OCEIN Real Estate Meetup | Natalie Elser CPA

There's a lot of things in there that as CPAs we are super excited about. We're glad to finally have some answers this year so we can do some tax planning and projections. And It really affects real estate investors quite heavily with a lot of things that are happening. So I'll tell you a little bit about myself. So my name is Nellie Elser. I've been doing this for over 20 years, in public accounting for over 20 years. I started our firm a little over 6 years ago, and I love real estate. So real estate has a huge, huge part of our firm. I would say probably 75, 80% of our clients hold real estate in some regard. So beyond just their residential house, their personal residence. We have a full staff, full team. It's not just me. So if ever I'm busy, you know, we got staff there to help you. So, but I do all of our consulting work, all of our business consulting, and all of our real estate investment consulting work. So just to tell you a little bit about the bill, it was signed into law on July 4th, 2025. It does make a lot of the TCJA, which is the Tax Cuts and Jobs Act, tax provisions permanent. For all of us nerdy accountants, we say it's permanent until the next administration comes. It reinstates a lot of business provisions such as like the 100% bonus depreciation, which would affect all of you guys as business owners and real estate investors quite heavily. Unfortunately, it does repeal a lot of energy credits and the incentives that were going on, but That's okay, there's other things that are coming about with this one. And of course, California does not conform. So, as an accountant here in California, we do the Fed tax return one way and the California return a completely different way.

Yeah!

One of the biggest things that it did was it did take the highest tax bracket, which was going to go up to 39.6%, and it reduced it back down to 37%. A lot of people did not realize that this was going to revert back, so this is really exciting because we have a lot of clients and there's a lot of people here in California who hit that top tax bracket. So people did not realize that next year, if this bill did not go through and didn't pass, everybody's taxes were going up. It does make the increased standard deduction amount permanent. A lot of people also didn't realize that with the TCJA There was an increased standard deduction, and so it allowed a lot of people who don't itemize to have a higher deduction on their tax return and lowered their overall taxes. There is this new personal exemption for seniors who are 65 and older. As long as their income is below $150,000 joint or $75,000 single, they are going to get an additional personal exemption that The younger folks will not. This one is really unique. There will be more people filing tax returns now than ever before because of these— this lower exemption amount and the self-employment income. So a lot of times kids were able to have self-employment income of, you know, $600, $500, and they really didn't have to file a tax return. A lot of people's kids Kids really didn't have to file a tax return. Not anymore. Going forward, if you have self-employment income of at least $400, you're going to have to file a tax return.

What about the SALT limitation?

This is the big one that we were all holding our breath for. So, that's the SALT limitation. A lot of people expected this to go up, which was the $10,000— excuse me— state and local tax deduction, which is itemized deduction It did go up. It did increase, and it increased up to $40,000. However, that is only if your adjusted gross income does not go above $600,000 in a year, which is very easy to hit for most people here in California, especially married filing joint taxpayers. And if your income does hit that $600,000 number, it reverts down to $10,000. And so that is your SALT limitation, which Unfortunately, for those of us here in California and other high-income tax states, that $10,000 doesn't get you very far. So, here it is a little bit more. So, this does also revert back in 2029. So, the SALT deduction was not made permanent, so it will revert back to $10,000 in the 2029 taxable year. Or excuse me, 2030. 2029 is the—

2030.

The last year that it's available. There is a— so once you start to get above, I believe it's $500,000, your SALT deduction will start to decrease down to the— up to the $600,000 where it will decrease all the way down to $10,000. So for every dollar above that $500,000 number, it starts to decrease.

Yes.

