Simple Strategies to Pay ZERO Taxes | Tim Hubbard With Special Guest Tom Wheelwright

Effectively, everybody is a partner with the government. You don't get to choose whether you're a partner with the government. What you do get to choose, though, is what type of partner you are with the government. Most people, Tim, are what I'd call silent partners. They, you know, they go on their merry way. They pay 40% in tax or even more than that in many cases. Doctors, lawyers, highly paid professionals, athletes. They can pay up to 60 to 70%. Seriously, would you rather earn a million dollars and pay 70% in tax or $400,000 and pay zero? Well, that's pretty simple. 400,000 is way better. $100,000 better.

Welcome to Short Term Rental Riches. We'll discuss investing in real estate, but with a specific focus on short term rentals. Quick actionable items to acquire, manage and scale your portfolio.

I'm your host, Tim Hubbard. Well, welcome everyone to the Short Term Rental Riches podcast. I'm super excited to have Tom Wheelwright on with us today. Tom is the is a CPA and CEO of wealthability. He' best selling author of Tax Free wealth, how to build massive wealth by permanently reducing your taxes. Tom is a CPA for Robert Kiyosaki and a lot of you might know of Robert Kiyosaki from his book Rich Dad, Poor dad, which has been very influential for a lot of people in the real estate world. I'm really excited to have you on. Tom, thanks for joining us today.

Thank you. No, happy to be with you guys.

Taxes are, they're a very complicated subject, but they're very, very important and there's a lot of planning that goes into it and they're constantly changing and there's a lot of exciting opportunities around potential opportunities with taxes related to short term rentals. So I'm excited to get into that today. But before we do, I got to say your first book I used to listen to years ago when I was, I was going to college and listening to audiobooks and I discovered Robert Kiyosaki and then discovered your work and it's so, it's really been a really big help for me. But you have a new book out called the the Win win Wealth Strategy 7 investments the government will pay you to make that you just recently released. So I, I'm excited to have gotten my copy and I was wondering if we could just start off if you could explain this idea of, of us partnering with the government. And I did that in air quotes for, for those of you that are not watching the video and just listening to the podcast.

Sure. Look, anybody who's ever gotten a paycheck realizes pretty quick that you don't get 100% of your paycheck. Right? Some of that paycheck is going to the government. You don't get to choose whether some of that paycheck goes to the government because there's FICA and FUTA and, you know, there's all these taxes. So effectively, everybody is a partner with the government. You don't get to choose whether you're a partner with the government or. What you do get to choose, though, is what type of partner you are with the government. Most people, Tim, are what I'd call silent partners. They, you know, they go on their merry way. They pay 40% in tax or even more than that in many cases. Doctors, lawyers, highly paid professionals, athletes. They can pay up to 60 to 70%. I think it's Phil Mickelson who estimated his tax bill was around 70%. And you know, why would you, I mean, seriously, would you rather earn a million dollars and pay 70% in tax or $400,000 and pay zero? Well, that's pretty simple. 400,000 and zero is way better. $100,000 better than a million dollars and 70% in tax. So the, the, the question is, you know, if you look at the tax times, you read my first book, the tax free wealth, which is been number one for almost 10 years in its category.

Basically what I explained in that book is that the tax has a series of incentives, right? It's just government incentives. It's basically a roadmap to reducing taxes. Government incentives to do things government wants done. So, and what I was looking at for Win Win Walt strategy is, okay, but why, why does the government do that? Why would they be interested in partners that are not just silent partners? If they can collect 40 to 60%, why would they just not collect 46% from everybody? And in fact, you know, we know that. I mean, it's pretty popular right now. Rich don't pay tax, right? And Donald Trump, 10 years out of 15 years, no tax liability in his stolen tax returns. That's a whole nother topic, right? Somebody, somebody should be going to prison for that one. And not Donald Trump, frankly, for that particular theft. But somehow somebody got a hold of his tax returns and it proved that he hadn't paid tax in 10 out of 15 years. And two of the years that he did pay tax, he paid $750 in tax. I'm sure those are, those make sense to be accurate numbers for them. Because if you look at, if you, if you look at what the government wants done.

The government fundamentally, besides defense and transportation, the government needs seven basic things to happen. It doesn't matter which government. So in Win Win Wealth Strategy, I looked at, we looked at 15 different countries and the tax incentives are remarkably similar from country to country in 15 different countries, developed countries.

