Long Term Financial Planning w/ Joseph Clark

Long Term Financial Planning w/ Joseph Clark


Long term financial planning is essential for helping individuals and families reach their financial goals, and can help one plan for retirement, save for college tuition, or have a safety net in case of an emergency. But how many of you actually do it? This is one of the many life skills they left out of the school curriculum! Join me and Joseph Clark, CFP as we discuss key strategies to plan for your future. Joseph has advised thousands on topics including family financial planning, legacy planning, trusts, retirement planning, tax planning and charitable giving.

Some key topics discussed are:

  • Collaboration Between Client, Accountant & Financial Planner to Optimize Savings
  • Roth IRA Rollovers & Conversions
  • Inheritance of IRA’s
  • Capital Gains Planning
  • Passing Retirement Accounts to Heirs
  • 401K’s vs IRA’s

About Joe:

Joseph A. Clark, CFP, is a Certified Financial Planner and has been in the financial services industry for more than 35 years. He is the Managing Partner of The Financial Enhancement Group, LLC, an asset management and financial planning firm based in central Indiana. The firm currently manages more than $650 million serving families in 31 states. Joe is also a former Adjunct Assistant Professor at Purdue University, having taught the Capstone course for the Financial Counseling and Planning program for 7 years. He is a Charter Member of Ed Slott’s Master Elite IRA Advisor Group and has appeared on various national and local media outlets. For the past 20 years, Joe has been the host of a weekly radio program “Consider This Program” and writes a weekly column for The Herald Bulletin. Learn more at https://yourlifeafterwork.com/


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welcome everybody. We are joined here by Joe Clark. He is a certified financial player, and we’re going to answer your questions and we’re going to Riff and talk about

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Mark Perlberg: planning financial planning tax strategies of session, planning, and all that great, so that he helps his clients out. Joe, can you introduce yourself in 60 s or less?

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Joe Clark: Sure, My name is Joe Clark. You’ll find me if you go online under Big Joe more than you will, Joe Clark. I’ve spent a lot of my life in hosting a a radio show for 25 years, being a columnist best-selling U.S.A. Author.

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Joe Clark: I really don’t care any about that. Then on Cnbc. And Fox business over a 100 times, and I don’t care about that.

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Joe Clark: What I care about is taking care of families that don’t want to worry about their money, so I get a lead. A team of 38 people we collaborate, and that’s that’s kind of our forte primarily with Cpas marks a friend of mine. That’s why I agreed to do this conference

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Joe Clark: and and and be out there. But we help people understand their money, and one of the biggest parts of that is understanding how their tax return works. I call it a stowaway

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Joe Clark: on your financial journey, except the Irs is unknown. Stowaway people just choose to ignore them until they are too late. I want to bring that stowaway or the Irs to the front and center. Help you figure out ways to deal with it as a real estate investor, or wherever you may happen to be in your financial journey.

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Mark Perlberg: Great.

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Mark Perlberg: and to to those of you guys listening. Live. Put your questions into the chat.

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Mark Perlberg: And what I want you. What I want to know now to get started is.

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Mark Perlberg: can you tell? Let’s start with a basic question here. What do you think is the biggest mistake

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Mark Perlberg: people make when it comes to planning for their futures and understanding their taxes and their finances?

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Joe Clark: Well, I I don’t think most of us understand how to read or return.

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Joe Clark: There’s a you know, for for those of us that are not excel lovers and spreadsheet levers you. You have a lot of anxiety when you see that return with a lot of different lines, and what you have to remember

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Joe Clark: is it? It’s like a symphony, each one of those lines

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Joe Clark: that tells a story that then winds up being a important for various lines. On your return you have 2 2 lines that are very critical that you need to. You need to be aware of. One is your adjusted gross income.

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Joe Clark: It tells the rules. and this is really technical. Anything that happens above your agi is called above line. Anything that happens below that is called below one. I know very technical.

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Joe Clark: Just as a general rule, things that happen above line are more important than things that happen below line. But you really need to understand the difference in planning

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Joe Clark: from what’s called an effective return, which mark’s gonna put on your tax stuff for you and tell you your effective return, which is your average rate, that you pay for every dollar that you are.

00:09:05.420 –> 00:09:14.330
Joe Clark: From a planning perspective. You need to understand your marginal rate. The marginal rate is the rate you pay on the last dollar that you earn.

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Joe Clark: So when you look at your tax return you really want to understand the bottom of page one right now. The Irs changes it all the time, but on the 2,022 return

00:09:23.860 –> 00:09:34.540
Joe Clark: it’s your taxable income. and that’s going to tell you what actually makes it to the marginal rate. So you want to think about your tax return as a series of stare steps.

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Joe Clark: So it starts at 10 currently it goes to 12, and then 22, and then higher from there is based on your income going high. The key thing, mark that people seem to miss

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Joe Clark: is that we all get taxed at that 10% bracket

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you pay on the Federal tax. Return

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Joe Clark: your first dollar after your deductions will be taxed at that 10% level. Whether You’re more about the bill, Gates, or or Mark, or Joe. and then you take those steps up.

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Joe Clark: And so what we we help people understand

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Joe Clark: entering into retirement or entrepreneurs is to search for variability of income.

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Joe Clark: and that’s where most of those opportunities can come from that you have to understand the difference between tax planning

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Joe Clark: and tax preparation. You need a great Cpa, a good firm that prepares your taxes, that virtually tells the Irs your story.

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Joe Clark: The tax planning is what your Cfp. Or your Cpa, if they’re in that line of work, helps you do before the end of the year. How do we prepare the story? So that when Mark does your return

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Joe Clark: we tell the Irs the the most efficient story, the truth. But the most efficient story is possible, so that you can report and pay your taxes accordingly.

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Mark Perlberg: Yeah. So. And

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Mark Perlberg: what we have here is in our profession there. The majority of Cpas.

00:11:03.520 –> 00:11:10.040
Mark Perlberg: our focus on compliance, related tasks and reporting what happened, and that can be fine

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Mark Perlberg: for if that’s all the If there are no tax planning opportunities, perhaps

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Mark Perlberg: in certain circumstances, right? So let’s say you’re maybe you’re you’re locked into a W 2, or maybe you have a certified financial plan or managing your finances, and you need someone to plug in your W 2. There may be instances

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Mark Perlberg: where you know, and you can’t afford to invest or do financial planning. There might be some circumstances where

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Mark Perlberg: go into H. Andr. Block to plug in your W. Twos in April might be what you need, but as you

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Mark Perlberg: you know what, in order to really plan for your future. You’re going to need someone to to advise you on your taxes, and

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Mark Perlberg: when when you know we specialize in tax planning, and we always serve clients if we can reduce our taxes. But we’re very different from a lot of Cpa. Practices. A lot of Cpa. Practices are more focused on telling you what you owe in taxes, answering your questions and getting the returns out on time is an entire entirely different bottom business model in our profession. The professional organizations that that we are part of most of them that that certify us the current credential us.

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Mark Perlberg: Don’t, teach us how to tax plan. so you have to be extraordinary and go above and beyond credentials. If you are a Cpa, or you need someone like a certified financial plan or a Cfa, someone else on in your quarry. If you’re going to think about taxes and your long term tax savings.

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Joe Clark: Yeah, I I think it’s it’s interesting. I tell people that I got my Mba.

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Joe Clark: which I don’t have.

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Joe Clark: But I tell people I got it, being a partner of a Cpa firm for 12 years. and what happened is as a Cfp. I learned to mark what I thought. Cpas knew that they clearly didn’t.

