Ryan Daniel Moran and Mauricio discuss how real estate depreciation reduces your taxable income through equity funds. A $10,000 cash return might show only $6,000–7,000 in taxable income because depreciation flows to your personal tax return. Mobile home parks often allow accelerated depreciation on land improvements.
I don't like paying taxes. And what most people don't know is that there are things that produce cash flow while also reducing the amount of taxes that you pay. I did not know that there were certain opportunities available to me as an investor that gave me the best of both worlds. And I wish someone had told me about that. And I learned that from Mauricio in the last year. So I asked him to, to recap how investors can participate in getting passive cash flow while actually at the same time reducing the amount of taxes that they would pay. I want to ask you about taxes. I don't like talking about taxes, but I do like talking about avoiding taxes.
Okay.
And I, I don't like paying them. Mauricio. I have always, I've always heard and known that real estate is one of the better vehicles as far as reducing your tax burden. What I didn't know until recently is that if you're part of a syndication or fund that some of those tax benefits pass on to the investors. I did not know that was a thing until like within the last six months.
Sure.
So would, would you share that insight?
Sure. And just full disclosure, I'm not a, I'm not a tax attorney or a CPA or anything, but I do, I do spend quite a bit of time with, with tax folks, obviously, when I was practicing as an attorney. And one of my good friends is actually Tom Wheelwright who runs Provision, one of Rich Dad's advisors and happens to be my CPA and also the company.
CPA and a speaker at the Capitalism Club.
That's right. That's right. He's going to be a Capcom. So that's going to be great.
We just ran it by him because I think you mentioned at some point you had your doubts and I said I was pretty sure that was the way it is. Look, real estate has all these great depreciation benefits and those depreciation benefits flow through all of whatever companies and funds you put together. It flows through to the ultimate owners. And the ultimate owners are the investors and ourselves as the sponsor. And so any depreciation that. Because the funds are set up as an equity, you know this is not a debt fund. Right. It's not a promissory. No, it's not a loan. You're actually a co owner with us and the other investors. So all that depreciation that happens at the mobile home park level, or if it's a multifamily even, will just flow up through the entities up to your personal tax return and you get that same benefit than you would as if you invested directly in the, in the, in the asset itself.
And so that return of 11 or 12% in normal taxable dollars might actually be like 14.
Yeah, I mean, I think the easiest way, and I know I didn't do a great job on the podcast of explaining, but essentially what it really looks like is if you're getting a 10% return, let's just easy numbers and let's say you're getting $10,000 a year as your return. Well, on paper, you might only be making $6,000 or $7,000, so you're pocketing the 10 grand. But when it's time to file your taxes, you're only showing $6,000 or $7,000 as your income. And so therefore you're paying much lower taxes. And it's just because you've got dirt and you've got land and you've got improvements that you get to essentially claim they're losing value every year, even though we all know in reality it's increasing in value. But from a tax perspective, it's treated as it's losing value over time. And with mobile home parks, a lot of those tax benefits are actually accelerated because we have things like roads and fences and lightings. You can actually depreciate those at a faster rate than a traditional building that would take you 27. You would depreciate it over a longer time frame. When you're depreciating a road, for example, the time frame is much lower.
And that ultimately sold me on this type of structure, knowing that I could be a passive receiver of cash flow, but on my tax returns show that I am actively depreciating costs.
That is heaven for someone like me.
That's one of the nice things about using structures like limited liability companies. Not to get too technical, but with LLCs, they're basically pass through entities. And so everything, all the profit, losses, depreciation, pass through that entity. It's almost disrupted, disappears, and then ends up in the personal tax returns of whoever the owner is through what's called a K1. But that's ultimately how it gets reflected.