Okay, so here's— this is a graph basically showing how going forward, though, in the future, this number is gonna be slightly adjusted for inflation, not very much. As you can see, in 2029, it goes from $40,000 to $41,624. It's not that big of a deal, but it helps a little bit. Sorry, I can't see what this slide is. Okay, this one, unfortunately, this one was another one that we wanted to see increase. So for the personal residence, for your home mortgage interest, a lot of people don't realize this. The loan on the deductible mortgage interest cannot exceed $750,000. The loan can exceed $750,000, but Anything above that, you're not going to get an itemized deduction for. Now, this is only on your personal residence, and I should have mentioned that with the SALT. That is on your personal residence. It doesn't affect your rental properties at all, so don't worry about those. Um, the other thing that is coming back is starting next year— they didn't do this for 2025, unfortunately— mortgage insurance premiums will also be deducted as an itemized deduction. So these are Really important things, especially for realtors and the brokers to know going forward as you help your clients when they're purchasing a home. It's just something that you guys should understand when you're talking to them about getting loans. I actually spoke to a realtor the other day, and he thought that you got to deduct literally up to $750,000 of interest. So that was an interesting conversation. Okay, this one, they— he also made the qualified business income deduction permanent. A lot of people don't really know what this is. They just hear QBID and their eyes glaze over. So the Qualified Business Income deduction is for business owners, also real estate investors. If you have qualified property, it allows you an additional 20% deduction off of your business income, literally just for being a business. So I have an example here. So let's say you have a rental LLC that qualifies for QBID. Most of that has to do with how many hours is spent on the property, and it shows $100,000 profit. QBID lets you knock that down by $20,000, and you're only taxed as if you made $80,000. If this had went away, which it was set to go away this year, you would have saw a lot of small business owners Taxes just increased drastically. So I'm really, really glad the QBID stayed because a lot of business owners don't really realize that that deduction had been taken since 2017. So a lot of people were not planning well for this at all. Sorry, I can't see that. Okay, so this just explains a little bit more what the QBID qualifies for. So, if you have a C corporation, this doesn't apply to you. For example, my firm is a C corp, so this never applied to me anyways. But if you have an S corp, an LLC, or a partnership, even a sole prop or a single-member LLC, the QBID really has to do with you guys. That, that was your guys' version of what the C corps got with the TCJA because they lowered the corporate tax rates. So, what they did for the pass-through entities is they gave you the QBID instead. Unfortunately— so, we call this OBA where we are. Some people are referring to it as the OBBB, but they did repeal the energy credits from the IRA Act of 2022. So a lot of, a lot of these credits will be going away after December 31st, 2025. Some of the vehicle credits actually are going to expire after September 2025. And for commercial buildings, it's being eliminated after June 30th, 2026. It is very important that if you have properties where you are taking these energy-efficient credits, that you make sure that you comply with the due dates of as far as like when they're completed, when they've been implemented, because those will all— matter as to whether or not you qualify for the credit. This one I'm really excited about. I know it sounds nerdy, but I am. They are reinstating 100% bonus depreciation. So for those of you who don't know what bonus depreciation is, it's whenever you buy a large fixed asset for your business or for certain property for your rental property, And you get to 100%, like, expense it 100% the first year. So this is to encourage businesses to go out, buy new machinery, buy new equipment, and know that they're going to get that write-off the first year and they're not going to have to take it over 5 years. Had this not have gone through, I think this year we were down to 40%, next year it would be 20%, and then it would have been completely eliminated. So this should help business owners get out there and start buying equipment again, especially like the contractors and all of that. It makes a really big difference when they're buying big pieces of equipment. And to you guys, when you guys are improving rental properties, it did create this new qualified production property. This one I got to read because I'll be honest, I don't have this memorized yet.

It's 168.