00:13:02.300 –> 00:13:10.990
Joe Clark: and I learned as a Cfp. What I thought to be true that clearly wasn’t. And I think that’s where that collaboration really becomes critical.

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Joe Clark: You You have to collaborate in my mind with professionals that have their expertise in certain areas. but you also have to collaborate with strategy, and there is a definite tax planning strategy

00:13:27.150 –> 00:13:35.180
Joe Clark: and a definite tax reporting strategy. And those strategies need the meal they need to work in concert.

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Joe Clark: So our our cup of T, our our specialty, if you will.

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Joe Clark: is that the industry is full of very unique

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Joe Clark: characters with special skills. They do certain things. and when when Mark retires or Joe retires, you know years from now

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Joe Clark: we don’t want you to have to start your financial journey over.

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Joe Clark: And so at the Financial Enhancement group. We’re very dedicated to a process. So whether it’s Joe or Grant or Aaron, or one of my other advisors.

00:14:06.870 –> 00:14:17.700
Joe Clark: You’re getting the same story in the same process. We’re going to call you the first of November every year to see what your income has been this year. And again, we’re looking for income variability.

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Joe Clark: and that’s what Mark does in his practice. It’s really unique.

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Joe Clark: you know for those of you that are there most Cpas, just because they have those credentials. Don’t necessarily engage in tax planning

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Joe Clark: the challenge that I have as a certified financial planner.

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Joe Clark: Is there a lot of people in my industry, the majority of them that ignore the tax return. And that’s because they focus on that what I call a one hip. Wonder

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Joe Clark: that they they let Mark tell the story. You get a deal with the consequence, and I want to help you with your financial journey to make sure that you’re paying the least amount of tax over your financial journey. Not necessarily in one individual year. That means you have to create strategies and be very diligent

00:15:03.800 –> 00:15:12.180
Joe Clark: in your planning. That’s done each year. Mark can help you with that. You’re not going to get that at at quick books, or into it, or H. Andr Block. That’s not what they do.

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Joe Clark: But this is more than just plugging in numbers, in my opinion. And what the 1,100 plus families we take care of would tell you is essential, and made their financial journeys better.

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Mark Perlberg: Yes, and so you know you. It. It’s amazing. There’s a lot of opportunities if you collaborate and you can put everyone together if you have a bit, you know, because the Cpa.

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Mark Perlberg: Oftentimes, especially if you’re offering additional services like Cfo and bookkeeping. And if you’re meeting with your Cpa regularly, the Cpa is going to help to understand and connect you with other subject matter experts when it comes to asset protection and asset protection, attorneys.

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Mark Perlberg: or when, if you have a portfolio, and this is something that we’re encouraging people to do. In fact, I’m sending a newsletter out to our clients in the next, probably this or next week. If you have capital gains in your portfolio we want to know in advance.

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Mark Perlberg: so we can look at the implications of that and other actions we can do with your real estate and all the other things.

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Mark Perlberg: In response to that, we can take advantage of of losses, and we can also mitigate the games. So there’s we, when you can have

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Mark Perlberg: people align together when we’re looking at our planning situation and opportunities. That’s where you’re going to really have. See a lot of benefit in building. Well, and I would just encourage you to understand what collaboration really meets. Collaboration

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Joe Clark: does not necessarily mean that we agree on everything.

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Mark Perlberg: but it means. We discuss everything and create that cohesive strategy.

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Joe Clark: Right? So I will. I will commonly watch people at the local rotary group or one of the other organizations I’m. Involved in. Say that? Well, my adviser works with this Cpa or that Cpa. Well, what that means is, they have lunch with them every Tuesday at Rotary.

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Joe Clark: right there. There is a difference between me sitting down with Mark looking at your tax return prior to the end of the year. Remember December 30 first. It ends right, sitting down in a very proactive fashion.

00:17:18.240 –> 00:17:28.420
Joe Clark: where we collaborate in a way to tell that best story. That’s where that tax planning can really occur. And when Mark’s talking about those capital gains or capital losses

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Joe Clark: Again, you really need to understand how that above line issue works to affect your taxable income.

00:17:36.190 –> 00:17:39.620
Joe Clark: There are things in terms of income variability

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Joe Clark: that you need to be very well aware of, and one of those things that I will tell you about are inherited, Ira.

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Joe Clark: Many of you are going to be receiving that. I you know many of your parent, many, many entrepreneurs, do not have large or large, Ira.

00:17:59.010 –> 00:18:04.860
Joe Clark: but your parents likely do. and when they pass you’re going to receive that.

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Joe Clark: And what I have found is most people don’t understand how inherited Ias work First of all, the 10% penalty, taking money out before 59 and a half does not apply.

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Joe Clark: You can take any amount of money that you want out

00:18:20.440 –> 00:18:28.280
Joe Clark: over a 10 year period of time, and then the account has to be emptied unless your parents were over 73 at the time of their passing.

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Joe Clark: and then you have to actually take it out over their life expectancy. You have to take out some each year.

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Joe Clark: But let’s say you’re doing tax planning with Mark, and you’ve sold a property. And suddenly you’ve got a big capital gain this year.

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Joe Clark: right? You wouldn’t want to take any money out of that inherited Ira that you didn’t have to take.

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Joe Clark: But now, perhaps you have another year, where, for some reason, because of of a depreciation, or some reason or another something that’s changed in the market. You have a loss.

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Joe Clark: Well, Mark needs to know that before the end of the year, and you would accelerate the amount of money that you got out of the Ira, because you would be in a lower marginal bracket that year.

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Joe Clark: And mark, if there’s anything that I have seen that is jeopardized people’s financial future over the years. It’s not maximizing those lower marginal rates when they have income variability.

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Joe Clark: And this is an important thing for you to be able to explain to your parents. It is nothing in common. I live in Central Indiana. We take care of people, in 31 states and licensed, and all 50.

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Joe Clark: But in Central Indiana it is nothing in common for somebody who’s got their house paid for

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Joe Clark: to live on 25 to $40,000 a year of income.

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Joe Clark: right? But they may have a 1 million dollar, 401 or ira

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Joe Clark: that you are going to inherit.

00:19:50.500 –> 00:20:00.540
Joe Clark: Right. You need to help your parents understand how these tax returns work because it’s going to be in your best interest for them to actually recognize.

00:20:00.590 –> 00:20:12.110
Joe Clark: Get that money out from the Ira what I call this still away inside of your your, your, your financial journey. Get your parents to recognize that at 10 and 12% tax brackets.

00:20:12.190 –> 00:20:16.180
Joe Clark: because you’re not going to be at that bracket every year. If you’re doing things right.

00:20:16.270 –> 00:20:27.910
Joe Clark: they’re likely they at a lower bracket. Get them to take out money, recognize it at that rate, even if you have to give them the money to pay the taxes. It is in your best interest Long term.

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Mark Perlberg: That’s really interesting, and you know I’ve never had the opportunity to talk to our clients about this. and and there, you know, we do have a large population of obviously baby boomers

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Mark Perlberg: that there’s a lot of plan to do here, and you know the great thing about the Iras is you can time the recognition of.

00:20:48.170 –> 00:21:04.810
Mark Perlberg: and you can roll them into Roth irres. And then they maintain that Roth Ira status when they inherited right so. And then a lot of senior citizens. They don’t need a lot of money, because you know that your biggest overhead, which is your housing. A lot of them have already paid off the mortgage on their house.

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Joe Clark: Let’s let’s hit that real quick, because a lot of people don’t know that rule.

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Joe Clark: So this is one of the reasons where I and and I take care of a lot of engineers. They’re very, very bright people, over 250 of them in my practice.