I really like how you broke it down explaining some of the other countries too. That is, that's a good, good thing you did.

In the book, we have, we have 60 pages of endnotes, charts and tables. And so it was a massive undertaking to do. But I wanted to show that, look, this is not a US Phenomenon, this is a worldwide phenomenon. And so the people understand that, look, the government gets something out of this too. So, okay, let's say you don't want to be a silent partner. You go, okay, well, what does it mean to be an active partner with the government? Well, it means doing those things the government wants done. Well, what does the government want done? Well, it's pretty obvious. First thing that they want done is jobs. Number one thing, they want jobs created. If the government creates a job, it costs them a dollar for at least a dollar for every dollar of benefit they get. But if they can just give a small tax incentive for jobs, then they can, it basically leverages government funds so they don't have to create jobs. They can encourage people like you and me and, and your listeners to create jobs and those jobs. That's why business is always in every country. The number one tax incentive is for business owners. I mean, if you looked at the last few years during the pandemic, you know, if you were a business owner and you work for your home office, you got to deduct your home office. If you were an employee and you worked from your home office, you did not. That should be a clue, right? Why is that? Why are the business owners getting deduction but the employees are not? Well, it's because employees are fundamentally, they all they can produce is one unit of production. They're one employee, they produce one unit of production. But a business owner, I mean, you take a business like Amazon, they're producing thousands, hundreds of thousands of units of production from a single business. So because they created all these jobs, right? So that's why an Amazon gets tax incentives that a, an employee doesn't. Because Amazon creates jobs and employees don't. Okay, so that would be number one. Number two is.

Technology. So that relates to, you know, that relates to the jobs, right? Is big businesses. Businesses create technology all over the world. In fact, we're probably the least of the countries in incentivizing technology. The US Incentivizes technology not nearly as much as places like Singapore, South Africa, France, a lot of other countries. Much better incentives, tax incentives for technology.

But that is something that, you know. So you want it, you want, you want an electric car. You're not going to get that from the government. I'm sorry. Okay. And despite what certain people have said in the administration, the vaccines for Covid did not come from the government. They came from private technology. They came from private companies who had been working on that technology for 40 years. Okay. MRNA technology is not technology. It was discovered three years ago, it was discovered 40 years ago. And they've been working on it, testing, etc. For 40 years. So this is. And they receive tax benefits for doing that. Okay. As an incentive because otherwise they could never afford to do it. So then, then you go, okay, but what else do we have? Well, the government wants housing, right? They want housing, so they incentivize housing. Nobody. I've never met anybody, Tim, who want. Whose goal in life was to live in government housing. That's not people's goal. They may say they want the government to contribute to their housing, but they don't want to live in government housing. It's not good stuff. We've seen it, We've seen the projects. They're not, they're not good place to be. You don't want to go there during the daytime, let alone at night. They're not safe. They're not. They smell bad, they're not well managed. Nothing is good about government housing.

Then you have, okay, what else does the government want? Well, they need to create energy. So there are energy incentives, both renewable energy and fossil fuel energy. They want to create food, they need food to be produced. So there are agricultural incentives there. Those, those five are all business related. Those are all investor related. Those are require very high activity. There's two others though, that nobody. It's funny. People always complain about the five that they don't do. And they never complain about the two that they do. And yet those two are not nearly as valuable to the government as the five that they don't do. And those are insurance, which the government does want you to be protected, and retirement. The government actually makes no money by encouraging retirement. They simply get.

