Questions about Rental Real Estate, Airbnb, Capital Gains, S-Corps and more! | Open Forum |

Foreign. To this week's episode of the Main Street Business podcast with yours truly, Mark Kohler and the amazing Matt Sorenson. And it is the Open Forum show. Lots of good stuff coming up. This is gonna be good. If you're new to the show, we do try to give a little satire to keep it interesting. And we have a sister show titled the Self Directed Podcast. All right, the first question, my dear friend.

Okay, I'm gonna go with George. He was most recent question up there says hi, thanks for all you guys do I'm married and file jointly within the Trifecta framework. Should my spouse and I have our own revocable trust or one shared joint revocable trust? This is a great question. The default is if you're married, you will have a joint revocable trust between both of you. And that's assuming that each of you own all the same assets. Now, maybe you and your spouse are this is a second marriage. Maybe you have different kids from marriages that might get other assets separate. Maybe you had a prenuptial agreement. Certain assets are separate. You don't want to put them into a joint trust. You need to keep them separate. Those are all instances where you might do your own trust and you'll have your trust own your specific assets that are separate. Spouse does the same, and you may have some assets that are in a joint trust. You could frankly have three trusts, but again, that's for special situations. You will generally do a joint trust together.

I like that answer. And in fact, I was dealing with that this morning. I had a client that sent over their estate plan and said, could you review it? It was about 14 years old, which is well past the time period it should have been reviewed. They've had a couple kids since, and it really didn't have a lot of provisions for distributions to children. They just get everything at 21. Now, if you've been following the Britney Spears lawsuit this last week, she was in a hard place nine years ago when the conservatorship in California was placed in a in effect. But she was in her 20s, struggling. And you may not want one of your kids to get whatever you got if it's worth getting running around with those assets at age 21. And so I think there's a lesson here that if you have an estate plan that's older and you need to update it, that's okay. You don't have to redo the whole thing. But this couple I was talking to had two separate trusts and the reason they were doing it was for asset protection, they wanted certain assets in one spouse's name and the other. And they did a which requires for proper asset protection a declaration of division of assets. I mean, this is like a postnup. It's scary because when you say my spouse owns this and I own that and you do get divorced, you can't say, oh, that was just for asset protection. I don't think that's going to fly. So, yeah, be careful. You're trying to have your cake and eat it too. Okay, I've got a question from Patty up in Northern California. Question was, in this time period, we're in a weird, precarious time when it comes to real estate investing. I commented on this in the newsletter this week. If any of you haven't received the newsletter or don't receive it regularly, please go to any of our websites and sign up. It's free every week. The message was, what do I do? Right now we've got a 12 year run up on real estate. We've got foreclosures that we still can't effectuate. And it looks like July 31 might be another window where we can. Banks can start foreclosing. We've got an eviction ban from the cdc. No one can evict any tenants for another month or so. It's just crazy out there. But real estate investors are frustrated. What do I do? Do I keep searching? Do I make offers and get in line? It's a seller's market, but there's buyers lined up everywhere. It's just weird. So Patty's question was, which I think is a very, very good one in this time, where I'm just sitting and watching, what can I be doing and what's more important? Looking at the different asset classes of types of real estate. Think single family home, commercial storage units or whatever, or geographic area. Should I be buying properties in Texas, Tennessee, Seattle, Oklahoma? What's more important? Should I be going and looking at these areas or should I be studying different asset classes? All right now, Matt, I'm going to give you my take. I'm kind of excited to hear what you think. Here's my opinion. Geographical areas more important. First, before you start looking at the types of asset classes. For example, I had a client about four years ago called me up and says, hey Mark, I need some llc. I'm like, all right, tell me what you got going on. Well, I bought a rental property in Atlanta. I bought one in Hawaii, I bought one in Arizona and up in Chicago. And I need four LLCs. I was like, whoa, you bought a rental in all four of these locations? Yep. They were good deals. They were good deals. But I said, whoa, you just went to four different areas and bought single family homes. So it was the same asset class, but it was in four different areas. And now he's got four different state tax returns, four different LLC filings, potentially four different bank accounts. I mean, I was like, whoa, whoa, whoa, whoa. Let's not take a shotgun approach to the country. I like to see clients, especially any of you that might be newbies, choose one geographical location. Get to know it, get to know the areas, choose that location. Don't go all over the country. It's going to create a lot more legal structuring and planning. And if you're going to check on these properties, it's going to be more expensive. That's hard to keep my thumb, you know, knowledge in four different geographic locations. Then number two, once you've chosen one or two geographical locations, now choose two or three different asset classes. So I think having one location first and three asset classes is more important because you want a hedge. I want maybe in. If I choose Atlanta, I may say I want a single family home and I want a commercial location and I want an Airbnb. So they're all three very different and they can respond differently when the market changes. So you're hedging against risk by diversifying types of assets, but you're still being organized. Having one geographic location to begin with. That's my take. Matt, what do you think? Hmm.

Yeah, I mean, there's a lot to say on that because on the one hand you could say, well, you've kind of diversified by geographically.

True.

Because if the Atlanta market goes in the crapper, but Hawaii stays strong or whatever, like you've got diversified somewhat that way. I don't know. I mean, I'm even. I have a rental in Indiana that has a tenant move out. I have a lot of repairs on. I'm a little frustrated. It's been a great rental. It's appreciated. Awesome. It's been awesome cash flow. And I'm thinking, what do I do next? Do I sell this?