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Joe Clark: and

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Joe Clark: what happens is you don’t necessarily need a Cfa, or Cfp or Cpa. I know those are a lot of credentials and acronym. So you you don’t necessarily need them every day of your life.

00:21:33.180 –> 00:21:36.430
Joe Clark: But the 2,007 Tax Manual came out.

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Joe Clark: It’s about 2,000 pages. It’s like this, and yes, that’s 15 years ago.

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Joe Clark: and in that 2,007 manual the mark would have gotten if he was already in practice, and and I got in my collaborating Cpa partners got none of us read at all.

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Joe Clark: We’re all assigned a portion of it. We know our parts, but if we’re not collaborating mark may know one part, and I may know another. You’ve got to have that that cohesion where you’re working together. But in there it’s specifically said the same rule that was stated in 1,997,

00:22:08.740 –> 00:22:20.140
Joe Clark: and that was that you could not do a roth conversion in excess of a 100 $1,000 of your adjusted gross income, and that included

00:22:20.190 –> 00:22:33.140
Joe Clark: the amount of money that you did for the conversion. Now, what happened in the middle of the year in an email that I got Mark got you had access to, but probably didn’t read

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Joe Clark: the I. The Irs raised their hand

00:22:36.470 –> 00:22:50.740
Joe Clark: and said, starting in 2,010. So that’s 3 years further starting in 2,010, you’re going to be able to do Roth conversions, regardless of age and regardless of agi

00:22:51.930 –> 00:22:57.300
Joe Clark: right? So the oldest person that I’ve done a Roth conversion for has been 92

00:22:58.170 –> 00:23:04.100
Joe Clark: right there is the and it makes all the sense in the world, all 3 of her beneficiaries.

00:23:04.160 –> 00:23:06.370
Joe Clark: We’re in a much higher tax bracket.

00:23:06.490 –> 00:23:22.260
Joe Clark: She had money in a 403 B. She been a a professor at Purdue University. We took money out of her 403 be put in it. An Ira did a conversion to the Rock Ira up to the maximum at that time of the 15% bracket.

00:23:22.500 –> 00:23:27.700
Joe Clark: It worked out beautifully for her and for her heirs, and it will work for you as well.

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Mark Perlberg: So here’s something that we didn’t realize. People didn’t know. We assume they knew this.

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Mark Perlberg: and it is that the difference between the timing for putting money into doing a roll over and contributing to a tax-ferred account. So you can put your money into the higher iras and 400 one’s after the years, and then apply it to the prior year.

00:23:52.520 –> 00:24:00.930
Mark Perlberg: Right before you file. You can put money into that set by all right. even if the year has ended. I can put money in after December 30 first.

00:24:01.000 –> 00:24:05.250
Mark Perlberg: But if you want to do a Roth Ira roll over

00:24:05.510 –> 00:24:08.930
Mark Perlberg: not as much flexibility. So

00:24:09.180 –> 00:24:28.600
Mark Perlberg: you know what you know. And we did 2 for tax planning with all our clients this year, and we for some of our clients. It’s been amazing with 100%, both appreciation, 10% owner finding that means 10% second home mortgages on short term rentals, a lot of clients. We were able to bring them down to $0 Agis.

00:24:28.690 –> 00:24:46.560
Joe Clark: Yeah. And so that’s and when you have 0 taxable dollars that’s fine. This is where you have to put it in the wrong you. You have to be wise right? So some of you or your spouse may have an Ira or 401,

00:24:46.780 –> 00:24:49.400
Joe Clark: and perhaps you’re not 59 and a half.

00:24:50.170 –> 00:24:56.660
Joe Clark: and somebody tells you. Well, if you take money out of the ira there’s a 10% Federal penalty that’s true.

00:24:56.930 –> 00:25:01.410
Joe Clark: But if your tax rate is 0, because Mark’s got your income to 0,

00:25:01.430 –> 00:25:06.840
Joe Clark: that 10% penalty is effectively a 10% tax bracket signed me up for that.

00:25:07.080 –> 00:25:12.640
Joe Clark: If I can pay the irs today and be done at the 10% bracket or the 12% bracket.

00:25:12.710 –> 00:25:20.780
Joe Clark: I would I would get the money and write them a check for all of the taxes, and convert everything I had to a Roth at that rate any day of the week.

00:25:21.020 –> 00:25:29.940
Joe Clark: But that is something that has to happen by the end of the year. So Mark used a term called Roll over. There’s 3 things that you need to be aware of.

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Joe Clark: When you talk about Roths or Iras, or even sets one is a contribution that’s what you’re eligible to put in this year

00:25:39.110 –> 00:25:49.490
Joe Clark: that actually goes beyond the first of the year in a step account. The account hadn’t been open before the end of the year, actually even a little bit before that.

00:25:49.500 –> 00:25:52.570
Joe Clark: but the contribution can be after January

00:25:52.680 –> 00:26:07.330
Joe Clark: with an Ira or a Roth Ira. The contribution can be all the way up to the date of the filing requirement of April fifteenth. So you can still put money in today for a Roth or an Ira for last year.

00:26:07.430 –> 00:26:15.280
Joe Clark: That’s the contribution. But the conversion has to have occurred before December. 30 first strikes midnight

00:26:15.330 –> 00:26:30.930
Joe Clark: of the year before, so that has to be done. Now, how do you do a conversion? Well, Mark mentioned the word roll over. Rollovers are not something that I would ever encourage your rollovers where you take the money out. You have what we call constructive receipt.

00:26:30.980 –> 00:26:50.980
Joe Clark: and you’ve got 60 days to replace that into an account. Just be very, very careful. The Irs rules, and this is Google be where, If you go online you’re going to read publication 590. It will tell you you could do that once every calendar year. The Irs not a chance. It’s once every 365 days.

00:26:50.980 –> 00:26:58.070
Joe Clark: and don’t miss the 60 day deadline if you do bad things will happen, ie. Full taxation and a 10% penalty

00:26:58.230 –> 00:27:16.260
Joe Clark: like transfer. You can do anytime you want. That’s where you take money from one custodian to another. We move money from Td Ameritrade to Charlie Swap. We move it from fidelity to to another financial institution. Transfer happens without you getting a check in your name or with you touching the money.

00:27:16.580 –> 00:27:32.720
Joe Clark: but you need to remember the 2 C’s. That’s how I teach it, and I apologize if i’m educating. But i’m a I’m. A former professor from Purdue University. I teach this stuff. It’s what I do right. There’s conversion and contribution. The 2 are different. 2 different dates, 2 different amounts.

00:27:32.750 –> 00:27:46.880
Mark Perlberg: So i’m so glad you clarified this, because in our vocabulary and most people, most people will not distinguish between roll over and conversion. And as I’ve made this area right now, because, you know I

00:27:47.060 –> 00:28:08.260
Mark Perlberg: we would, you know we would have said role over. But men’s conversion. And so so this is the thing. When we when we talk about tax planning and and having a game plan here, and then when we meet with our clients in queue, for you know, I, you hear the you’re going to hear all the foundational things in the in in the bigger pockets.

00:28:08.260 –> 00:28:15.280
Mark Perlberg: Blogs that you know cost segregation bonus depreciation. You get all your tax savings, and that’s great, but that’s where most advisors stop.

00:28:15.690 –> 00:28:20.460
Mark Perlberg: They say great. We brought you to a 0 to our tax. Right You get this great refund

00:28:20.540 –> 00:28:30.090
Mark Perlberg: time to celebrate end of story. But you’re missing out on so much additional opportunities. You don’t want to let a low tax bragging

00:28:30.810 –> 00:28:39.130
Mark Perlberg: go to waste. You don’t want to miss out on all these other opportunities. If you have capital gains that the 0 to our long term cap gains rate

00:28:39.360 –> 00:28:50.840
Mark Perlberg: you, why not liquidate some some stock you can, even if you want to hold on to this, that so just buy it back up at a higher basis. What? What what Mark just did was said something.