Hopefully have some retirement savings so they don't have to come and bail them out. But those, if you think about it, life insurance. So retirement savings is very much about you. It's very selfish. It's very much about Your money, what do you get? What you find is, is that. And what we discovered, win, win. Walt strategy is that the more generous you are, the less tax you pay. So the more housing you build for other people, the better the tax benefit we have. You know, we get a deduction for our home mortgage, interest on our own house. Right. But it's limited. We deduction for taxes, but they're limited. If you go buy housing, do housing for other people, even whether it's long term rental or short term rental, those deductions are unlimited, virtually unlimited. So you know what all the government's saying is do things for other people, do things for society as a whole. We, the government wins because guess what, the government's going to collect the revenue. They're going to get a portion of that revenue down the road as you succeed and you, you start making money in your business. And so they're going to get a portion of the revenue, they're going to get a portion of the revenue from your employees. So the government actually makes a lot of money on tax incentives. Don't, don't ever think that the government is giving something away. They are an investor. They're just, you know, you can have them be a silent investor. Which is the best kind of investor, right? Is one who's a silent investor. They're always the best kind of investors. The active investor is not so much fun, but side investors, they're great. Right? You just follow the kind of the, the agreement that you have, which is called the Internal Revenue Code. You follow that agreement, that's that, that's the agreement. And as long as you follow that agreement, that won't bother you. They won't. If they audit you, they're just, I mean look, if, if you had a deal with somebody else, they'd come audit you. Why shouldn't the government audit you? I don't think there's any, any problem with that. It's as long as they're doing, as long as they're following the rules, which they don't always, but as long as they're following the rules and they're not heavy handed, then it's fine being audited. I've handled many, many audits over 40 plus year career and never found, rarely found the auditors to be difficult. So you know, they're just, they're doing their job and they're just making sure that the contract is followed and that's all they're doing. So you kind of look at it like a partnership and I know I've gone Way, way beyond what you were expecting here.

No, no, this is good stuff.

If you, if you go to this point where you just. We've got to get in our heads that we're partners with the government. Start there and then you go, okay, do I have a choice of what kind of partner to be? And yes, you do. Silent or active? Okay, if I'm active, what does that mean? And how do I do that? Well, that's what we go into. And when the Win Win wealth strategy, literally there are, for example, you start a business. I go through an example in the Win Win wealth strategy, chapter two, where I show that the tax benefits for starting a business are greater than the cost of starting the business. The government literally will pay you to start a business in your home. Literally will pay you start business in your home. I look at, under the energy section, I look at right now, we've got these big solar tax credits and solar tax benefits. The government will pay for 2/3 of that. And they only expect to get your tax rate back, which is probably a third. So they're going to put in 2/3, but they're only going to take back one third. That's a really good investor. I want those kinds of investors. They put in two thirds of the money, only get one third of the profits. That's a good deal. And that's basically what happens with the solar energy. So there are some amazing opportunities that. These are things that go. I mean, the solar stuff that came in. Don't be thinking this is a Republican or conservative mechanism. First of all, tax incentives started in earnest with John F. Kennedy in 1961. And the biggest tax incentives we've had recently are from Mr. Joe Biden. President Joe Biden, who The incentives for the electric vehicles, the incentives for the solar energy, wind energy, hydroelectric energy, even nuclear energy, those are all Biden. Okay, this is in the last few months. So I want people to get out of this idea that the rich are trying to cheat, not pay tax. The rich don't have to cheat. The tax law is set up, frankly, for rich people to get richer. It really, that's why I wrote that book with Robert Kiyosaki called why the Rich Get Richer. Okay, well, everything's set up that way. Just realize that. But just also realize that under the Constitution of the United States, we have an equal protection clause, which means you can't do something for one person that another person can't also get. So just because you're not big doesn't mean you get the same benefits which would Take us to short term rentals.

Well, I'm really excited to get in the short term rentals and just real estate a little more in general. But first, I got to say I love the way that you explain everything, Tom, because it makes it just so much easier to understand something that's so complicated. And I realized a long time ago, luckily, that if I have $1000 of potential write offs, for example, and I just neglect to write those off or I wasn't aware of some legal way that I could write those off, and my tax rate happened to be 40%, that's kind of just like me giving away $400. Right. That I'm not going to get back. So I like to think of it like that sometimes.

Let me give you another thought. If.

How big of a sale is big enough for you to go buy, Want to go shopping at a, at a store? How big a sale do you need?

I guess depends on what I'm buying, right?

10%, 20%, 30% or 30% gets you interested. What if you got a pretty good. What if you can get a 40% government discount on everything you bought?

So I'm, I'm sitting here in my studio and the government paid for 40% of the studio. Okay, well, is it. It's a pretty nice studio. It's pretty expensive. But guess what? It's a lot less expensive when the government's paying for 40% of it.

Totally.

The government's happy because the government's making a ton of money off me. They put in, they put in an investment upfront and they're getting a huge return on their investment. So one way or the other. So it's, you know, it's good for the government, it's good for us. Everybody wins.