Maybe?

Because I've had to move outs on this property and I've, I've had quite a bit of expenses to get it re rented. You know, they just don't take care of it. And it's just in an area that people just don't take care of a rental. So there's a lot of considerations. I like thinking of the strategy you like. I think the Most successful clients of mine that are real estate investors, they, they get, they find the area where they know the real estate market and then they nail the same strategy over and over and over and over again and they just, they just perfect it. See, the hard thing with someone doing three single, four single family rentals in four states is, well, who's your maintenance person, who's your property manager? Like, your ability to, to keep more profit in those deals gets limited when you're, you're getting yourself so thin by going out to so many different places on, on just single families.

But no, I like your comments. So your take would be one on one, choose one geographical area and one asset class and get good at it. Now, yes, you're not, you're not diversifying as a country. You know, different markets having problems and you're not diversifying with asset class, but you're also streamlining what you're doing and that, and you're saying that may outweigh this broader approach. That takes more work too. So.

Yeah, and I think like, if you think of like, you know, how can you score the most points?

Like, okay, now we're talking about Matt's high school years. Did you hear that? He's just said, how can you score the most? Let's be appropriate. Okay?

This is what I'm an expert on.

A lot to say about that.

Okay.

All right, so, but no, you're in a game, you want to score the most points.

Sun's in four suns in four cast. I was getting to K basketball. Maybe you're a guy that goes to the paint, all right? And that's the thing you do. You get right under the hoop, you get it in. Maybe you're a three point shooter, maybe you're, you got a good jump shot. I don't know. However you score points, everybody's a little different. Like what do you do in any sports game or anything else, the guy that drains the three does it all day. The next game they play, they're going to hit the three every time. The next game they're going to go for the three every time. The guy in the paint goes to the paint every time. Okay, so like get good at what you're good at. And I feel like that's where you can score the most points. Points being dollars in the bank account. I'm not talking about, you know, know your high, high school romances. Okay.

Yeah.

Not those points.

Yeah. Okay.

I don't know.

That was a good response. I thought you were going to talk

about, you want some Tips on, you know, people. I'll give you some tips out there.

Yeah. Inside voice. I gotta stop. No more innuendos. Okay, well, great. Great question, Patty. And hopefully that insight's helpful for a lot of you, because we want all of our clients looking at real estate as part of their portfolio, as well as ETFs and mutual funds and maybe even a little bit of crypto or some lending or some precious metals. We do want to spread ourselves out, but once you look at that real estate strategy and you peel back the onion there, I think there's a lot to be said about deciding between geographical areas and asset classes.

Now, I got a question that kind of relates to what we were just talking about, because this was. This was from We Homes on Instagram, asked the question, should we open a different LLC for each property we buy? All right, great question. We get that a lot. And the example Mark just gave four properties in four different states. All right, let's start. Let's kind of work up to that, actually. Okay, let's say you have two properties and you're like, all right, do I set up a new llc, Matt, for the second property, or I choose the one I already have? Now, let's say you're in Arizona, where I'm at, and the first property bots in Arizona. Second property's in Arizona. What we're going to ask first is how much equity do you have between these properties? If you're like, Matt, I bought them for 200 grand each. I put 20 grand down or whatever. I got, you know, 40 grand, let's say, of equity.

Cool.

Put them all in the same llc.

Yeah.

The same protection is there. If something happens on property number one, they can sue the llc, but they can't get down to you personally. Same thing. Something happens on property number two. What's at risk in an LLC is the equity in the properties. So if there's only 20 grand of equity in each property, there's only 40,000 of equity at risk. It's not worth the cost of an additional llc.

Yeah. Now can I add to the. Yeah. Okay, so next level, you're in Arizona. You got these two properties, one llc. We were just having a conversation with someone yesterday that said, well, I got sold at Della Delaware, he chose not to go to Nevada. He had. He felt that he needed to do this, and he went and set up a Delaware LLC to own his two property, his LLC in Arizona. So he doubled down. Now, that's not always a bad thing. I don't know if I choose Delaware, we have other strategies to double layer our protection. But in this situation, with two rentals, 40 grand of equity, they're cash flowing. Do I really need to throw on another layer of asset protection for these two properties, I'd probably say no. Now, if they're both strip malls worth 1.5 million each. All right, now we're talking. And so we need to be careful about adding more LLCs or more layers. We want to deal with quality, not quantity when it comes to looking at the assets. Okay, and then Matt, you had a next example you were going to work up.

Well, and let me say on that example though, look, let's change the facts a little, okay? Let's say it's two properties even. Let's just stay at that. But let's say there's 200,000 of equity in each property, all right? And you're like, matt, I'm buying the second one. Should I get a new LLC or should I put in the existing one? Now my answer is going to change. I'm going to say get another LLC because you have so much equity in those two properties, you have 400,000 of equity. If we put those two properties into one LLC, if something goes wrong on property number one, tenant could sue the LLC and get all the equity and property number two as well. So we don't like all of your eggs in one basket there, so to speak. And our rule of thumb is once you have 250,000 of equity or more, we want to have separate LLC for your separate properties. 250,000 a yard mark. If you got 10 properties with 10,000 of equity each, put them all in one LLC. That only equals 100,000. If you got two properties though, with each of at 200,000 of equity in like the example, we're going to say put them in separate LLC, that's going to be over 250,000 equity total. We want them separate, so they're separate liabilities, separate asset protection treatment.