00:28:50.900 –> 00:29:02.840
Joe Clark: And so this is what’s called the double curse of knowledge. This is why you need to hire. Mark right, the double curse of knowledge is Joe Doesn’t know what Joe Doesn’t know. but I also don’t know what you don’t know.

00:29:04.230 –> 00:29:17.690
Joe Clark: Now, what Mark just told you was that if you were in the 10 or 12% bracket. your capital gains rate is 0. He has to put it on the return, but it nets out to 0

00:29:17.840 –> 00:29:30.260
Joe Clark: when they add all of that money on. So capital gains are deemed to be what’s called preferential income. They already have a lower tax rate than your normal marginal rate. But if you’re if you have 0% income.

00:29:30.710 –> 00:29:34.670
Joe Clark: you can have capital gains up to about $80,000.

00:29:34.800 –> 00:29:46.990
Joe Clark: They 0 in tax 0. I like that number 0. So you’ve got to go. Look at your portfolio and see what stocks are in there that have long term capital gains doesn’t work for short term

00:29:47.060 –> 00:29:57.280
Joe Clark: has long-term capital gains. You go into stock for more than 12 months in a day. Right? You people get confused mark on the 30 day rule. If you have something that’s at a loss.

00:29:57.510 –> 00:30:01.780
Joe Clark: and you sell it, you technically have to wait 30 days to repurchase it.

00:30:01.930 –> 00:30:11.900
Joe Clark: or you Don’t, recognize the loss gains. That’s not true. No, what we do for people that happen to be at that lower bracket is step up their basis.

00:30:11.940 –> 00:30:19.720
Joe Clark: So my team is trained to look when they talk to you in November. If if your tax rate is, if the 10% bracket

00:30:20.010 –> 00:30:26.360
Joe Clark: they will we will go in and sell stocks, and buy stocks the same stock simultaneously.

00:30:26.570 –> 00:30:42.300
Joe Clark: if it’s a long-term capital gain and just re-establish basis all on the back of what the Irs will not charge you a dime for, and most if you’re working with a registered investment advisor or a fiduciary like we are the cost of trading is 0,

00:30:42.500 –> 00:30:57.280
Mark Perlberg: right? You just need somebody who’s willing to do the work. Yeah. And so, you know, because we’ve got 100%, both appreciation. Under certain circumstances, certain clients who went big into real estate and put their savings into it.

00:30:57.410 –> 00:31:00.750
Mark Perlberg: We’ve been there have been instances where, year after year

00:31:01.040 –> 00:31:19.440
Mark Perlberg: they can take advantage of the $0 long term cap bracket, and no, under perfect circumstances, here with $0 taxes. Imagine you do this 4 years in a row. 5, you know, 5 years in a row. Yeah, I mean hundreds of thousands of dollars of long term capital gains tax that you’re avoiding here.

00:31:19.540 –> 00:31:31.140
Mark Perlberg: So I mean, if you do it, 5 years a row, 80 times $500,000 of long-term capital gains tax in the future. That long term, long term capital gains income that you could avoid.

00:31:31.270 –> 00:31:45.690
W. Cause you know what’s gonna happen is, you know, we’re gonna lose this 100%, both appreciation. Your properties get more profitable. You you’re you’re it’s gonna get hard and hard to operate at a loss, or towards that $0 long term capital gains bracket.

00:31:45.690 –> 00:31:55.230
Mark Perlberg: and it may not be as easy when we don’t have a President who is a real estate investor, so save money on our taxes. So

00:31:55.250 –> 00:32:07.480
Mark Perlberg: you know lot of love cool things here, and you know I get asked this question so often, and I you touched on it a little bit. We get asked this question by almost all of our clients who have retirement accounts.

00:32:07.760 –> 00:32:10.680
Mark Perlberg: they say. Well, you know, I want to invest in real estate.

00:32:11.230 –> 00:32:20.940
Mark Perlberg: I’m thinking about liquidating some of my retirement account to put into real estate. What are your thoughts? And I typically say, you want to evaluate

00:32:21.020 –> 00:32:33.910
Mark Perlberg: the tax savings you get from your real estate, and how that’s gonna offset the the distribution, the taxes on the distribution from your retirement accounts. But then, there, you know, there is a trade off here.

00:32:34.240 –> 00:32:53.700
Joe Clark: but I want to get your thoughts. If someone’s ever come to you and say, hey, i’m starting a new business, I want to invest in real estate. I got these Iras. What what are your thoughts on? On? On liquidating them in the in the early withdrawal penalties? So I so, as I used to tell them at Purdue. I’ll talk out of 3 sides of my mouth right. I’m the Rodney danger field of the industry.

00:32:53.790 –> 00:32:56.450
Joe Clark: I did it before I got educated

00:32:56.550 –> 00:33:14.620
Joe Clark: right? So I call Bs when I hear Vs: so when I taught a Purdue I taught as somebody who is a practicing planner, somebody who is a Cfp. And somebody who has to comply with the rules that are out there that are of academia, and the 3 don’t always coincide. Let’s just put it that way.

00:33:14.810 –> 00:33:26.880
Joe Clark: So, first of all, I would discourage you just because you legally can. I would discourage you from using Ira money as a real estate investment.

00:33:27.260 –> 00:33:45.470
Joe Clark: I would always discourage you from using Ira money to start your own business right now. Can you legally do it? The answer is, Yes. but here’s what you need to be aware of in Indiana. We call it poking the bear right? You do not want to intentionally tick me off.

00:33:45.650 –> 00:33:57.030
Joe Clark: and there are things that I don’t like, and the Irs clearly says they don’t like that right. It it creates all sorts of opportunities for taxpayer error.

00:33:57.050 –> 00:34:05.510
Joe Clark: or you know, a non-compliance. It’d be the word that they would use, and the big leads and and so you can do it.

00:34:05.590 –> 00:34:18.600
Joe Clark: Keep in mind that. An Ira, when I ask people what they stand for. And, mark, i’m not going to put you on the spot. 99.9% of people will tell you that an Ira stands for an individual retirement account.

00:34:18.820 –> 00:34:32.670
Joe Clark: It does not. It stands for very, very specifically an individual retirement arrangement. and you can have as many of them as you want. So let’s say you’ve got a 1 million dollar ira.

00:34:32.810 –> 00:34:44.239
Joe Clark: and for some reason you want to put a 100,000 into real estate. The first thing that I want you to do is to separate that $100,000 into a separate Ira

00:34:45.120 –> 00:34:49.929
Joe Clark: right that way. If you’re poking the bear and the Irs challenges it.

00:34:50.350 –> 00:34:51.989
Joe Clark: and they will if they can.

00:34:52.230 –> 00:34:58.180
Joe Clark: And if the Irs challenges it, you only have that $100,000 at risk.

00:34:58.600 –> 00:35:09.090
Joe Clark: because the bottom line is, if you used a 100,000 of the 1 million, and you kept it in one account. you could find yourself in one year with penalties and taxes on the 4 million.

00:35:09.250 –> 00:35:13.030
Joe Clark: because a sliver of it was used for something that they didn’t like.

00:35:13.450 –> 00:35:21.160
Joe Clark: So you can have literally a a 1,000 Iras, if you wanted to have it so that’d be the first thing I would separate it.