Yeah. Another. Another great way to look at it. Well, we're going to get into real estate, but before we do, I know for a lot of people out there that taxes, first of all, they're very complicated. And depending on who your advisor is or your cpa, a lot of times we get pushback. Right when we say, oh, I want to do this, what would you say for those people out there that are getting that sort of advice? There may be discouraged from taking advantage of legal tax. Tax loops, I guess you can call them.

Rule number one is you don't want an advisor who's afraid of the irs. That would be rule number one. That is, I mean, seriously.

I've worked with a really, a lot of really nice IRS agents. Not one of them was top of their class in School. Okay? And that's not a, it's not a criticism. It's just that if you go to school and you. I mean, like, I went to University of Utah then on my undergraduate degree and then went to the University of Texas. I'm not going to graduate from the University of Texas and go to work for the irs. I'm going to graduate from the University of Texas. I went and worked for Ernst and Young, okay? That's what you do. The salary is twice as much, the, the learning's twice as much. And you're not part of a government union, which I think would be a fate worse than death myself. But so my point is, is that you want to make sure that you're, you know.

You want to have. Excuse me, you want to have LeBron James on your team. You don't want to have some, some kid grade schooler on your, on your basketball team. You want to have LeBron James on your team. So the, you know, the reality is, is that the better your cpa, A, the less likely you're going to be audited. B, the less likely that an audit's going to cost you a significant amount of tax. And see, the more likelihood you're going to pay a lot less tax than you would if you didn't. So, you know, we, we have a network of CPA firms around the country. We have about 500 accountants.

That's awesome.

CPA firms. 60 CPA firms. And, you know, I get to train them. And not one of them is afraid of the irs. Not one of them is going to back down. Here's the thing, though. I find that a lot of people say, well, you know, that sounds like you're really aggressive. And I'm going, well, it depends on how you define the word aggressive versus the word conservative. So to me, conservative is doing something within your knowledge base. So, for example, if you were to get into a race car, okay, if I get into a race car.

I can't go 200 miles an hour and be conservative. That would be outside of my abilities. Okay? But somebody, you know in the Brickyard 400, they absolutely. They go 200 miles an hour all day long just in practice, okay? And then they've got all these cars right next to them. I'm going, okay, so sounds like aggressive, right? No, it's not aggressive to them. They are simply doing something that they're completely comfortable doing. I am not comfortable doing that. On the other hand, I look at the tax law, I'm going, okay, I've spent 40 plus years I just realized that my first CPA job was in 1979. So that was my first job in college when I was working for a CPA firm. That, last I checked, that's 43 years ago. And I've just studied the tax law. So, you know, once you understand the tax law is not that difficult. It's, it's a lot of complexity and the details, but the fundamentals are really simple. I mean, that's what I wrote in Tax Free. Well, that's what I wrote.

A different part of the tax law in Win Win wealth is that the tax law is really fundamentally just a series of incentives. So all you have to do is find out what those incentives are. Well, if you have an advisor that is not, doesn't understand much of the tax law, they should not go outside of their tiny understanding of the tax law. Okay. And if all you want is somebody with a tiny understanding of the tax law so they can file your tax return, great, that's what you should be doing. But if you want to reduce your taxes and you want to take advantage of all of these thousands of incentives, then maybe you want to have somebody who actually understands a lot of the tax law. I think our.

Network CPAs are the most conservative CPAs in the world because we never go outside what we know. We just know more and you just know more. Yeah, that's the key, right? And it's like, okay, you do short term rentals. I mean, we've all been in bad short term rentals. We've all been in good short term rentals. I was in a short term rental last week, an Airbnb up at Page, Arizona. Lake Powell. Lake Powell.

This woman knew what she was doing. Trista knew what she was doing. I mean, she had designed that house, she'd renovated that house to be really an almost an ideal Airbnb. And it's just a bedroom, two bath house. There's nothing, nothing spectacular. It was in a little residential neighborhood in a teeny tiny town in Northern Arizona. And it was delightful for my family to come up and spend the time together because she had designed it so she knew what she was doing. I've been in others that.