All right, now we could talk about LLCs and rental properties for the rest of the hour. In fact, we do have several podcasts that are for a whole hour on how many LLCs do I need for my rental properties. And we've dedicated shows, we go over

what state to set them up and all that.

Yeah, I will.

Of course, our law firm, Kkos lawyer sucks them up all day long.

Just to put a bow around. I want to put a little bow around this and say, though, if I have multiple properties in multiple states, you still have an option. You can set up one LLC and register it in multiple states. Or I could have an LLC in each state. And so everybody's different. Please don't take it as gospel that you have to do this Nevada or Delaware thing or this is the way to do it. And so that's the way I'm supposed to do it. No, everybody's different. And so in a consult with one of our attorneys in that first hour, we're going to figure out the plan that's best for you, make some recommendations, and if you need multiple LLCs, we'll generally discount the second or third to try to make it affordable as well. So. Okay, we got to go to another question. I also want to point out I received in the mail this week my Sasquatch field guy. Have I showed you that yet? No. This is really exciting. Identifying, tracking and citing North America's relect hominoid relic.

I don't know.

Yeah, so the casting tracks is the exciting part. So if you see a track and you need to verify. Is this a Bigfoot?

Oh, ok, that's helpful.

Yeah, so that's pretty helpful. It goes through how to get your plaster of Paris and build your little mold so you can verify the.

Did you just find. Do you just find like random weird stuff to bring into the studio? Just brought on the podcast.

No, this was sent by a fan, another believer. This was sent by a fan. So, you know, I grew up in the northwest, so you people up in Seattle, you know what I'm saying? This is legit. And this is Northern California. They guess through all the regions. Okay. Now people out there, I know it's a little offensive because Matt Sorensen's not a believer, but we'll convince him someday. Sasquatch, he's real. Okay. I just want to leave that out there. I'll let that just simmer. Just let you savor that one for a little bit. All right. Okay. Next question. Is it your question or mine?

I don't know. I'm ready.

Okay, you go, you go.

All right. Okay, you're on deck.

All right.

This is from Joel. I started a 529 plan for my young children about five years ago before I found your podcast. I am not sure if either of them will actually go to college when the time comes. The alternative, I have heard, is a Coverdell account, which we love because you can self direct those, by the way, but it sounds like they need to use for educational expenses as well. True. Is there something I can set up if they decide if they choose not to go to college? Sorry. Is there something I can set up for them if they choose to go to college but not face a penalty if they choose not to go to college? Yes. And get the Roth ira.

Yeah. Okay.

The kids Roth ira, Joel. See, there's a Coverdell out there and it is cool because you can throw two grand a year in it. We've had clients, many of them use it, even crypto or I have some clients who some real estate wholesale deals with it and have some big returns on it. And it'll. And it's when we send checks out to universities to cover these kids tuition. It's cool. I love that's cool. But the Roth IRA is even cooler in my mind because you can put six grand a year on a Roth ira. Now, your kids need to have income. All right, that's one little caveat to this that's different from the covered on the COVID dollar. Your kid doesn't need to have income. There's a depositor that's involved in there. We've got a whole separate show on the Coverdell. But stay with me on the kids Roth, Joel. But six grand a year for the kids. Now the investment gains as the account grows can't come out without penalty or tax. But the 6,000 you put in each year can come out for any reason. It's like an awesome. It's like the most awesome savings account ever because it grows totally tax free. It comes out totally tax free at retirement. And all the contributions, the 6,000 you put in, you pull it out whenever you want. You don't need to wait till you're 59. They can be 20 years old in college and they've had a. You've been putting into a Roth IRA form since they were 12 or 13. Once they start having some income, maybe. And now you're pulling out 6,000 a year of seven years worth of contributions. That's 42 grand they could access if they needed to to pay for school. And all the gains that are built up in there stay in that Roth. And they can keep investing that. Now, if they don't go to college, that 42,000. Say again, seven years of contributions. That's all there, plus all the gains too. And they can keep investing it or they want to start a business, they can pull out that those contributions they want to.

I'm going to throw out, I think a alternative answer. I'm going to say first do both. Do the Coverdell and the Roth. What's going to hurt? And a lot of people don't realize when you Set up a Coverdell ira. You can self direct it. And what's cool is if your kid doesn't use it for college, you can bounce it to another kid. You could bounce it down to a grandchild so there's no penalty. And this is where there's a nice carrot. You can say, hey, if you don't use the money for college, that's cool. I'll give it to one of your siblings, or I'll give it to the grandkids and they go, whoa, whoa, okay, I'll go to college. So there's no penalty unless they take it out for not college. But you can dangle it there and go, you want to go to college. Now, I'm not saying college is for everybody. And by the way, it covers vocational school, training programs, pilot school, golf, pro school, chef school, culinary. It can cover also esthetician, massage therapy, hair beautician, college. So there's a lot of options here, people. Anyway. Okay, I'm going to hit two questions quickly, Matt, if you'll give me that latitude. Is there a pot?

Yeah, I kind of did a twofer right there, so that's all right.