00:35:21.320 –> 00:35:25.940
Joe Clark: I’m second. I understand that there can be no leverage that’s used

00:35:26.140 –> 00:35:37.470
Joe Clark: with that Ira investment. Right you. You cannot go to the bank and borrow money against an Ira. You cannot use an Ira as leverage. That’s right in publication 590.

00:35:37.700 –> 00:35:49.290
Joe Clark: And so when you’re buying real estate, you know, if you’re doing that, it’s essentially all of the cash is there, and it’s per it’s purchased. There are no bank phones. Well, that’s not the way Mark would teach you to leverage real estate, anyhow.

00:35:49.430 –> 00:36:04.400
Joe Clark: Right? I mean. That’s not it. It’s just not the best asset. What I would encourage you to do from a planning perspective is, look at the Ira Mark’s got your taxes down to 0 because of depreciation. The the bonus depreciation, whatever

00:36:04.840 –> 00:36:11.100
Joe Clark: takes the $100,000 out of your Ira, Say, go ahead, penalize me. tax me and penalize me.

00:36:11.210 –> 00:36:21.320
Joe Clark: pay it at the 10% bracket which you’re probably never going to be in again. Get it out of the Ira confines, and then you can go use it to B real estate to leverage it that way.

00:36:21.650 –> 00:36:26.120
Joe Clark: But if if you’re gonna do it, mark, make sure that they have a separate Ira.

00:36:26.170 –> 00:36:30.700
Joe Clark: Just so that the bear gets unhappy. You have a limited amount of exposure.

00:36:31.140 –> 00:36:46.240
Mark Perlberg: right? Yeah. So I mean so. Only a small handful of clients of ours have actually invested in real estate with their Ira. The most often they’ll take. They’ll try to take the cash out and use the cash to invest in real estate in their own name. Because

00:36:46.240 –> 00:36:57.190
Mark Perlberg: when you have the you know, for obvious reasons, that if you have the money in the Ira. Those losses and all the beautiful things with costs eggs won’t offset their tax liabilities at the 1040 level.

00:36:57.260 –> 00:37:00.160
Mark Perlberg: and we so

00:37:00.390 –> 00:37:12.780
Mark Perlberg: what’s been good for us lately is that most of our clients, whether they have real, say, professional tax status, or they have short term rentals, even though they’re paying that 10% early withdrawal PE penalty.

00:37:12.890 –> 00:37:27.340
Mark Perlberg: We’re able to use that cash to offset the taxation on the distribution and keep it at around a 0 a many times at a $0 tax bracket, which is great. Now it’s going to get harder and hard to do it. We they’re creeping into the 10%

00:37:27.370 –> 00:37:32.170
Mark Perlberg: tax brackets and and beyond there as well. But

00:37:32.290 –> 00:37:38.070
Mark Perlberg: you know these these are. I think I’ve been asked this question. That question. Hmm.

00:37:38.240 –> 00:37:53.870
Mark Perlberg: Close to a 100 times in the past 3 years. On they asked me, should I take money out of my retirement accounts to invest into real estate, and sometimes I feel like it’s not me to make that decision, and they want me to make that decision for them.

00:37:53.870 –> 00:38:03.900
Joe Clark: Yeah, and that’s and that’s because they have faith and trust in you character, trust and competency, trust. And so so one part of the challenge that we have in the financial industry

00:38:04.130 –> 00:38:11.550
Joe Clark: is, we have an inherent conflict of interest, right? I’m. I’m responsible for about 650 milliondollars of other People’s money.

00:38:12.100 –> 00:38:15.470
Joe Clark: and I get paid, based on the amount of money that we manage.

00:38:15.740 –> 00:38:21.090
Joe Clark: So if you pull money out to buy real estate, by definition, my income just went down.

00:38:21.830 –> 00:38:27.050
Joe Clark: If you pull money out to go to Tahiti. By definition, my income just went down.

00:38:27.180 –> 00:38:41.160
Joe Clark: And so Wall Street has a vested interest, and always telling people. No, no, no, no, you know. What do you really need to spend that? What if you run out of money, those kind of things I I, my deal with God, was not to teach people how to work

00:38:41.440 –> 00:38:51.090
Joe Clark: right, so we try to teach people how to effectively use and to spend their money. So when you ask me if you should pull money out of your Ira to invest in real estate.

00:38:51.100 –> 00:38:56.000
Joe Clark: My answer Isn’t. Dependent upon whether money is leaving the account or not.

00:38:56.040 –> 00:39:04.000
Joe Clark: It’s what’s in your best interest from your financial journey. and for some people there is an abundance of money that is, tax deferred

00:39:04.200 –> 00:39:16.280
Joe Clark: that that they’ve they’ve got, or they’ve inherited a large inherited Ira, and it may simply make sense to get it out of the Ira to invest in real estate as a diversification.

00:39:16.470 –> 00:39:18.910
Joe Clark: You just have to be aware of greed.

00:39:19.110 –> 00:39:35.040
Joe Clark: and you know you say you. You only have a few people that have done this. I don’t know the number of people in 2,006 and 7 that tried to take money out of Iras to buy by their second, third, fourth home, you know, down in Florida, or places like that, because they watch the appreciation.

00:39:35.120 –> 00:39:47.750
Joe Clark: They’re typically not families that I deal with. But i’m a radio host, right? So I would have people call in and say, here’s a great idea. What do you think? Well, no, it’s not a great idea. But people did it any?

00:39:48.190 –> 00:39:49.020
Mark Perlberg: Yeah.

00:39:49.380 –> 00:40:09.060
Mark Perlberg: yeah, and that’s why I say a lot of this is dependent on what’s right for you. There’s no there’s there’s no one right uniform, black and white. Answer, and a lot of these things, and you know sometimes there’s additional value. If you’re hard to set on investing in real estate or doing whatever it is that’s gonna lead you to your dreams.

00:40:09.060 –> 00:40:28.520
Mark Perlberg: and also you get to use leverage when you have that cash, and and with mortgages and everything else, you may find that it’s worth it, not only for the opportunities it creates. We, we, in the forms of other other types of tax savings and cash flow, but also the education you get from being able to buy more real estate and do more landlording.

00:40:28.520 –> 00:40:47.210
Mark Perlberg: and maybe getting out of your your 10 for your W to job. But it doesn’t always make sense. There is. There’s no uniform answer here, and it’s a very personal answer that the client has to make, and all we can do is tell them the facts right. When you want to ask us, you good, our websites, your life after workcom.

00:40:47.430 –> 00:41:01.720
Joe Clark: you can go there, ask a question. Somebody on my team is happy to answer. Help you collaborate with Mark, or whoever else it’s out there. But it but it’s very careful it is, you know. I know we’ve got to wind down a little bit that the key thing that I would tell you

00:41:02.060 –> 00:41:05.210
Joe Clark: it, the the 2 things going forward, one

00:41:05.350 –> 00:41:17.120
Joe Clark: try not to make so silo decisions. Now, if you’re not from Indiana, you may not know what a silo is, but you’ve seen the big silver containers. They either have corn or they have beans. They don’t have both.

00:41:17.380 –> 00:41:24.310
Joe Clark: Most people tend to make financial decisions in a silo, whether they take social security.

00:41:24.360 –> 00:41:35.260
Joe Clark: whether they buy a real estate property and use their Ira. They tend to look at one singular thing, Mark, and what you really have to do is, look at your whole farm operation.

00:41:35.450 –> 00:41:41.050
Joe Clark: and sometimes many times that requires the work of a collaborative group

00:41:41.200 –> 00:41:57.130
Joe Clark: of a Cpa and a competent advisor that knows how to look at all of the operations to help you come up with the best solution for what it is you’re trying to accomplish. The second thing is, I have 2 grown daughters, and I have a mom. Father’s passed away.