It's eligible for 100% bonus depreciation, and it is for portions of non-residential real property, and it's used in manufacturing or refining. You had to begin construction after January 19th, 2025, and it has to be placed into service by December 31st, 2030. So this is going to be a big deal for a lot of I have a lot of manufacturing clients, and a lot of them have new units that they are building all over the country, so this is gonna, you know, come into big play as we are doing tax planning going forward. They also increased the 179 limits, and they also— what was the other thing that they did? Oh, the calculation for business interest expense limits. So, a lot of people didn't realize that there is a limitation on business interest expense that you can take. That was going away, and they did reinstate it with this bill. Most people don't notice it. Most people don't meet the thresholds, but it is something to just be aware of. I have a question on the table. Sorry, I can't see through this sign. Oh, okay, research expenditures. So, a lot of people don't realize that there are these wonderful things called R&D credits out there. So, as you're doing research and development in your businesses, or even as you are doing that for properties, please check to see if you qualify for these credits. Because they are not treated as a business expense. They are literally treated as a credit, which means it's dollar for dollar. Every dollar you spend on the research and development is a dollar you get off on your taxes. I don't know why I have a lot of people that are very resistant to trying the R&D credit. A lot of companies will tell you if you qualify for free. A study does have to be done. It does have to be reported properly on your tax return. But if you think at all that you are doing any sort of research and development, whether that be developing a new product, creating software, please reach out to somebody that you know that does these credits because they, they are a huge tax savings. Okay, Qualified Opportunity Zone. So a lot of people don't know what these are, but these are essentially a tax deferral strategy. They're huge in the real estate investment world. What they do is they allow you, when you are selling an asset and you have a huge capital gain, you can actually put that capital gain into a Qualified Opportunity Zone and And it will defer the taxes for, I think you can do up to 10 years now. It works really, really well. I've had quite a few clients actually invest in these. It does have to be approved by the IRS, so you can't just go pick your own zone and put money there and say it's qualified. There are specialists that do specialize in getting these zones invested. So if you find one of those specialists, they can help you put money into the right place. But I have had clients defer, honestly, probably several million dollars of taxes just by investing in these, and it defers the tax over time. How much tax do you have to pay? Okay, here's an example. So let's say you sell an asset in 2025 and you have a $500,000 gain. Instead of paying the tax now, you invest that $500,000 in a QOF within 180 days. So that is one of the rules. It does have to be done within 180 days of selling the asset that you have the gain on. The QOF buys and rehabs an apartment building in a designated opportunity zone, and in 10 years, your share of that building has doubled to $1 million. You pay tax on the original gain later. And the $500,000 that you have of the new growth is tax-free. So not only does it allow you to defer what you had going on up front, but then you're going to get a whole other gain that's tax-free at the back end. For the Low Income Housing Tax Credit, both the LIHTC and NMTC programs are made permanent. The LIHTC bond financing threshold for 4% deals lowered to 25%, and it enhances access for affordable housing projects. Okay. So now those were like the big provisions for real estate investing with the OBBB. So now I'm just going to kind of go over like different reasons to invest in real estate. How they can help you out tax-wise and financially, and we'll also go over some different business opportunities as well. So one of the big reasons people obviously invest in real estate is because of the capital gains tax treatment. As long as they're not doing this as their ordinary business, it does have a preferential rate. You get to write off mortgage interest and property taxes not only on your personal residence but on your rental properties. It allows you to basically own your own business without being subject to self-employment tax if it's a passive investment. You get to depreciate the cost of the rental property over time. And my favorite, deferring taxes with the 1031 exchange. It offers protection against inflation. As we all know, real estate goes up over time, especially Especially here in California. Even if it takes a dip, it always comes back. The cost segregation, that's going to work out really, really well with the new 100% bonus that's come back. It offers steady cash flow. You have the Opportunity Zone funds that I just spoke about, and you can write off all your rental property expenses, including your tax prep fees. So, So one thing that I always tell people that they don't really realize, I'm sure a lot of you do, but businesses can take a lot of deductions that employees, regular W-2 owners cannot. So with the Tax Cuts and Jobs Act, they got rid of a lot of those unreimbursed employee expenses. Obviously, if you own a business, you can take a lot of those deductions still, such as travel, meals, cell phone costs, utilities, payroll, etc. Etc. One thing people don't really realize when they have a rental property is if they are incurring those costs and they are directly related to the rental property, you can still write these off. For example, I'll give you a quick example. I have a client, they have a very large commercial property. They own several other properties. They're always looking to invest in other properties. So they're always driving around, flying around the country, so we're always taking, like, travel expenses and their cell phone costs on their tax return.

Oh, nice.