Fair. First, I want to hit Leah's question, which it relates right back to this LLC rental thing. She says, if I'm looking to buy my first rental property in the near future, should I form an LLC before or after purchasing? If the property is out of state, can I travel expense for looking at the property to be deducted by, prior to purchase or only after owning? So this has got several questions embedded in it, and I'm just going to answer them quickly here First, Leah, if any of you out there are shopping for rentals in, let's say, Tennessee. Okay, cool. If you don't have anything under contract and you're still kind of looking around at your geographical niche, which we talked about earlier, I don't want you to set up the Tennessee LLC until we're certain you're going to buy something there. So don't pull the trigger on the LLC until you've got something under contract, maybe. All right. Now, does that mean you don't track your expenses while you're traveling? Oh, no, no, no, no. You track everything. Because even if you don't buy in Tennessee, but you buy in Georgia next door, I'm still going to write off the expenses of property searching as long as we see that there was a result of that searching that was legitimate and directly related to the process. But if you never buy anything in or around Tennessee or nearby, the IRS is Going to be like, screw that. You don't get a write off for that. So there's really two answers here. One, getting the LLC set up is a part of the process. Once we know where you're headed, tracking your expenses needs to happen every minute of the process, every part of the time you're in this thing. And don't worry about the due on sale clause. Buy the property in your name. Tell it, you know, do the right thing with the bank, don't lie on your mortgage app. And then right after closing, boom. And they've sold your mortgage three times over before you wake up the next time day and the servicers have changed. Before you know it, you're going to deed it to your llc. You're not going to have a due on sale clause problem. Get it into the llc, start your banking, start doing it right. If you need to refi deed it out, refi deed it back. All of that we've been helping clients do for 20 years. Don't stress, Matt. Anything you'd add for Leah there?

That was a great answer.

Well, thanks. I love you too. You're a good guy.

Yeah. Yeah. You got to. Do you have a twofer? Did you get. Was that all in one?

Her question happened to be a little more involved, so I'm going to back off the second question. I'm going to let my dear friend Bass Warrens and choose the next question.

See? Thank you.

Even though you insulted me at the beginning of the show, I'm.

You're just a better person.

I forgive and forget. I take the high road.

Yeah.

So.

Yeah, that's. Yeah, it was like Michelle Obama.

Yeah.

When they go low, we go high.

And even though you were a little, you know, apprehensive about Sasquatch and a little tongue in cheek, I'm gonna. I'm gonna look past that because I know someday you will be a believer. So I will.

I mean, you can. You'll say, I. I told you. I guess. Okay. Eric's question says, mark and Matt love the show. Thank you. Can you tell me how to register assets into my trust? Specifically a boat, a money market fund, and an S Corp dental practice. Oh, thanks, Eric. Why not pick the hard ones?

Yeah. Anything else? Can I take the boat?

Yeah. Eric just like made us like, put us, set us up court shots rather than like, you know, there's the hard ones and world peace.

Yeah.

Yeah.

No, I didn't ask.

He doesn't care about that. Yeah, that wasn't it.

Screw world peace. Yeah.

World peace. He's Got a boat. So he says, please comment on titling of assets into my trust and regarding stock transfer or renaming of the S Corp. How to do this. He also says, I would love to see a picture of you and Matt and his new custom fitting birthday cowboy hat with your HSA cows.

Ooh. Well, I got to get Matt back up here to Idaho. The cows are doing great. By the way, folks. There's no.

They're out to pasture.

They're out to pasture. There's really. Right now we're lucky here in Idaho there's not a significant drought like Wyoming, Utah, Arizona and California are facing. We still have green pastures. The cows are meandering around, gaining a pound a day.

Nice.

That's. It's, it's. It's serious. So. Okay, so, Matt, I've got. You got to send me your hat. I got to get it.

I did. I had it sent up, I think to Whitney. We had it sent up to the office.

All right, I'll look for. It hasn't arrived or I haven't seen.

I had just. Everybody knows my head was too big for the hat.

So it's. I think they already knew that. They, you know, we didn't have to clarify that fact. Mark bought too big of a hat for Matt on his birthday. Now they're like, you probably went too small. Okay, so, boy, you have a trust. You want your boat. Now we need to say fund the trust. That's the right term we want to do. So Matt's going to tell everybody, when you set up a trust, you want to make sure your assets are transferred to it. The word used there was register. I don't know if I want to use the word register. I want to transfer my assets or fund the trust by making sure the trust owns these assets. And he threw out boat. S Corp. And what. What was the other one?

Money market fund.

Money market fund. Okay. You. You take two, I'll take cleanup. So you choose to. I'll take the third one. Whatever one you leave me.

Okay. All right, I'm going to leave you the boat. Okay, so the money market fund is likely at an institution, probably a broker, dealer. And if you personally own this money market fund, it's going to. Or frankly, if it's through a retirement account, you're going to have a beneficiary designation form. Now, you can list the trust as the beneficiary on the beneficiary designation form. There you go. That's how it's going to work.

There you go.