00:41:57.300 –> 00:42:02.210
Joe Clark: I look at 3 tax returns every year to optimize my situation

00:42:03.290 –> 00:42:16.780
Joe Clark: right, and I I think most people focus on their 1040, and they forget about everybody else. Well, i’m not going to spend all of the money that I’ve accumulate. I’m. It’s just. I don’t know when God’s calling me home. I don’t know when it’s going to happen.

00:42:16.840 –> 00:42:24.200
Joe Clark: I know my daughters are going to be recipients. I know when something happens to my mom, what little she has will go to me and my brother.

00:42:24.220 –> 00:42:35.260
Joe Clark: I want to make sure that her return is optimized. so that when she has the income that she needs. and that when my brother and I received the benefit, the what’s left

00:42:35.290 –> 00:42:44.480
Joe Clark: that we receive in the best possible manner. I want to look at my kids. knowing that they’re going to be the largest recipient when my wife and I are passed.

00:42:44.580 –> 00:42:57.620
Joe Clark: and make sure that i’m looking at their returns, and they’re set up to be millionaires upon us. Die right, you know. Do not fail to look at that. The Irs is the largest

00:42:57.880 –> 00:43:05.820
Joe Clark: deterrent to a successful financial journey, and it’s one you know about just gets ignored and kicked down the road for no good reason.

00:43:06.270 –> 00:43:16.180
Mark Perlberg: Yeah. So I want to get into a. Q. And a. With the audience. I want to encourage you guys to put your questions in the chat or in the Q. And a. Section. But 1 one thing I’m curious

00:43:16.510 –> 00:43:34.070
Mark Perlberg: Here, you know, we talked about some some of the foundational concepts that a lot of people overlook. Here and now we have the we have, and then we have the very well known financial vehicles for retirement accounts and savings accounts. The Iras

00:43:34.160 –> 00:43:36.540
Mark Perlberg: 4, one K’s and Roth I.

00:43:36.600 –> 00:43:50.770
Mark Perlberg: There are other things that we can do in the in the realm of putting our cash places right in in there. You know. What what do you see as far as the mix of where

00:43:50.860 –> 00:44:08.860
Mark Perlberg: your your your clients are are putting their cash, or or some? Maybe you really often missed opportunities here that you, you would say around among the general public who don’t have access to someone with your level of expertise. They say we have someone who the who who may not even be a real estate investor

00:44:08.980 –> 00:44:16.590
Mark Perlberg: high, you know, or medium-income w 2 job doesn’t really know a whole lot about what to do with their cash.

00:44:17.330 –> 00:44:19.000
Joe Clark: Well, I I would.

00:44:19.210 –> 00:44:24.240
Joe Clark: I mean in all fairness I I would always encourage you to hire a fiduciary

00:44:24.530 –> 00:44:43.500
Joe Clark: right. My job is to care for your money as if I would care for my own. If i’m in the same situation. That’s my team’s job. It’s our mission. It’s our purpose. and we do it all day long every day. I’ve done it for 35 years, and I got 38 people on my team, and in all fairness, and I don’t mean this root in any way, shape or form. But

00:44:43.800 –> 00:44:49.650
Joe Clark: you know, if if I thought one of us could do this on their own, I would think it would be me, not you.

00:44:50.150 –> 00:44:54.280
Mark Perlberg: I done it for 35 years. I started 2 weeks before the crash in 87.

00:44:54.370 –> 00:44:56.660
Joe Clark: It’s it’s been my life

00:44:56.900 –> 00:45:02.510
Joe Clark: right. I can’t do it on my own, because there’s too many bloody moving parts

00:45:02.750 –> 00:45:13.560
Joe Clark: that matter how bright I am, no matter how much I study. You cannot keep up with changing tax codes, changing economies, a global world with new additions all of the time.

00:45:13.590 –> 00:45:22.130
Joe Clark: And so I need help to be able to filter out that noise right? So I would tell you that there’s a lot of things that

00:45:22.190 –> 00:45:26.770
Joe Clark: people are becoming having accessibility to

00:45:26.910 –> 00:45:40.890
Joe Clark: without the wisdom to understand the implication. Right? So you’ve You’ve got people that are winding up in the crypto world, because it sounds cool and the ntf world because it sounds cool. Mark and I have a friend that lost a couple of 1 million dollars.

00:45:41.250 –> 00:45:51.680
Joe Clark: That’s it. That’s like 7, you know, 6 0 with the number in front of that’s a lot of money. Had access to some of the brightest people on the planet. and it still happened

00:45:52.020 –> 00:46:00.130
Joe Clark: right because there’s things there that still need to be worked out there. There are things in structured notes

00:46:00.200 –> 00:46:12.800
Joe Clark: that really sound cool, but people don’t necessarily understand what they’re giving up. We use structured notes. We don’t use crypto at this point in time, but we do use structured notes. We do use package deals

00:46:12.810 –> 00:46:27.670
Joe Clark: that are in real estate, instead of buying a a a place, we buy multiple places. Then some people call those re to keep in mind most of the reach that you’re going to invest in real estate Investment Trust have high commissions.

00:46:27.680 –> 00:46:37.840
Joe Clark: and our, in my opinion, very expensive to manage. Internally, I think that the underwriters get a lot of money, and I don’t think the families that that buy them do.

00:46:37.880 –> 00:46:53.770
Joe Clark: There are R. I. A products that are out there that you have to be a fiduciary, to be able to go get. you know. So there there is access to other things, you know. But I I I take people back to 1,985. That was a year. I graduated from high school.

00:46:53.780 –> 00:46:57.190
Joe Clark: and I made it one match away from getting to state finals and wrestle.

00:46:57.770 –> 00:47:00.960
Joe Clark: and I 10 to 18 people.

00:47:01.000 –> 00:47:02.220
Joe Clark: With one move

00:47:03.490 –> 00:47:05.290
Joe Clark: I had. I threw a headlock.

00:47:06.000 –> 00:47:11.940
Joe Clark: They knew I was going to throw a headlock. The ref new. I was going to throw a headlock. I knew I was going to throw a headlock.

00:47:12.150 –> 00:47:15.490
Joe Clark: and I made it one match away from getting to the state.

00:47:16.120 –> 00:47:29.360
Joe Clark: Now, my point of this is you don’t have to have a toolbox with 75 different things, just because you can. What you have to have is a strategy that you understand very, very clearly, and make it work very, very effectively.

00:47:30.620 –> 00:47:33.760
Joe Clark: And the best way for you to start is to understand your tax return.

00:47:34.430 –> 00:47:43.410
Mark Perlberg: Wonderful, you know, and I have a lot of posts about people who diy their own tax plans before they come to us. and we have seen some things.

00:47:43.480 –> 00:48:00.890
Mark Perlberg: We saw one where a client or a cost segregation study absolutely 0 value, because the client couldn’t use the losses to offset his W. 2 liabilities, and, in fact, the client ever did get to in the future. He missed out on the opportunity. In future years

00:48:00.890 –> 00:48:08.860
we saw a one of the most unique things I’ve seen in a diy tax plan gone wrong was a client to the 1031 exchange.

00:48:08.950 –> 00:48:12.650
Mark Perlberg: but he didn’t realize the property was selling for a loss.