You know, they bought a house and they just put it on the market and said, we're gonna rent this. And they didn't do anything spectacular. And maybe had a few Pop Tarts for you. But, you know, there was, I mean, we had, I mean, like, we had a fireplace. We had, we had, we had, we had bench swings, we had, we had logs. We Had a whole fire starting kit available to us. We had hot dog sticks. I mean, we had a family outing one night that I would never have thought to do. But because Trista had set it up that way, we did it. Well, there's a professional in the short term rental profession. There are others that are not so professional. So, you know, all professions are similar in that they can be very complex. So they can be very simple depending on how much you know.

Well, Glad, yeah, great explanation. Glad, glad you had a good stay at the Airbnb. You know, that's what keeps it growing. Airbnb, some of their recent stats, they've had over a billion check ins, just Airbnb. And on, on this show we talk about short term rentals, not just on Airbnb, but on HomeAway and VRBO and direct bookings and all that. And I love Airbnbs. It's just one niche of real estate and there's lots of different ways to do real estate. But as you mentioned, real estate can have a lot of good tax incentives because we're incentivized by the government. So wondering if you can give us just a brief difference between what a real estate professional is and why that might be difficult for a lot of people to qualify for if they have another full time job and then material participation as it relates to short term rentals.

So the big tax benefit for real estate is depreciation, right? You get to take a deduction.

For a portion of the property, whether it wears out or not, and depreciation on top of that. The bank, they may put in 80% of the money, but they don't get any of the tax benefit. You get 100% of the tax benefit even though you may only put in 20% of the money on top of that. If you do it right, you'll end up putting in 10% of the money. The government will put in 10% money of the money and the bank will put in 80% of the money. So you, you, if you actually set this up right, you can end up only putting in 10% because the government will put in the other 10%.

And that's because of depreciation. So if I have, for example, If I had $100,000 house property this year, my depreciation on that could be as much as 25 to $30,000. Even though, so let's just run a couple of numbers here. Let's say it's 30,000. That would be probably the highest it's going to be. And that's the first Year depreciation. Okay? So I, let's say I'm in a.

Let'S say I'm in a 33% tax bracket, okay? Because I can do this math, right, so $30,000, so you put $20,000 down. The government, the, the bank puts in $80,000, right? You can do that all day long. Now you get a $30,000 deduction, but you get, you're in a 33% tax bracket, which means that that $30,000 deduction is worth $10,000 to you. And you can get that $10,000 today. You don't have to wait until you fire your tax return. You're just not going to pay an estimated payments or, or withholding so you can get the money back immediately. So the government puts in $10,000, bank puts in $80,000 and you put in $10,000 now on $10,000 investment. All of a sudden, by the way, if you go from a $20,000 down to a $10,000 down, your return on investment just doubled. Right? Right. So if you had a 20% return on investment, which is not that hard in short term rental with, with a mortgage, right, you go in and you get, you have a 20% all of a sudden now it's 40% because the government put in half that money. So you, that's the, the quickest way to increase your, your return is to follow the tax law and, and follow tax, and, and take the tax benefits of depreciation, particularly leveraged depreciation leverage, meaning the bank put in 80% of the money. 70 to 80% of the money. All right, so let's, we'll start right there. That is the general rule. Now we have two specific rules. So in tax law, you always start, you always want to start big and broad and then you start narrowing it down. Okay, so what's the next broadest rule? Well, the next broadest rule is we need to be active in that, in.

That.

Business active versus passive in order to get, be able to offset our other income with those depreciation losses. Now, there are some restrictions I'll get to, so don't let me forget the business loss limitation rules. But generally speaking, you can offset any business income with any business loss. That's the general rule. As long as they're both active or they're both passive. Okay, so either an active losses can offset any kind of income. Passive losses can only offset passive income. Well, the first rule you have to meet is you have to meet this material participation test. So that means that you spend on general the general rule, now, there's seven different rules. The general rule is you spend more than 500 hours a year in your business. Okay? Now that business, if it's. You can have multiple properties and that could be a single business, right? I mean, you could have, frankly, multiple businesses that feed into each other and they can be a single. It's called an activity for tax purposes. So you need that 500 hours if.

And that can be combined, right? So that's.

It can be combined as long as you treat it as it. It really is a single business. So same owners, same, same management, you know, same. Basically, it's just a horizontal, horizontally integrated business. Gotcha. Okay. Could be a vertically integrated, but in this case, it would be horizontally integrated if you had like 10 Airbnb or 10 VRBO properties.