So that type of thing is going to be beneficiary designation form as can be your bank checking account, you know, so you don't have to. Now here's another option you could do, and some people do, but this is not necessary is change the owner of the account to the trust. Way more work. It's not a personal money market account anywhere. The trust actually owns the money market account or owns your bank checking account, you could do that, but there's no reason to do it listed as the beneficiary. So when you die, the trust becomes the owner of it. Now the S corporation for your dental practice, which by the way, is the right entity for your dental practice. Any of you business owners out there, dentists, doctors, lawyers, engineers, real estate agents, professionals, all should be operating out of S corporations. Now, an S corp has you set some quirky rules that trusts could not own S corporations. This was changed about 10 to 15 years ago, maybe 10, 12, I don't know. And where. As long as it was the right type of trust where the beneficiary was identifiable, you could transfer it to a trust. So what we just do is a stock transfer from you to your trust. Easy peasy.

Okay. Now the boat. There's a reason why Matt left the boat for me because it's not easy peasy. So let me give a few and I love it. This is a good question because we have clients that do this with planes and you've got the tail number issue and registering with FAA and all these. There's all these different issues with different types of assets. But let's just talk about boats. This is very state specific and can sometimes even be county specific. So first issue for everyone out there. The answer I'm going to give can vary based on state by state. Also, I'm going to tell you the trust may not be the best fit in just a moment. So, but let's say you've got a revocable living trust. It's just you or you're married and you have a joint revocable living trust. So you want to put the boat in the trust. Now why would you do this? It's because if you die, you don't want any probate and you want your surviving spouse or the kids to get the boat without a big headache. They don't have to go to court. It's simple. That's why we do this. There is no asset protection benefit here. There could be some privacy benefit because on the registration for the boat there'd be a trust name. Hence why we don't Like a lot of people's names in their trust. Okay, so you're going to go transfer the boat into your trust. You're typically going to go down to the dmv, the same location where you would transfer your car into your name, and you're going to transfer the registration. Now, now, again, states could vary with this, but that's the general rule across the country. You're going to go to the same place you'd register your car. The first hurdle you might have is you got a loan on the boat. Okay? So a lender may not like you changing the name on the registration. So if you have a lien against your boat, you may be up the creek. You may not be able to transfer ownership until the loan has been paid off. So you're going to have to look into that issue. But let's just assume your boat's paid for. You walk into the DMV and you want to transfer ownership. There shouldn't be any sales tax because you're doing it for an estate planning purpose. You're not selling the boat to a third party. And there's usually an exemption for this. Again, state specific. But you should be able to transfer it for just the documentation fee, which may only be 100 or 200 bucks. So you're going to transfer the registration to your trust. Okay, now there's a lot of what ifs in there, right, folks? Because states can be different. Do you have a loan on the boat? And is there going to be a sales or transfer tax assessed? If they say there is, ask more questions. Go, whoa, I'm not selling it. It's going into my own trust. I shouldn't have to pay a transfer tax or a sales tax. Now, let me give you an alternative. If you got a boat, boats equal liability. It's almost like a trampoline. It's not if someone's going to break their leg or arm. It's when I hate trampolines. There's like a lawsuit waiting to happen. Boats. I've never been a boat guy. You know, I just have to say that I'm a swimming pool guy. Yes, I know there's liability with that, too, but I've never had a boat. I mean, I've got little fishing boats. You kind of row around the lake. But anyway, I'm just. I'm just saying. So some of you are going to not like my answer here, but I think there's liability with a boat. What's cool is you might want to put the boat in an LLC that's owned by your trust. The cool part about an LLC owning the boat is that you can transfer ownership of the LLC without having to re register the boat. So a lot of times the transfer of a boat to a buyer can be easier with an LLC rather than this trust thing and your name on registration and title. And also you're getting people. Yeah, go ahead.

People do that with houseboats all the time.

Yeah.

As a way to avoid the sales tax on the costs on transfers. The LLC owns the houseboat and they just change the ownership of the llc. Some people buy shares of it and stuff like that. And so you'd have your trust just own your piece of the LLC if it's a shared houseboat or something. So we settle. I see that a lot with like the houseboat type people.

Yeah. And. And the LLC opens up a whole other world because you might rent out your boat once in a while, create a revenue stream. Now the boat is a business asset. We could depreciate a good part of it. I don't know. So I like the LLC for asset protection with the boat, you may do shared ownership because most people that own boats hate the fact they don't use it enough to pay for it. So bring in an owner, you know, split the ownership three ways. Use an LLC and now they can help share in the cost and you can schedule it out a third of the year or the third of the season and feel like it's much more of a financially lucrative or smart investment. So don't give up on the LLC on the boat idea. Keep that on the table. But hopefully that answer helped.

Yeah. One other. Yeah, that's a tricky one. Thanks for taking that one. The only other thing I've seen is for like cars and boats and some things like that, generally they're okay with a death certificate when the person passes still. So you can still avoid probate and then you still want terms in your trust though, telling the trustee though, you, hey, what's going to happen to this? Like, does the, you know, my kid get it immediately? I mean, you know what, like who's getting the boat? Is it supposed to just be sold? But I have seen a lot of states and this is hard to say because it's a 50 state situation. A lot of times you would be able to transfer those just with a death certificate. And the surviving spouse or trustee of the trust or executor of the will will have authority to then move it around to sell it. Whatever needs to happen without probate.

Love it. Okay, well, that was Your question, even though we both kind of contributed to it. Boy, I'm going to jump over. We've got a lot of rental questions this week. Which is. Which is good. I'm happy about that. Let's jump over to this Airbnb 1031 question from Diane. This is deep, everybody. Is that okay, Matt?