So, I always tell people, if you own real estate, you gotta think like a business owner, 'cause essentially you are. So, one thing people don't really think about is putting their kids on payroll. This one's a huge one. People love to do it when They find out that they can. I would say, for those of you investing in real estate, if you own 1 or 2 rental properties, please don't just throw your kids on payroll and assume it's okay to write them off, unless they're legitimately working in the business. So, that can be very difficult to do if you just have a single-family residence on the side that you're renting out, and you have a management company there. However, let's say you have several rental properties, or you're doing house flipping, And you maybe own a business, you have a side hustle, you can actually put your kids on payroll. They just actually have to do something within the company. It's a great way to write off their college, write off their cars that they have to buy, get them started with IRA accounts, whatever it is that your heart desires for the kids. Uh, our big thing is you just have to make sure that it is documented that they're actually Working in the company. Stockholders' meetings. So for those of you that have companies, you can have a stockholders' meeting. It can be at a remote location. You can write off the expenses of getting there. Funny story, I actually had a client last year, him and his wife went to the Bahamas on a cruise, and they asked me if they could just write off the cruise just because they were talking about rental properties on the cruise. And I was like, no, no, nice try. But I mean, their rental property was out in Palm Springs too, so it really literally had nothing to do with their rental property. And it was husband and wife. Strategically bunching expenses at year-end. A lot of people also don't know that when you use your credit card to have— make business purchases, even if you charge that credit card in December and let's say it's not due until January or February for the payment, you can actually take the expense in the current year. So for some of our clients, one of the things that we do with tax planning is we ask them at year-end, we say, hey, is there any office supplies or anything that you're wanting to purchase that you're gonna need in January that you can buy in December? If you don't have the cash, it's okay, you can buy it on credit card, we'll still write it off this year, and Okay, so I'll talk a little bit about capital gains, because we did say it's one of the great tax benefits of owning real estate, as long as it's not like your ordinary business of like consistently flipping properties or developing them from the ground up and selling them. So when you sell an asset for a profit, it is a capital gain. The reverse is also true. If you sell an asset and it has a loss, you now have a capital loss. Almost all gains are taxable, but there are some exceptions, and they are all treated differently depending on how long you've held them, what they are held for, what their purposes are. Some people get confused with the residential exclusion. The residential exclusion does allow you to— you can take up to $250,000 for a single taxpayer or $500,000 for married filing joint, and you can actually have that big of a gain and not pay any tax on it and just pay tax on anything above that. However, the reverse is not true with the sale of a personal residence. If you have a loss on your personal residence, You don't get to take a capital loss. It's just zero.

That's it.

That's all you get. The other thing is, for the type of rental property that you have, if it's a passive rental, for example, a single-family residence that you're just renting long-term, or if it's an active rental, a short-term rental that you're actually operating as a business, those all have different rules to them.

Short-term gain?

Those are taxed at your ordinary tax rates, so those don't have preferential treatment. So let's say you are in that top tax bracket and you have a 37% tax rate for fed and 12.3% for California. You are going to pay tax at that rate. It doesn't have a preferential treatment at all. But if you can hold your property for at least one, you know, a little bit more time and cross that 1-year mark, Then you can get the preferential treatment, which is— whoop, I went to— I accidentally pressed that too much. Sorry. So those rates vary from 0% to 20% for Fed. California does not conform, so it doesn't matter if you hold it short-term or long-term. You will pay tax at whatever your tax rate is. Okay, this I kind of went into. I was going to do it before the slide, but this talks about the difference between selling a rental property versus your personal residence. So a rental property is treated a little bit more like a business, and real estate investors, you know, you will have a capital gain if you make $1 or if you make $500,000. There's no exclusion on there. But for your personal residence, that one will have the exclusion. This one I just did a little example, which is let's say you purchase a rental property for $350,000 back in 2003. Obviously not now. It's subject to long-term capital gain rates. Let's say you made improvements over time of $25,000 and you've taken depreciation on it of I used a very odd number here, but $232,425, and it has a sales price of $850,000. You also get to include your sales expenses, so any commissions for the realtor or any closing costs. You get this wonderful long math equation here, but your total capital gain comes out to be $656,425. So your estimated federal tax due on that, not knowing what your actual tax rates are, is about $132,000 on a $656,000 gain. And I did not include the net investment income tax to keep that simplified, but there is a slight— one additional tax that you can incur on this as well. The 1031 exchange, uh, so this is very popular. This is one of our favorite things to do. We have clients that do it all day long, all the time. Uh, we like this because this helps defer your taxes. So, um, a 1031 exchange, it has to be like-for-like property and it has to be real property. That didn't used to be the case. You actually used to be able to do 1031s with cars or with—

Houses.

Uh, inventory. Now it actually does have to be real property, meaning a building with land attached to it.

Mm-hmm.

