Mark Kohler breaks down the Trifecta framework for real-estate tax planning, separating short-term income (subject to 15.3% self-employment tax) from long-term passive income and capital gains. The holding period for long-term gains starts when a property becomes rentable, not when renovation begins. Wholesaling, fix-and-flips, and Airbnb with substantial services count as short-term; buy-and-hold and syndications count as long-term.
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We meet with clients that are worth millions to have 30 rental properties, one rental property, big business, little business. And when you meet with one of our attorneys, we design a trifecta for you. A fix and flip doesn't turn into a long term hold. The counting time starts when you're done with the fix and flip. It's not like, oh, I started this fix and flip and I've been working on it a whole year now. I'm going to sell long term gain. No, no, no, no. The long term gain time starts once it's available to rent. When you're doing real estate deals, is it left side or right side? Am I creating passive income with these types of projects or short term here? So thank you for everybo online too. So the trifecta. This is the foundation for the rest of your life, not just the next two days. Seriously, this is like we're trademark. We did trademark this. We're like so excited about this trifecta because we meet with clients that are worth millions, that have 30 rental properties, one rental property, big business, little business. And when you meet with one of our attorneys, we design a trifecta for you. Expand. Just spoiler alert. Here, here's. This is, this is maybe a medium design. So we're gonna, we're gonna get more and more advanced throughout the day, but. But we gotta get it out there. And this is so important. So I'm gonna go to the whiteboard, we're gonna get to work and see if we can make sense of this. And I need audience participation on this. This is important. So the trifecta, short term, long term, and you can add anything you want here. I'm just throwing out. Okay, wait for the volley over here. Okay. For the ball, I'm going to throw you an alley. Oop. Matt and I just love to work together. This is our happy place. This is so fun to be here with you guys. This is freaking awesome. Okay, so when people come up and go, hey, I got this deal and we're going to be hanging out, I'll be introducing our other attorneys we have here today, Christy and Devin, they're going to be speaking. They're in the back. No one's talking to them right now because they don't know who they are. As soon as they talk, then there'll be a line to talk because they're like, they know their stuff. Mark and Matt, they're just blah, blah, blah. Okay. But anyway, so when you come up and say, I got a deal, I'm gonna go, is this A short term deal or a long term deal? And you're gonna go, I don't know. And I go, didn't you pay attention during that part? And they go, no, it looked pretty boring. Okay, don't. This is important. Okay, so when you're doing a real estate deal, it's gonna fall on one of these sides. So short term deals are more ordinary income. Long term deals are more passive income. These are more operations. And then the other side are more assets. This is your assets doing the work for you. This is your ass doing the work over here. Okay? So we don't want your ass doing all the work. We want. We want our assets to be making money for us. That's the side we really want to build. So when you say, I got a deal and we're going to. Because we're in our head, we're thinking, how is this going to be taxed? What type of income are you generating? And I told Matt, we're taking turns up here. I said, matt, I got to explain this part. He's like, okay, you explain that part. Okay, you guys give me some examples of real estate income that you would say is ordinary. And keep it simple. Just throw them out. What are some good ones? Come on. Okay, wholesaling. Okay. A lot of times on that note, I will say it. See, this is collaborative here. This is stuff that's going to happen in 12 months or less. You're like, tie up a property, flip the contract. I'm going to build a place. Fix and flip, whatever. Less than 12 months. A fix and flip doesn't turn into a long term hold. The counting time starts when you're done with the fix and flip. It's not like, oh, I started this fix and flip and I've been working on it a whole year now. I'm going to sell it. Long term gain. No, no, no, no. The long term gain time starts once it's available to rent, not when you started working on the fix and flip. So. But I. Okay, so wholesaling and what's out there? Fix and flip. Okay, what else? My realtors. What are you getting? Commissions. Oh, I love it. Commissions. 1099s. Right? What else could you sell? What do you. What creates ordinary income? I mean, keeping it simple. Yeah. Oh, I like it. So W2, I put this over here because it's, it's in the mix, but it's kind of outside the box. Down here is your 1040. So that all flows down to my 1040. And so I've got commissions 109. I'm selling services or I'm selling. I know it sounds super simple, but selling products, Right? I'm selling services or I'm selling products. Ooh, I like it. That's a deceptive one. Maybe. Maybe it depends on substantial services. Huh? So you know what I'm saying? Okay, so we're going to get there. We have a whole section on Airbnb right now. Spoiler alert, the irs. Christie's going to be teaching this section. By the way, the IRS has said Airbnbs are long term holds. They are. They are going to be on the long term side. They are. Just because you have an Airbnb doesn't mean it's subject to self employment tax. It's still considered a long term hold. You call it a short term rental, but in the eyes of the irs, it's long term. We have this word called substantial services that might kick you over there. And Christy will be explaining that in her section. Okay, rehab. What about a rehab? Where does it fall? Right in the middle. Because you might have a rehab that you flip and then you've got help me on the other side. We got buy and hold. What's some other passive income you guys want? Come on. I want to get you in thinking here. Syndications. Okay. Passive income. What would we say that we'd say K1. Yeah. But depends on what's on the K1. Yeah, yeah. So K1 non manager rental syndication. Yeah, non manager. K1 rental stocks. I love it. Stocks are going to pay us capital gain or they're going to pay us dividend. You're not supposed to throw out. Oh, I thought you were. You're not participating. I thought you had a. I thought you had like a senior moment or something. No, it was not a senior moment. Trying to get the crowd into this. Okay. Dividends. See you. You could teach this. I'm used to being on the podcast. This is important. Sentences. I don't know. We're finishing each other sentence. Capital gain. What do notes pay? Interest. See, we got notes and interest. Okay, so this is all important. I know you're like, oh, my gosh, we are going to blow your brains. We want to, but we got to get this foundation out there. So when you're doing real estate deals, is the left side or right side? Am I creating passive income with these types of projects or short term here? And the one thing we don't want or we want to avoid or minimize is what tax is on the left side? Self employment. Self employment tax is on this side. And we're worried about that because it's bar, it's hard, it's hardcore. 15.3%. But do I pay self employment on the passive side? No. Even if it's an Airbnb. So self employment tax is going to kill us right here. Now, I want you guys to remember this. So just a little side note, little joke here. You got to remember the left side, that's like dating. The right side's like marriage, you know. Gotta remember that. Short term, long term. So you guys are out, you know, doing a little white man overbite this weekend, Friday night. We got the band here, you're working it. You might be looking around the room, you might be going, that's a short term there. I could fix and flip that, you know? You know, I could get it. I could do it in it right there. Right, Boom. We can rock that one right there. Less than 12 months, for sure. Interesting. You know what's interesting on the, on the, on the fix and flips, those short terms, you do pay more tax on those, you know, they can be painful. High risk. They're high risk. Car could get keyed. Yeah, yeah, there's a more cost. But you ladies, you're no different because you're out there dancing, you're like, okay, that could be a buy and hold. Maybe I could rehab that, you know? And how long would the rehab take on that? That could pay interest, pay some dividends, you know. Guys are pigs. You know, we're on the short term side. Your laser thinking. Long term hold, real wealth. We're just, we're not making it yet. So now you can remember, short term, long term, short term, long term. So when you come see us now, this is the foundation of the trifecta. So, Matt, I will be your scrivener. Matt and I kill it at Pictionary. We really do. So, okay, you now take us into the trifecta from this foundation. I will just draw what you say. All right? Thank you very much. Okay. All right.