Yeah.

Okay. Diane says I'm a 25% owner in an LLC which owns a rental that we rent as an Airbnb. We are selling it in the next few months. Okay. It's a seller's market. May not be a bad idea. Can we independently utilize the 1031 exchange, even if our partners don't want to? I added that, but that's what she's asking. Independently, we're a 25% owner, and we don't want to pay the tax on the sale of this Airbnb. We want to do a 1031 exchange, but our partners don't. If so, do we disband the llc? And if yes, then before or after the sale. Okay, second part. She says, can I do a 1031 exchange by purchasing an international property Mexico unit for Airbnb? Thank you. In Texas. TIA In Texas. What's TIA mean?

I'm not that tia.

Oh, no, her name's Diane. TIA In Texas. Kind of something like T. There's probably some acronym. You figure out what TIA means.

Okay. All right, you answer the question. You're responsible for the 1031. I'm responsible for TIA.

Yeah, I know TNA, but I don't know TIA. Okay.

Okay. Thanks for clarifying.

Let me get in trouble again. Okay?

I'm not a total idiot.

If you need me to after the show, I'll tell you what TNA means. But I don't know what TIA in Texas means. It's probably going to mean something bad, and I'm really not being good here. Okay, so here, everybody, here's the technique. If you're in an LLC as a 20.

I know what it means. I didn't even find it online, by the way. Apparently, it means transient is schematic attack. As I'm looking, but it's for us people that have asthma. But that's not what she's murdering. I think it was for thanks in advance.

Oh, okay. Well, Diane, I learned something new. Thanks in advance, tia. Okay. Kind of like FYI or tmi. Too much information or bam.

Okay, Didn't.

Cory, did you know the answer? No, he. Corey did not know that either. Get on it. What kind of freaking producer do we have here? Is Corey all right? Okay, 25% owner, an LLC that owns a rental. You want to do a 1031, but your partners don't. How do you pull this off? Yes, you essentially dis. Well, yes, you're going to essentially disband the llc, because what you have to do before sale is create tenant in common interests for each owner. It's called a tic, another little acronym, Tenant in Common Interest. So you're going to go to your partners and go, hey, hey, team, Team llc. This isn't going to cost you anything in taxes. You guys can do whatever the freak you want. You could do an Opportunity Zone. You can pay capital gain, knock yourself out. But I want to do a 1031 exchange. So I need everybody to agree that right before the sale, and we're going to amend the sales contract to reflect this, we're going to not let the LLC sell the property. We're going to deed out 4 interest. Mark Kohler, tenant in common 25%, Matt Sorenson, tenant in common 25% and our two other partners. So when we go to escrow, the title company is going to treat me as a separate seller of my 25%. I can sign up for a 1031 exchange. My 25% of proceeds are going to go into a holding tank called a qi, Qualified intermediary. And I'm going to just start shopping for my rental property. So there's a little bit more to that. Make sure you're talking to your lawyer and accountant, but that's the general procedure. You're going to want to make sure you're following the proper steps, checking off boxes and crossing T's and dotting I's. The second part was, well, now that I got my money and sitting in a 1031, can I buy an international property? No, it has to be a U.S. property. It can be a U.S. territory. So you could go to Puerto Rico. I was talking to a client last night. Nice. Airbnb is in Puerto Rico right now. You might want to go out there. But Puerto Rico would qualify for a 1031, but Mexico would not. Now, some people don't know there's a state in America called New Mexico. Some you may not know that. You could buy a property with your 1031 in New Mexico, aka Albuquerque, where breaking Bad was filmed. There you go. Notice how I brought in a show there, Matt? That's how real experts do it.

Bring that back.

I brought it back. Okay.

Yeah.

Okay.

I was trying to find a good question. We have a lot of questions. A lot of questions. In here, people who screwed stuff up or ask us how to fix it. Which are sometimes tricky, I have to say, because sometimes the answer is not the right legal, technical thing to do. It's kind of like the let's just clean this up sin and do no more approach. But here's. This is one from Victoria from Texas. A lot of Texas. Okay, we're gonna be going to last Texas, right?

Yeah, yeah, we'll see.

Stay tuned.

Okay.

Victoria asks silly has been building single family residentials less than three homes each year. She buys tax sale vacant land and resells for profit. Less than three a year. Would that be considered short term capital gain? Does he need to pay self employment tax and Social Security? Thanks. Okay, good question. There's actually been a case on tax sale purchases and sales on whether you're in the business or a dealer in real estate as opposed to an investor and you just got to pay capital gains rates. So Victoria, since these purchases are happening in their sales, it looks like there's. They're happening quickly and you're doing less than three a year. Let me get to that second. But they're happening quickly. So meaning you're holding it less than a year, you're gonna pay short term capital gains tax, which is whatever regular tax bracket you fall into. Remember everyone, if you own property over a year, you get long term capital gains rates which goes from 0% up to a max of 20 depending on your income level. So short term's always worse. So but that's what you're doing, Victoria, cause that's your turn of properties only doing three a year but you're buying them and reselling them. Great. You're gonna have short term capital gain rates. The next part though is a little more complicated. Do you have self employment tax and Social Security? Like this is the Medicare. Social Security is 15.3%. Are you gonna need to pay that? Maybe, I don't know. This tax lien sale case was one where people are doing about 10 to 12 a year and they tried to book it all as just short term capital gain and not pay any self employment tax on it. They got audited, they lost the tax court said those. That's so much inventory of property that you're in the business of real estate. You need to pay into self to Medicare and Social Security. You're not just investing. And so. So I hear three, you know, if you were said one or two, I think you'd be fine. Three, you start pushing in the gray area. I think on, I don't Know what you think, Mark, but on for self employment tax purposes. But I'm going to give you a maybe.