Um, if you want to do a 1031 exchange, you got to exchange one rental property for another. However, it doesn't have to be exactly alike. So let's say you invest in a single-family residence, you have that huge capital gain that we were talking about earlier, and you're like, I don't want to pay the tax on that. But a commercial property came up for sale and you're really interested in investing in that, and you want to defer the taxes, get rid of that tax implication on there, you can exchange a single-family residence for the commercial property. So it doesn't have to be like for like in the fact that it has to be residential, it just has to be real property for real property. The other thing— the other thing that has become really popular is DSTs, which Which is the Delaware Statutory Trust. There's professionals that can help you invest in those. So we have a lot of clients that invest in those as well, because they don't want the headache of managing a property. So the DST does it for you. What about across states? You can also cross states as well. Some people think you can't cross states, but if you started off with a property here in California, and you wanted to invest in one in Nashville, Tennessee. You can cross states. The only thing with that is there's a form that has to go with the California return every year, or that you have to file with the state of California, even if you don't have a California return. It's just a little bit of a headache, and you can get in really big trouble if you forget to file it. File it, and California will come find you. So, but you can definitely invest cross-state all the time. So one of the things that we always ask our clients is actually where they want to retire when they're thinking about selling a rental property here, and if it's somewhere outside of the state. So we had a client one time, he owned an architecture firm. He was interested in selling a condo that they had owned in San Diego for a long time, but they were going to have like, I think about a $750,000 gain on it because They bought it really, really cheap way back in the day. They, they had depreciated it, was worth a lot of money. And he told me he wanted to retire in about 5 years, and he was really interested in moving to North Carolina. So I said, well, why don't we do this? You go find a property in North Carolina you really, really like. We're going to take the condo here in San Diego, we're going to exchange it for the property in North Carolina. You're going to put renters in that property in North Carolina for a few years, not pay any tax on the sale of the condo here. After a few years, you're going to kick the renters out. You and your lovely wife are going to move in. You're going to sell your architecture firm here. You're going to sell your residence here. You're going to move into that North Carolina property, and you're not going to touch your retirement for a long time. You're just going to live off the cash from selling your personal residence. And your architecture firm. So that worked out pretty sweet because he didn't owe any taxes for a very long time, and he probably actually will never owe taxes because what's going to happen is the kids are going to inherit that house. And when the kids inherit that house, everything gets stepped up to fair market value as of that day, and all those gains disappear away. So that is how they say the rich keep getting richer, is they— They pass it down. invest a lot in real estate. They keep flipping it. Kids get it, and they just keep doing it over and over and over again. So that's one of the secrets of the rich. Here's some things that you need to know about the 1031 exchange. So there's a 45-day rule. You do have to identify the property within 45 days of selling the property. So I always tell people, if you're gonna do a 1031, Think about it before you actually sell the property. Like, this is something you should be talking to your CPA and your real estate agent with beforehand. It's— the exchange has to be completed within 180 days of the closing of the old property. I have had a client that has missed this before, so this is very, very crucial. Unfortunately, she, she really got ripped on that one. And you cannot touch the Don't touch the cash. I can't stress this enough. Please don't touch the cash. Please let your realtor know what you're doing because the escrow company can have 1031 exchange accommodators that will hold the funds for you. The second you touch the cash, it becomes taxable. And it's— they can even just say that you have like— I forget the actual term that they use, but if it looks like you used the cash for something else. You can't— they can't say that 1031 failed, and they are very, very highly audited. So you definitely want to do these correctly. This is just a little— if you guys want to take a picture of this, you can. It's just basics of how the exchange works. But it is, like I said, it's one of the best investment strategies there is out there. Really, really saves people a lot in taxes. So that's why I highly encourage We encourage our clients to invest in real estate as much as possible.

Okay.