00:48:12.710 –> 00:48:24.480
Mark Perlberg: So instead of now, here’s the thing. One way. You can use real estate losses to offset your W 2. If you don’t have rep status or search from rentals

00:48:24.720 –> 00:48:47.690
Mark Perlberg: if you just sell a property, and there’s no cap gains, and you have suspended losses that were unused. You get to free up those losses to offset your active income. But if you 1031, it just like you would defer cap gains. Now you’re deferring your cap losses and you lose your losses, and you gotta pay us more money to report a 1031 exchange, because it takes a lot of time and documentation.

00:48:47.950 –> 00:49:00.320
Mark Perlberg: So you know, I think it’s it’s just like you wouldn’t want to do your own root canals for you, I say, and and just like you, you know you probably wouldn’t waste your time changing your oil.

00:49:00.320 –> 00:49:14.820
Mark Perlberg: and you might mess some things up. You can diy some things right, I mean. But when it comes to tax planning, this is so complex, and it takes us thousands. And now of hours, and I came and do all the tax playing. Sometimes I need a team to help me with the research.

00:49:14.820 –> 00:49:22.910
I have a team right now helping me evaluate State level, pass through entity tax elections for s corps and partnership, because there’s too much

00:49:23.060 –> 00:49:38.470
Mark Perlberg: So you and and for for anyone to think that they can do is all on their own at the same level, or that the you know. When you look at this as an investment, and it’s not going to be able to be justified. Then you’re missing out a lot of opportunities.

00:49:38.770 –> 00:49:42.870
Joe Clark: I think you just have to ask it, you know, is is the juice worth the squeeze?

00:49:42.930 –> 00:49:48.490
Joe Clark: Yeah, okay, I guess if you want to spend your entire life doing the work to manage your account.

00:49:48.820 –> 00:49:50.640
Joe Clark: Maybe you can. Maybe you can’t.

00:49:50.960 –> 00:49:55.650
Joe Clark: but you know I I would much rather see you enjoy around a golf.

00:49:55.860 –> 00:49:57.370
Joe Clark: and you know

00:49:57.720 –> 00:49:59.890
Joe Clark: we get efficiencies in Mass.

00:50:00.270 –> 00:50:11.220
Mark Perlberg: So I have a question here. The question here is, I have a retirement account. I have a My! I’m sorry I have all my retirement money in a target retirement account with vanguard

00:50:11.250 –> 00:50:12.360
Mark Perlberg: 2,040.

00:50:12.630 –> 00:50:24.030
Mark Perlberg: I have 2 rollovers coming to me now from fidelity and empower from prior company 400 oneks that are also going to be vanguard accounts.

00:50:24.140 –> 00:50:29.450
Mark Perlberg: What do you think about having all my eggs in one basket. I am

00:50:29.500 –> 00:50:46.900
Joe Clark: self-employed, and looking into opening a solo K. Where your thoughts on the solo K. And you can see this in the Q. A. In case that was that was a pretty heavy question, and you need to read it. That’s a case study, you know, for the record. So let’s

00:50:46.900 –> 00:50:58.230
Joe Clark: Let’s take this down. So first of all, on the solo 4, one K. Let’s start there. I’m all in favor of solo. K. Means you and your wife, not you and your kids, and no other employees.

00:50:58.490 –> 00:51:16.450
Joe Clark: So people mistake that your spouse can indeed be part of a solo. 400, and one keeps you from file on the 55 hundreds with the with the Irs. If it’s a solo for one K. You can open that up. It is a great plan you have. You’re limited to the amount of money

00:51:16.450 –> 00:51:24.080
Joe Clark: that you can put in before you have to report the 500, so you may very well want to roll money out before it gets too big.

00:51:24.200 –> 00:51:36.750
Joe Clark: you know, and and make contributions. There is a rule inside of the tax code. You’ve probably been told. If you’re over 50, you can put $2720,000 or so into a 4 one k

00:51:36.780 –> 00:51:53.200
Joe Clark: You can really get close to 59,000, and if it’s structured correctly, Mark can help you with that to get it up and done. So you could put more money in that plan. then what you may be aware of if it is properly structured by using what I call a mega Roth concept.

00:51:53.320 –> 00:52:01.980
Joe Clark: So you’re taking money that you wouldn’t be able to defer, anyhow, and making it a rough, rough money. A much larger contribution than you would normally make.

00:52:02.110 –> 00:52:21.380
Joe Clark: Empower means you were probably with a 403 B, a hospital or a school system. 4 or 3 B’s and 400 one’s are identical. There is no problem with having it all at vanguard. I don’t use vanguard. I was writing a letter to John Bogle the day that they announced that he passed away back in 2,019,

00:52:21.380 –> 00:52:29.490
Joe Clark: because he refused, refuted many of the things that he said from his Princeton survey that actually created Vancouver.

00:52:29.580 –> 00:52:48.450
Joe Clark: So when when you look at life as a fiduciary. It sounds to me like you’re doing this on your own. I call it the fiduciary focus. There’s 4 things, not one. There’s 4 things you have to manage risk and volatility, fees and expenses, taxes today and tomorrow, and real return meaning You’re always paying attention to inflation.

00:52:48.990 –> 00:52:53.540
Joe Clark: Most of my engineers came from vanguard before they arrived here with me.

00:52:53.720 –> 00:53:02.110
Joe Clark: and it’s because at vanguard you could quantify and control fees and expenses. That was their baby, their their sweet spot in the market.

00:53:02.220 –> 00:53:23.380
Joe Clark: But by focusing on that one thing you ignore the ability to contain risk and volatility, especially taxes today and tomorrow and real return. Now you’ve tried to address the the notion of volatility and risk with a target dated fund, and for those of you that don’t know a target dated fund is a way

00:53:23.670 –> 00:53:34.890
Joe Clark: so great concept. You’ll find it in a lot of 4. One K plans today where I have the the name of a fund, and then a date behind it. And the theory is as you age.

00:53:35.020 –> 00:53:40.190
Joe Clark: You need to have less and less exposure to equities, and more and more exposure to fixed income.

00:53:40.590 –> 00:53:49.020
Joe Clark: That’s the theory right. So if you had a 2,025 target dated fund it would have more bonds than it did stocks.

00:53:49.110 –> 00:53:59.190
Joe Clark: and if you have a 2040, it’s gonna have more stocks than it does box. Now, the problem with that is the last 2 years have proved that the bond market has a ample amount of volatility.

00:53:59.270 –> 00:54:16.550
Joe Clark: They are not negatively correlated to stocks. That’s one issue that’s there, and 2. I I don’t think it is the the best way to be able to manage money, though it is a solution for people to be able to use. You pay vanguard a little bit of extra money just a little bit.

00:54:16.550 –> 00:54:22.120
Joe Clark: and it automatically takes money from one fund and puts it in another to do what we call rebalancing.

00:54:22.230 –> 00:54:29.540
Joe Clark: I I think you would find a more efficient way contacting me or another somebody else who manages money effectively

00:54:29.590 –> 00:54:36.060
Joe Clark: and find out how that that model works for You’re building your own target dated fund, if you will.

00:54:36.080 –> 00:54:53.450
Joe Clark: except it’s designed specifically for for you. But good luck with the 401 but the somebody who’s helping you set up the if you’re not doing it on your own, is likely to tell you that you could roll those transfers into your 401 if it’s properly set up. That is accurate.

00:54:53.450 –> 00:54:57.000
Joe Clark: Just be aware of that threshold of the amount of money you can have in it.

00:54:57.830 –> 00:55:05.320
Mark Perlberg: Wow! That is an awesome answer. Very detailed. Really appreciate it. And you know we were talking about

00:55:05.340 –> 00:55:18.720
Mark Perlberg: how we can align. We talk about aligning these strategies, and in in not roll over, but transfers. We had a client who inherited a ton of a real estate from her from her mother.