If you're a long term rental, you have another test to meet. And that test is, is that you have to spend more time in real estate than you do all your other jobs combined. And it has to be at least seven or 50 hours a year. Short term rentals do not have that requirement because short term rentals are not considered rental real estate. They're really more considered a service. They're more like a hotel. And so they're treated like a hotel. So they're treated like a business.

A regular business, rather than being treated like real estate. Now, interestingly enough, there's some interesting court cases on this, Tim, that you're probably aware of.

That I think the courts actually did not address the proper issue. And the question is, if you do short term rentals and you also do long term rentals, do the short term rentals.

Do those hours count towards your 7 or 50 hours for your long term rentals? And the answer, I believe, is without a question. Yes. Okay. And the reason is, is because it's still real estate. It may not be rental real estate, but it's still real estate. And so I do believe that it would still be in one of the seven the, the categories of the code, section 469C7 that actually walks through. You know, here's what real estate. Here's what a real estate profession is. Well, certainly what you do on short term rentals falls into those categories. All right, Management being the number one. Right. You're managing real estate. And so you should, you should. Now, you can't combine. Want to be really clear, you cannot combine your short term rentals with your long term rentals. For purposes of that 500 hour rule, your short term rentals need their own 500 hours your long term rentals need their own 500 hours. But you could have 500 hours in long term rentals, 500 hours in short term rentals, and, and qualify as a real estate professional if you don't have another job because combined number of hours is a thousand.

So remember, don't have another job though. That's another job.

If you have another job, you got to work less than 1000 hours in it. Okay. Because you got to work more in your real estate than you do the other job. I will tell you that the courts haven't been really clear on this, but I think the courts never address this question and I don't see how. I mean, I think actually even the attorney, the court case I have in mind, I don't think the attorney asked the right question. So, you know, again, it's how good are your professionals? Right, but, but the general rule for short term rentals is 500 hours. Now you could actually do less than that and still qualify as long as you don't have an employee who does more than that. So if you do all the work and you don't have anybody else, contractor, employee, et cetera.

It could be as little as 100 hours. Right. So, but you, but that's pretty hard because you, I mean, you don't want to be doing your own housekeeping, you don't want to be doing your own toilet, you don't want to be doing that stuff. So I, I would kind of, as a general rule, sit down with your cpa, but I was a general rule, I'd go with the 500 hours.

Now could this work for someone though, Tom, on the, on the hundred hour qualification, let's say someone bought a nice vacation rental right now, you know, in what are we in a couple months before the end of the year. And they spent time designing it, they spent time furnishing it, and it wasn't quite operating yet and they exceeded that hundred hours.

But they were doing all the work. Yeah, absolutely. They would qualify because in that first, when you're first starting out, you probably are doing all the work, right? You might have, you're going to hire contractors, of course, to do some of it, handyman, et cetera. But the chances are you're going to do more work than any of them are going to do. You can't have somebody else who does more work than you do is kind of the general rule there. But yeah, I think, I think that's a good example, Tim, where some of these other rules might benefit you. But then again, again, like I said, that's why you sit down with a good CPA who understands short term rentals. I'll tell you, short term rentals is not something that very many people understand. Unfortunately, we've had, right in our network discussions, we have been back and forth many times and I have had to walk them through the regulations to show them, here's how this works. And we've walked through the court cases. Here's how this works because we do have a lot of clients who do short term rentals. I have a client who's, he's got a big business himself and his, his, his spouse does short term rentals and she's very good at it. She's clearly very good at it. And they're always rented out and they make money on it and it's, and she loves doing it. So, you know, it's interesting. We went from bed and breakfasts to vrbo and now we have Airbnb. So it's an, it's an interesting dynamic. I, I do want to complain about something though, Tim. I actually was looking at buying a house in Page, Arizona and I, I lost because I couldn't compete with the VRBO price. So that is, that's an interesting, it's an interesting dynamic in the real estate world. But it's the value to.

Short a business owner is different than the value to a homeowner and it's certainly changed the way homes are valued. So it's, I, it's not really a complaint. I'm just teasing. But yeah, but it's seriously, the first question, the first question that the realtor asked me was, are you a vrbo? Are you buying this for VRBO for yourself? And as soon as I said myself, they lost all interest.