So, most of you are business owners as well. A lot of business owners start off as an LLC, but I always tell them, if you're netting, not grossing, but if you're netting at least $50,000 to $65,000 per year, it's time for you to start converting to an S corp, or at least consider converting to an S corp. That will help you eliminate a majority of self-employment tax. So, I'll give you another example. I had a realtor come to me this last year. She's a new client. Her CPA had not recommended to her that she convert to an S corp after all these years. And she was netting about $300,000 a year in income before taxes. So, just by converting her from a sole prop to an S corp, We're saving her about $18,000 to $25,000 a year in taxes without doing any other tax planning. Just, just that simple conversion. It's really easy. There's a couple of things you gotta, gotta do, but that even included us taking care of payroll for her. I was doing her tax, her separate tax returns. I was doing a lot of other things. She was still getting that savings. We talked a little bit about the kids on payroll. Retirement plans. These, these are really, really important, you guys. Retirement plans. Don't just default to the SEP if you're an S corp owner. A lot of S corp owners just do that because they don't understand the language, so they just go to their wealth advisor and they're like, hey, I need a SEP. That may not be the best fit for you, and usually it's not. There's a lot of options out there. Especially if you don't have employees, there's DB plans. Helps you put away a lot more money than a SEP or a 401 profit sharing. There's also a new thing out called the Tax Unicorn, and it's essentially a super-funded Roth for anybody who has a corporation that makes at least half a million dollars a year or more. It's kind of a hidden secret, but you have to just talk to your advisors about that one. Your car. Get your car into your business, start depreciating it. Please, you actually use it for the business, but a lot of people miss putting their car in their business. Home office. This is missed a lot. A lot of people are really scared of the home office because of the schedule that's attached to it, because home offices can be very highly audited areas. However, if you do If you do it right, it actually doesn't go on the home office schedule at all. So, if you have a business and you have a home office, please talk to your CPA or accountant to get it off the home office schedule so you're not audited, and tell them to put it on the rental schedule. It'll also get you some more write-offs as well. Traveling, you can have your annual stockholders meeting at a remote location. Your business can own a commercial rental property, and you can Lease your office back from yourself. Please, if you do that, put it in a separate entity. Do not buy it within your business's corporation. I've had clients make that mistake as well, because when they go to— you go to sell your business one day, the property is in that corporation, and you don't want it in there. You want it completely separate so you can sell them separately. This is— so I just wanted to tell you guys that our firm We do a lot of really complex strategies. I mostly do the most complex ones, but this is just one of our tax playbooks that we use. It's most business owners and small real estate investors. This is actually a very simple plan. Looks complex, but we do this with most of our clients. So if you're interested in all— and what this actually is, please let me know. please feel free to take a picture. I'd be happy to go over it with you. So— oh, yep, go for it. Did you got it?

I got it.

You got it? Okay. So, these are just some of my final thoughts on the OBBB. So, it really gives some favorable tax advantages to you guys, Especially the depreciation. I am so happy for those new benefits. It's going to have improved returns. I don't think people really realize how much their tax was going to go up had this not have passed. And I am a very, very big proponent of people owning their own business, even if it is just a side hustle. You know, nobody ever got rich just off of their W-2 job, or at least most people. So you have to have something else going on. Investments of some kind, whether that be in stocks, real estate, in yourself. That's the only way you're going to get rich. So if you'd like to, you know, contact us at all and go over any of this stuff in more detail, you know, feel free to give us a call or shoot me an email. And that's it. Thank you, Scott. Okay, you guys can ask me questions.

So you touched on it, but I don't think it was explicitly stated. Okay. First, did the BBB change anything regarding material participation for a qualified real estate person? And 2, did it change anything regarding unrecaptured depreciation and the sale of real estate in this COVID?

Did it change the, the unrecaptured? Yeah, I don't— that one I actually don't know. I'd have to actually read that. And then the qualified for the real estate or qualified for QBID?

The material participation of a qualified real estate person. So whether or not they can take the QBI, right?

Yes. I don't think it changed that.

Yeah.

Thank you, Scott. But this is very new, so I— they just released the class on this. I think we took it about 3 weeks ago. weeks ago, so I don't have everything memorized yet. I'll get there, but so yeah, but feel free to ask me questions, but some of it I don't have all memorized, so I do have to go back and look at some things. Any other questions? Oh, you can go first and then we'll get there. So for permanent residents, if besides—

Uh-huh.

To defer tax, is there any other strategy? Can you say that again so everybody can hear? For primary residence, so if we want to defer tax, besides the qualified zone you mentioned, is there any other strategy we can use to defer tax? To defer the tax? Not really to defer the tax. You can eliminate the tax. You're going to get the exclusion, the $250,000 if you're single or the $500,000 if For single. But on top of that, you're going to want to look at maybe harvesting some losses in the stock market if you have any. That's the easiest way to get rid of some of those. And also to just work on planning with other things to bring your tax rate down so that way you can have the lower capital gains rate for Fed. So there's a lot of different planning strategies you can do around it, but there's none like directly because you can't do like a 1031 with a personal residence, you know. My question was around the 1031s. Is it true that when you are exchanging one property for the other, the new one that you're going to must be higher value? You're gonna want it at least equal or higher value because that's what's gonna get rid of the, the gain. If you go lower, you're gonna start to incur capital gains. So yeah, you want it to be higher so that way you can get rid of the whole gain.

