideas of, yeah, donated time. But, you know, just in real life, though, I saw this quite a bit during COVID.

Starting point is 00:41:24 We had a lot of clients who were 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 it could happen. All right. Amanda, where can people find you if they want to talk to you about taxes? If you want to talk more about taxes, my company is called Keystone CPA.

Starting point is 00:41:50 So you can go to Keystone CPA.com. We have a lot of great free resources. If you're looking for more educational content, I have a YouTube channel as Amanda Hahn-C-A. And I'm always on Instagram for daily tax tips as Amanda Han CPA. 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

Starting point is 00:42:15 all everybody we are, it is, it is me saying that I, I see you, I hear you, and I am right there with you. Thank you. Thank you. Again, it's always fun to talk taxes with you. I appreciate your time. All right, Mindy, that was Amanda Hahn with some great tax tips and advice. One thing, you know, now that I've said it, I don't know if I, if I'm still as comfortable with it, even though it is kind of my philosophy here around do you agree with me that it's okay to realize gains in a couple of cases when there could be a more 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 feel about it?

Starting point is 00:42:57 Understand 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 learned best is visually. So I would want to see all of those numbers to see what you're thinking and where you're going.

Starting point is 00:43:30 But what I hear from you is that you've thought through it. This isn't some off-the-cuff whim. 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.

Starting point is 00:43:46 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 going to 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

Starting point is 00:44:16 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 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 to the Roth route because of the dynamic I just discussed, and I pay more taxes now, and I hopefully will pay less taxes later

Starting point is 00:44:47 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

Starting point is 00:45:15 of dollars in stepped up basis. I am much more interested in building a portfolio that is plenty harvesting the cash flow, paying Uncle Sam and having that flexibility in my life as 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 flows. It's very hard to access gains 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

Starting point is 00:45:55 that inform my overall strategy. I'm pretty, 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 as 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 accounts to contribute to. Again, you're thinking this through. You're looking at many different options and you're making

Starting point is 00:46:38 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 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. 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, they don't 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, very tax efficiently if you have a higher pre-tax net worth. So go for it. And people like Mandahon are definitely good ones to talk to. All right, Scott, should we get out of here? Let's do it. That wraps up this episode

Starting point is 00:47:20 of the Bigger Puckets Money podcast. He is Scott Trench. I am Indy Jensen saying Ciao Willow bow.

BiggerPockets Money Podcast - CPA Shares Tax Tips to Lower Your 2024 (Yes, 2024) Taxes

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