Epic Real Estate Investing - Tax Consequences of Death | 419

Episode Date: July 3, 2018

Prepare yourself for the end of days with today's Tax Hacker Tuesday! Matt Theriault and Tim Berry explain why passing down property to your offspring before you die is a terrible idea, how to use the tax consequences of death as a planning tool, and the downside of having appreciating real estate inside a C- or S-Corporation.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, Rockstars, welcome back. Glad you're here for another episode of Tax Hacker Tuesday. And real quickly, I don't know if you listened to last week's episode, but Tim put together something very special for the audience right here at Epic. And he put together his tax hacker blueprint. I mean, a blueprint, literally, a custom blueprint just for you on how to hack the tax code in your favor, ethically, honestly, legally, and even with Uncle Sam's blessing.

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He's going to give you an asset protection plan organized into easy-to-follow steps so you know how to protect everything that you want protected, as he puts it so the bad guys don't come and get it. And then he's going to give you an accelerated retirement strategy so you can enjoy life while you're still young enough to do so. This working 40 to 50 years,

it doesn't have to be that way. And he's going to position your life and position your assets into a format that really will accelerate your retirement strategy. So you can go kind of against the norm, go against the grain and beat everybody there. And then he'll also give you quarterly check-ins to keep you on track towards your goals. So that's the tax hacker blueprint. It's normally $3,000 a year that he charges for this level of planning and consulting. The introductory offer is half off just for you here at Epic for $1,500.

And if Tim and his team can't save you at least double that, then it's totally free. You pay nothing. So go to taxhacker.com, grab Tim's free book on how to navigate the loopholes and Trump's new tax plan. And then after, you'll have an opportunity to schedule some time with Tim and his team and just let them know. You heard this on the epic real estate investing podcast. No questions will be asked. That introductory offer will be yours. And then tell him that you want your tax hacker blueprint.

Go to taxhacker.com and everything you need, it's right there. All righty. Now on with the show. This is Terio Media. Did you know that up to 50% of your lifetime income will be wiped out by taxes? What if you could stop this madness? Isn't it about time you play on a level playing field with the wealthiest 1%? Now you can.

Tim Berry, attorney at law, shares here each and every week current tactics and strategies that anyone can implement to hack the tax code. Protect your assets and keep what's rightfully yours. It's time for Tax Hacker Tuesday. Welcome to the epic real estate investing show. It is Tax Hacker Tuesday with my attorney and friend, Mr. Tim Berry. And here on Mondays, as you know, if you've been listening, we've just started our ninth year. And thank you so much for your support of the show and sharing it with your friends and family and associates.

Would not be here unless it was for you. But each Monday, we show you new and creative ways as well as time-honored ways of making money using real estate. And then on Tuesdays, Tim shows up here to show you how to keep it. Because it's not about how much you make. It is about how much you keep. So if you have any questions for Tim, he'll be happy to answer them for you right here on the show. You can go to taxhacker.com forward slash questions and post it there. All righty.

So Tim, hello. Hey, Matt. How are you doing today? I'm doing well. It's been a long time since we've talked. It has. It has. It seems like forever, huh?

Yeah, at least a week. Didn't we just do this last week? Seems like it. Yep. All righty. So a very exciting topic today. you had shared something with that pretty much could eventually impact

every single listener at some point, right? I tend to think it will impact them. Yeah, yep. And I'm going to let you just kind of step into that introduction. Let's move it out for me. All right. Everybody, we're going to talk about the very uplifting subject of death today.

And I guess I shouldn't be so glib about it because some of you may be being affected by this recently, but I'm going to be a little bit tacky and talk about the tax consequences of death and how you can actually use it as a tax planning tool. So how is that for a neat and uplifting intro, Matt? Yeah, I think we've leveled it all out and we're in a nice, free, safe space again. Cool, cool. It's all about the safe space, isn't it?

Yeah. All right. And let me tell you what kind of triggered this conversation, if you will. I was talking to somebody and what has happened is their father is up in years. their 80s and their father wanted to do some estate planning and gave them some property right now today. And we're talking a substantial chunk of property, well over a million dollars. So their dad gave them property that dads had since the 40s or 50s to do some estate planning. Now, in a normal world, that would make all the sense in the world. Give the property to the kids right

now, let the kids enjoy the income, et cetera, so and so forth. But whenever this guy told me about this, my, you know, warped mind, my tax mind thinks, oh, no, what a disaster. And here's why I said, what a disaster. If dad would have held onto that property during his lifetime, and then he would had died owning that property, that property would get a complete step up and basis. And the phrase complete step up in basis as a fancy way of saying, Jr. could have sold that property, without paying a single dime in taxes later on down the road. But now, because dad gave the property to Junior during dad's lifetime, there is no step of basis.

And now they're looking at taxable gains in the hundreds of thousands of dollars, which is going to translate to probably tens of thousands, if not more, capital gains taxes. Got it, got it. All right. So he buys the land for 500 over the years. appreciates to one million. That's when he gives it to his son. So if his son sells it a few years down the road for 120 or 1.2, he's got to pay the gains from the half a million to the 1.2. Probably worse. It's probably a worse situation because if it was a rental property, there is some improvements on the

property. That means dad's depreciated it over the years. It's probably been depreciated just the land. So that's now $100,000. So now we're going to have a $1.1 million gain on that hypothetical you just gave. Got it. So if dad holds on to it and passes it on to his son after he passes, then the cost basis, right, or the tax basis adjusts to $1 million. And then if he sells it for 1.2, he only pays on the $200. Only pays on the $200. And also, Junior is able to re-depreciate the property whenever there is a step up and basis. Whereas right now, Junior isn't able to depreciate it and it's just full cash flow hitting him in the chest. Okay.