So I've heard about this short-term rental loophole. Some of my friends or investors bought a short-term rental and just bought it toward the end of the year, and they just rent it out for 2 months and use that to do the bonus depreciation.

Is that true?

Is it something legit or, or it might be something different?

What do you mean by legit?

Legal, or how, how much is it audited, or how much, uh, is it— because I've heard it from a number of channels, from CPAs, from attorneys, conflicting views on that.

Yeah, I don't have a problem with it personally. We do have clients In fact, I just talked to a client yesterday that's going to do that this year. As long as you legitimately put it into service, it is being used as a short-term rental, I don't have a problem with it going in at year end. I'm just all about documentation. So as long as you can document something, you can prove it to the IRS, I don't care. We'll go through an audit, we'll walk through it. I'll be super honest, I haven't had a client audited since 2015, knock on wood. So I am super anal about a tax return looking a very specific way so that the IRS doesn't come in and look at it. So every tax return that goes out the door, I look at it and I'm like, if I was an IRS auditor, would I audit this? And as long as my answer is no or maybe, we'll push it out the door. But it is legit. You can do that. But are they turning it into a long-term rental afterwards? Is that what they're doing?

No.

That's for the next year, right? For that, let's say I buy something before the end of the year, $125,000 in November, and it's putting out short-term rental. Yeah, yeah, you could do the cost seg and the bonus depreciation.

All the— all those same rules are going to apply, so you have to I think there are different rules. Yeah, there's different— yeah, there's different rules. So the $750 is for real estate professional. There's different rules that apply for the short-term rental as far as like how many days it can be rented out for, like the average rental— rented days, how you're actively managing the property as well. You're supposed to treat it a little bit more like a hotel or a bed and breakfast, things like that. Yeah, I've had clients do it. Yeah, yeah, we just had— we— I just had one just like I was saying the other day. We're gonna do it this year as well. They just bought one out in the desert and they're gonna do it. Yep, yep, go for it.

For the Opportunity Zone investment, I was under the impression that if you had a $500,000 gain and you want to invest in the Opportunity Zone, then you have to improve it another $500,000. So initially you put $1 million and then keep it 10 years and then it's all tax-free. Is that wrong?

So you're going to get taxed on the initial $500,000.

But I also thought you had to put another $500,000 of improvements into it.

It's got, it's got to be improved by that much, but yes, you will be taxed still on that first $500,000. Yeah.

Okay, and I have something Responding to you, I can't remember what the prop is, like Prop 18 or 13 or something. If you're over a certain age, you're a primary resident, you move within California, you take your original tax rate with you.

Your property tax.

Do you also, uh, take your property tax?

I could not remember. That's a separate rule. So that's her, that's her property tax. It's 13 and 19.

Yeah.

Yeah, yeah, yeah. So that's different. It doesn't have to do with the capital gains. It's actually transferring your property tax rate to the new property. Yeah, and it's, uh, there's a calculation that goes into that as well. It's not as easy as it used to be, so unfortunately.

Of course not.

That's California. They don't let anything be easy. Anything else? Anyone else? Oh, go ahead, Joe. I'm sorry.

Maybe a little off topic, but, uh, getting close to my RMD on my 401k. On January, let's say I withdraw $100,000 RMD.

Okay.

February, I go out and buy a 4-unit complex.

Yes.

I do a cost seg and it comes back, it says I can write off $100,000 that year.

Yes.

Did that just wipe out Yes, yes.

As long— so as long, as long as you're— as long as your other income doesn't give you above— get you above that $150,000 threshold, uh, to where you can't deduct rental loss, rental property losses, you're fine. It'll knock it down. Or if that's just, uh, you know, going in as a regular business loss, then it's going to offset it completely. So. Yeah, it'll be $0. Internet income. No problem. Anything else? Nope? Good?

Okay.

Thank you. Saved me a lot of money. That's what happens when you have the meetup near the airport. I grew up here. If you didn't, there used to be a military base in O'Fallon.