Now I like what you're saying. It's going to be very case specific with each client based on their overall income, occupation, marital status. So I like Matt's answers. This is, and these are great questions. See this is people, you are the captain of your own. I talked to a client this week. Maybe it was last week that I said so are you an S corp? I don't know. Are you taking a salary? I don't know. I'm like, come on. Those are questions a good business owner should know. And I hate to say that, but if some of you are listening here, I'm probably preaching to the choir. You wouldn't be listening here if you weren't taking accountability for your big picture planning. But it doesn't mean you have to file the freaking form. But know what you're doing. Know what your accountant's recommending. That's 101 of being a good business owner. Yep. Okay. Ben Dangle asks a question with your trifecta which many of you have started to realize is pretty fricking awesome. We've been teaching it here the trifecta for years. We've just come up with a cool kick ass name now. But you have your trust and on the left side you have your operations and on the right side you have your holdings. And we want to bring those three pieces together for multiple purposes. Privacy and asset protection and tax planning and all the above. So Ben says if I have a business, an S corp, that I own the and that I own the building. Okay, can the S corp pay rent to the LLC or would you run into self rental issues with the irs? Now I'm going to rephrase Ben's question. I think what he means is if I have an S corp business and then over on the other side I have an LLC that owns the building, I have to assume the S corp doesn't own the building on the. Okay, sorry for those watching on YouTube. So on the left side I have my S corp. On the right side I've got my LLC that owns a building. Can the S corp pay rent to the llc? Absolutely. We freaking love it. Matt and I do the same strategy with our commercial building in the LLC and the law firm. So very, very common. The first rental we want our clients to buy is the rental you're paying rent to if you're a business owner. A very, very important strategy. So yes, the S corp would pay rent to the llc. And then he said, would you run into self rental issues with the irs? Yes, there are issues to deal with. It doesn't mean you don't do it it and it doesn't mean it's advantageous. But the IRS is a little. Does provide. Does a little scrutinizing of what you're doing. Has to be fair market value. Rent. If you're generating losses in that rental to yourself, those may be carried forward rather than losses like a typical other rental. So we have to again understand the ownership, your overall picture. Are you a real estate professional or not? This and that and another. But so there's issues to consider, but not issues that you wouldn't do it. Just get it done. So Ben, love what you're talking about. You go for it.

All right.

Okay. Where are we at on time? Maybe one more question or each. See how it goes. Okay,

man, so many questions. Let's see.

You know, while I was answering that, you were supposed to be looking. Are you missing.

I was listening to your great answer. I was captivated.

I mean, I don't know about that.

All right, here's a question. Okay. There are some IRA questions in here, which let me say we generally want to hit those at the Directed IRA podcast. Go to directed ira.com podcast that is wholly dedicated to self directed retirement accounts, IRAs, 401ks, all the other cool accounts you can do. And we do an open forum on that podcast as well. So you know what, Matt, in our

question list here, what I'm going to do is tell them, please repose this question over@directed IRA podcast.

Okay?

And so you can feel comfortable that we're not leaving them in the lurch.

Okay, you go over. All right, I got a question here then from Matt H. All right.

I knew you'd choose some guy named Matt.

Yeah, well, I mean it's a Matt with two T's guy. You know the two T's guys. You know, what's with the extra T? All right, it says. But he does say hello, Mark. He, you know, he wants to make sure he.

Thank you. Appreciate that little shout out. Matt with two T's.

Yeah, he says he wants to know what you think on this, but I'm going to give you the answer, Matt. He says, is there a way to make your LLC tax exempt if you aren't using it for a business and instead of a holding company while feeding it investment income? No, let me just say no.

So repeat that for everybody. I missed it too. Repeat that a little slower so everybody Gets that.

Is there a way to make your LLC tax exempt if you aren't using it for a business and instead as a holding company while feeding it investment income?

Wow. I guess you want to start a charity. I mean you could donate everything the LLC owns to charity and make a 501c election on that. But that's not going to help you. It's going to help put tennis shoes on kids in Africa. But form a charity with the llc.

Yeah. And so you could. So when you say fee to investment income, meaning you would donate like just like you could donate cash to the nonprofit. Now you wouldn't do an LLC as tax exempt. You typically do a. Not a corporation that's then a nonprofit for tax rules and stuff. LLC's tax exempt is just. There are some ways to do that, but you're just. You're going to create the hard way to do it. Just do a corporation and not a nonprofit corporation. And we love that. You know, we love clients that find ways to do non profits that there's something that they love. But you have to get rid of this, the concept that you will ever make any money on that, you will not. There's no way you're going to make money on that. Okay. If you're going to do it a non profit from a tax standpoint, this is not a way you're going to benefit yourself. You really have to have entire charitable purpose. But the money you may throw in, you could get a charitable deduction on it just like you could at your church or given it to Mary Conrad cross or other XYZ nonprofit. So. But we are not using LLCs and tax exempt strategies in any business planning other than solely for charitable purposes, which we just do a total charitable non profit in the diagrams and the trifecta and everything, it. It's like its own category in and of itself. All right? It's not an operation, it's not an asset. In fact, no one owns a nonprofit. Any tax exempt empty entity. There is no owner, there's no shareholders. There's just a board of directors. So that's my final answer.