So when Junior took possession or when he inherited the property, did he not have to pay taxes on it then? Well, whenever Dad gifts it, there's no taxes do. The person who receives the property, there's something called gift taxes. but dad would have had to pay that. And fortunately, right now you can gift up to 10 million bucks during your lifetime, and there's no gift taxes due. So dad didn't have to pay any taxes. Junior doesn't have to pay any taxes,

but it was just a very inefficient way of doing things. Dad could, well, it was an inefficient way of doing things. But wait, can you gift it after you pass away? Oh, absolutely. That's what a will is. Little junior gets this property whenever I kick. And quite honest. Isn't it like an estate tax or a death tax when you inherit stuff?

Yeah, but once again, you're allowed to inherit up to 10 million bucks from each person, or let's rephrase that. Someone's allowed to give $10 million of either gifts throughout their lifetime and or through an inheritance tax-free. Got it. So the much better solution in this scenario, easy. Dad could have set up a trust. He could have had the trust allocate all the income to Junior.

but we could have made the trust such that whenever dad dies, the property still gets the complete step up in basis. And then also by utilizing the trust, we get all the asset protection for junior and dad on that property. So that would have been the smart thing to do. But unfortunately, most people don't know of all these stupid little nuances in the tax codes and asset protection codes and they didn't do it. And now they're really going to throw away a few hundred thousand dollars in taxes. I see. Planning is everything, isn't it? Oh, it really is. It really is. I got to try it sometime.

They can just do magic. In my humble opinion, yeah, they can't do absolute magic. They're just phenomenal. I'm a little bit biased, mind you, but they are magical. No, I mean, the stuff that I've heard here on the show and stuff that we've talked about off the show is just like, wow, it's pretty amazing what those trust things can do. You can write in anything. Yeah, you really can't. So you can give over your lifetime $10 million in gifts?

Yeah, you can give up to. $10 million in gifts. Hint, hint, Matt. Over here. I'm approaching my limit. I better squeeze my limit. Sorry, go over that. All right.

Awesome. Well, that was a good show. Yeah, it's all about planning. Being proactive. Yeah. And let me throw in another follow up on this thing, too. This is a downside also of having appreciating real estate inside of a C corporation or a Ness Corporation.

if I had that real estate inside a C corporation or S corporation, now that I die, the real estate doesn't get a step up in basis. Whereas if I had it in my own name or inside of partnership or an LLC, it would get a complete step up in basis. But by having it inside the C Corp or S Corp, I don't get that step up in basis. You want to step up. Yeah. Yeah, that's a good thing.

And then you want to be the ability to read depreciate as well. Yeah. That's a hidden one under there. Yeah, that's a big one, is the re-depreciate. And let me give you another war story since we're just rambling here for a little bit. I had a doctor. His wife had passed away, and she had passed away before the big drop in the value of real estate. She did pass away about 2005 or so.

Well, he had a warehouse that was worth about $2 million. He sold that last year, and he thought he was going to have to pay all sorts of taxes on the gang, because they've had that for a century or so. I said, no, if anything, you're actually going to get a tax loss on this because it was worth $2 million. You just sold it for, I think it was $900. So you should get a 1.1 loss. He couldn't believe that. And that's another big benefit of these step-up and bases.

Now, if there's a big real estate crash afterwards, they're going to be able to utilize the loss on the real estate as well. So you kind of make money if it goes up or down. There it is. Yeah. More money in your pocket less to Uncle Sam. Yeah, more money, more money, more money, more money. Yeah, legally, honestly, ethically.

I mean, Uncle Sam wrote the rules, right? We're just following the rules they put out there. We're just playing the game that he gave us to play. That's it. I love it. All righty, so if you like to download Tim's free book, what would we retail it last week? Make money? No, get your free money now.

Get your free money now. How to take advantage of the five loopholes and Trump's new tax plan. You can go to taxhacker.com. That book will be there waiting for you. after you've done that, you'll then have the opportunity to schedule some time, some one-on-one time with Tim, and either he or one of his professionals are going to get on the phone with you for a short five-to-10-minute call to assess your situation. And if there is a good fit, they'll go ahead and they'll take the next step and schedule a tax action plan for you. And if there's not a good fit,

they'll share some alternative resources to where a better fit for you can be made. Either way, Tim and his team are committed to you that you're better off after the call than you were before. That's just Tim. That's what he does. It's why I invite him back every single week to take care of you. All righty. So Tim, any last bit of advice? I can't think of any. Okay. Well, good. That's it for Tim and myself. And we'll see you next week for another episode of Tax Hacker Tuesday on the epic real estate investing show. That's it for today as we dream of a tax system that works just for you. But until then, you have Tim Berry. See you next Tuesday for another episode of Tax Hacker Tuesday. This podcast is a part of the C-Suite

Radio Network. For more top business podcasts, visit c-sweetradio.com.