Yeah, yeah. Because people will pay more trying to chase those higher returns. And you know, that's one of the things we talk about on this channel too, when, when we talk about short term rentals. Well, a lot of people just use the word Airbnb to describe short term rentals, but the reality is a short term rental could be anything but, you know, from a tree house to a 20 bedroom mansion overlooking the ocean. But when it comes to the irs, Tom, they have their own definition of what constitutes a short term rental.

Right.

It's from what I understand, seven days. Right. So could you tell us or help us explain that just a little bit.

More how they, it's. Your average rental is seven days or less. That that's all it is. So if you rent it out five times during the year, and your average rental, and you total, and your total rental time was 35 days, you're a short term rental. Okay. If it's 36 days, you're not a short term rental. Yeah. Because your average is more than seven days.

Yeah.

Now, there are other rules that you have to consider. If you rent, if you rent out your own, your personal residence, you have, in order to get the depreciation deductions and all the tax benefits, you have to, you can only use it 10% of the time of the time it's rented. So if you rent it for 300 days, you can only use it for 30 days. You have to use it for Basically less than 30. Less than 30 days. If you use it for 32 days, then you can offset the income, but you cannot create a loss. Okay, gotcha. Now we have one other rule which I'm sure you've got. You, you and your, your listeners are all familiar with, which we fondly call the Augusta Rule, which is basically the two, the 14 day rental rule, which comes about from the Masters tournament in Augusta, Georgia, the golf tournament, and what that rule says, and it's codified, so it's in the Internal Revenue Code. If you rent your personal residence out for less than 15 days, so that would be 14 days or less, then you don't get any extra deductions, but you don't have to pick up any income.

So if you rent it for a thousand dollars a day for 14 days, that's $14,000 of non taxable income, tax free income. It's pretty sweet. So particularly like, I mean, for example, I'm building a property up in Park City, Utah. Well, Sundance is going to be up there, so I could live in it for literally the whole year or more than 10%. And then if I rent it out for less than 15 days, now that's total, that's cumulative, Right. If I rent it out for less than 15 days, I don't have to pay tax on any of that income. So that's a pretty sweet rule. Especially if, I mean, I know people who Airbnb, they just leave. They just go to a hotel locally because the Airbnb, they can rent for more. You know, they just take a vacation. They literally go on vacation when they rent it out. And you know, so, you know, people do all sorts of things. Just know that those are really the three, really the primary rules, the 14 day rule, the 10% rule, and then of course, the material participation rule.

Yeah, well, it's a really exciting space, Tom. I want to Be considering your time. I know you are a busy, busy man. I think it's really exciting the opportunity we have with short term rentals and it really can fit into so many real estate investors portfolio in one way or another. Whether it's personal or they're doing it to try to offset some income taxes. So really want to thank you for being on is there how can people find you?

So best way is go to our website wealthability.com and I'm going to give you two options here. If you are concerned that your CPA is not up to quality standards and you understand that your goal is to reduce your taxes then go to wealthability.com and click on the button that says schedule call and we'll help. We will find we will match you up not only with the right CPA but a CPA that uses our system to reduce taxes. Our system is been very successful over the years and it's consistent. It's the same system everybody uses. We actually use software to make sure that it gets done properly. We have good quality control. So even though we have 60 different firms, they're all following the same system which is very, very important. If you have a CPA that you go I like my cpa. I think they would learn this stuff but they just don't know it. Send your CPA, have your CPA go to wealthability.com have them click on schedule a call and get them into our network. We are building this network. We have people coming in literally every week. CPA firms, our, our goal, our long term goal is 10,000 CPA firms around the world. So this is not a small endeavor. We're out to completely revolutionize a profession. So I love my profession. I just think they're about 30 years behind the times. Mm.

Well, thanks so much Tom.

There's really, I mean I feel like we could talk for hours because there's, there's so much. So I hope we get a chance to have you back on sometime in the future. And also knowing that the rules are always changing too. So it's something we got to stay on top of. Want to thank you again so much for being on and we hope to talk with you again soon.

Absolutely. Thanks Tim.

Want to get on the fast track to financial freedom through short term rentals. Well, it all starts with the properties you acquire. But you want to make sure that you acquire the right properties. I want to give you my ebook.

That will show you how to do just that.

Don't there is no charge. It's my gift to you for being one of our subscribers. Just go to restmethods.com that's R E S T methods dot com.