All right. I like it. Okay. I'm going to. Boy, I don't know. Let's do the. We'll stick with trifecta here for a moment. And everybody, thanks for your patience. If we didn't get to your question, please be patient. John L. Says. Hey Mark, love the show. Thank you guys for all the knowledge bombs you drop. I had a quick question when I heard you talking about how a trust as part of the trifecta, gives you. Gives your entities privacy. My question is, if your operational entity, which you mentioned, you don't mind putting your name on I. E. Mark Kohler, Inc. Is also owned by your trust, wouldn't someone be able to find what trust owns your operational entity relatively easily and therefore make the connection between you and the trust? Okay. Oh, boy. I chose a hard question. I'm gonna. Oh, the table.

It's like we drew straws and you could see the short straw, and you still pulled it.

Yeah, but John. I like what John's talking about. I've just got to figure out how to answer it quickly here. Okay. When I say let's just dice this, cut this up into parts, he said you talk about how a trust, as part of the trifecta, gives your entities privacy. No, it doesn't. The trust doesn't give the entity privacy. The trust gives me privacy on what the trust may own rather than me personally. For example, a home on title. My name's not on public record. The trust name is on public record with an entity in almost all states except Arizona, actually being one of the difficult ones. No one knows who owns a corporation or an LLC in 99% of the states or 49 out of the 50 states, because we don't disclose who the owners are of your entity. It already has privacy when it comes to the owners because we do a manager, managed llc. And with a corporation, all I have to list are the officers and directors, not the owners. So the trust doesn't have anything to do with the entity's privacy. The trust is there protecting my privacy as to which assets I'm owning. So if they just search my name, they're not going to hopefully see my name on a variety of assets. They're going to. They're not even going to see it because the trust won't have my name in it. Okay. Now, as for the operational entity. Yeah. If you do an asset search for Mark J. Kohler, Inc. You're going to see that it's my corporation and obviously I own it. I branded it. That's great. I want you to find it. What I don't want you to find is my cabin up in the mountains with all my fireworks ready to go for the zombie apocalypse. That's going to be harder for you to find. So, John, what I would ask you to do is step back. Think of it this way. What are the things that I don't want people to find and what are the things I want people to find? I'm going to use my trust for the assets and maybe some LLCs with some indiscriminate names and mail forwarding and some entities set up to be the managers and I'm going to create some smoke and mirrors for those assets, but for my operational entities. Yeah, you're going to put two and two together. The trust doesn't. I don't care. You're not going to see who the. Anyway, I hope that helps. Matt, anything you'd add? I think it's perspective here.

Yeah. Keep in mind on the operations side, we're not trying to build assets over there. So you people are going to know if you're S Corp or your business that you run every day, like that's fine. That's not a. That's not a risk because it's not an asset. The. So that operation side is what creates income. I mean, sure, it's an asset though, it's an operating business, but like it's churning out cash flow that you then go to use to buy assets and push over to the asset side. That's what we want to be private, not people to see. No reason for people to know. The LLC that owns your rental properties, you know, and that's where you have more privacy or like Mark said, your home or your second home or cabin or whatever it is, those are assets. But the operations, it's like you're the business owner, you run that thing. Frankly, if you have any business of substance, people know you're in that dang thing. It's not like you're hiding out. Okay, so we're not really looking for privacy over there.

Yeah, well, lots of great questions here, people. I. I'm grateful for that. I appreciate it. Even Corey, our producer said, why don't we rip out some of these questions and just shoot some one off YouTube videos and answer them and we'll try and do that and if we do, we will send you a little note that where. Where to find the answer. But other than that, I just want to say, folks, please keep listening. We hope that we're blessing your life in some small fashion with these tax and legal structures that really do provide a little more help and living the American dream, you know. So we're playing just a little role hopefully in your life in a good way. And I want to say thanks and Matt, thank you for being amazing co host and thank you Corey, for being a great producer. Thank you everybody. I just feel grateful.

Yeah, thank you, Mark, thank you, thank you. Thanks for being the star of the Main street business podcast.

I don't know about that. Of course I'm not. Okay, everybody, see you next week. Matt, any final words of wisdom?

No, we appreciate it. Again, you want to get your questions in. You're like, man, you guys talked about some dumb stuff this time. You know what? Give us a question. We like go get the question you want. Go to mainstreetbusiness.com. you can submit your question right there. We'll talk about what you like.

Yeah, you missed the window. You know, I teed it up for you. I said, is there any final wisdom? And I thought you'd bring full circle to the show and go help the economy hurt no one. Oh, yeah, see, that was your chance.

It helps the economy. Listen. Listen to the Main street business podcast. Listen to the directed Ira podcast. I mean, helps the economy hurts no one.

We'll finish on that. Thanks, everybody.