00:55:18.800 –> 00:55:33.660
Mark Perlberg: and had to take it over and got rep status, and she was interested in cryptocurrency. So one idea here was. She had some 4 one case from her old job, and we could transfer them into a Roth.

00:55:33.680 –> 00:55:40.420
Mark Perlberg: and she now has all this real estate depreciating, and she’s at a $0 tax bracket, and maybe even

00:55:40.580 –> 00:56:00.450
Mark Perlberg: he has some additional losses from that new depreciation of some real estate added that step up basis now so definitely going to get some losses, so we could transfer the 401 into Ross, and then invest in, grow the that cryptocurrency tax free.

00:56:00.740 –> 00:56:06.100
Mark Perlberg: So so lots of cool stuff there when we’re looking at every all the moving pieces here.

00:56:06.970 –> 00:56:15.250
Joe Clark: Just keep in mind, Mark what what? What? You just said right there. So I used to have people tell me Roths were risky.

00:56:15.820 –> 00:56:24.000
Joe Clark: Right? Remember, there is a tax code, and there is an investment. The crypto is an investment that they put into a tax code called a Roth Ira.

00:56:24.660 –> 00:56:36.310
Joe Clark: Right? You can have Cds and raw Ira’s. You can have blue chip stocks and raw I areas. You have whatever you want. The Roth is a tax code cryptosy. It is a pseudo investment.

00:56:36.440 –> 00:56:51.050
Joe Clark: you know. So Don’t, confuse those 2 as as you hear them, but do take advantage of stepping up basis where you can, using 0% tax returns right, doing those rough conversions. And remember they have to be done by year end.

00:56:51.390 –> 00:56:52.280
Mark Perlberg: Yeah.

00:56:52.300 –> 00:57:00.570
Mark Perlberg: So we have a question from one of your former students. Ashley Morris. Great to see you.

00:57:00.590 –> 00:57:01.480
Mark Perlberg: Oh, okay.

00:57:01.580 –> 00:57:14.140
Mark Perlberg: yeah. So Ashley’s on. She’s got a great question. First off, she says. You know he Big Joe is the man, and she wants to. She would love to your strategies about early retirement.

00:57:14.260 –> 00:57:23.670
Mark Perlberg: the early retirement movement, and how this is taken into account with a mix of qualified plans and cash flowing real estate.

00:57:26.250 –> 00:57:34.210
Joe Clark: they so Ashley, it’s great to hear from you and keep in mind. She’s got her degree from Purdue University and financial planning.

00:57:34.230 –> 00:57:40.700
Joe Clark: you know, but it’s so. This is this is one of those questions. It’s really kind of an opinion.

00:57:40.960 –> 00:57:47.610
Joe Clark: you know more than it is a a guide, and the wool answer that you could use on a test.

00:57:48.960 –> 00:58:04.610
Joe Clark: There, there is a there is a large group of people who are leaving the workforce earlier than they anticipated, that, I think, was accelerated by the pandemic. and the thing that I would remind people that you talk to. And the people listening to this program

00:58:05.140 –> 00:58:16.390
Joe Clark: is that retirement is never based on age, any more than money is. Retirement is based on maintaining a standard of living when you walk away from the workforce

00:58:16.770 –> 00:58:25.680
Joe Clark: right? And so the the idea of having a real estate or any other investment that provides passive income is a beautiful deal

00:58:26.280 –> 00:58:30.820
Joe Clark: right? I’ve got families that have a 100 rentals

00:58:30.920 –> 00:58:34.790
Joe Clark: that is not passive income because they get calls 2 in the morning

00:58:34.930 –> 00:58:49.300
Joe Clark: to go unfreeze a garage door with a hair dryer, or to worry about a roof when the snowstorms just came through Indiana here recently. Those those kind of things to me that is not passive income. That is a different form of a job.

00:58:49.590 –> 00:59:01.820
Joe Clark: right? And so you, you. You kind of have to work that into the into the deal. But if somebody is retiring early and you can go back to that first question. Mark that the the gentleman had about the solo 401.

00:59:02.060 –> 00:59:12.650
Joe Clark: One of the ways that we help people get money out of. The Ira is quicker that are thinking about what actually is talking about is setting up a solo for one K.

00:59:12.910 –> 00:59:20.600
Joe Clark: Rolling existing Ira money into the K. Into their solo 401 K. Now, why would you ever want to do that?

00:59:20.690 –> 00:59:26.660
Joe Clark: Well, for when K. Land offers an opportunity for people to get money out at 55,

00:59:27.090 –> 00:59:38.220
Joe Clark: as opposed to waiting to 59 and a half. So if somebody is going to take money out of an ira before 59 and a half. They have 2 choices. They’re either going to pay a 10% Federal penalty.

00:59:38.260 –> 00:59:50.430
Joe Clark: or they have to do with what’s called a 70 twot, which is a substantially equal periodic payment unchanged for the greater of 5 years or 59 and a half every word in that sentence matters don’t miss it actually didn’t on the final exam.

00:59:50.840 –> 01:00:07.770
Joe Clark: So with by setting up the solo 401, and moving money into it. and then, lo and behold, i’m 55, and retire. You can actually take the money out of the 401 where you couldn’t out of an ira, and as long as your earned income was low enough.

01:00:08.000 –> 01:00:21.410
Joe Clark: There’s no tax penalty at all, and you have the ability to do that and create that income stream to be able to retire early. Actually, I hope that, answered the question. It’s you know it’s as I, As I told you 10 years ago or 12 years ago. Now, whenever it was.

01:00:21.570 –> 01:00:25.650
Joe Clark: I’ve seen a lot of people get wealthy doing a lot of different things.

01:00:25.860 –> 01:00:38.520
Joe Clark: whether it’s investing in stock, or whether it’s investing in real estate. You just have to be very, very focused, and I think you have a better life if you’re diversified than if you’re in one area where you maintain and endure a lot of risk.

01:00:39.070 –> 01:00:57.380
Mark Perlberg: Yup. And and so the way I look at some of these things now, some people glamorize real estate investing, and because, you know. Obviously, in the tax code they call it passive income. A lot of our clients are first year early sees investors, and they’re always surprised to find how hard and how much work and how stressful real estate investing can be.

01:00:57.380 –> 01:01:05.580
Joe Clark: Yeah, the Irs calls it passive, but it doesn’t sound passive to me at 2 in the morning, I on my building. I own my house. That’s it.

01:01:05.850 –> 01:01:16.710
Mark Perlberg: Yeah, and so and then a lot of people want to dip out. They said, Well, this is not for me. It is not where I thought it would be. I am not living this like luxury life I was hoping for.

01:01:16.720 –> 01:01:27.240
Mark Perlberg: And so then one of the for the people who exit one of the one of the things they they didn’t learn. They learned about all the tax advantages. They never, No one really

01:01:27.330 –> 01:01:41.440
Mark Perlberg: learned, no one got a chance to educate them about depreciation, recapture in all the glamorous stories about real estate investing. So, even if they so

01:01:41.470 –> 01:01:55.020
Mark Perlberg: yeah, lots of planning and conversations. And then but here’s an an an opportunity here as if you do want to become more passive, and if you can hire a property manager and you’re in retirement, you may be in a load of tax bracket that

01:01:55.020 –> 01:02:10.340
Mark Perlberg: you don’t need to materially participate for rep status, and if you’re living just off the cash flow, it’s offset with depreciation. Or maybe you even put the funds into syndications down the road, or tell you you you can roll them into a Delaware statutory trust.

01:02:10.340 –> 01:02:21.820
Mark Perlberg: There are ways that you can defer capital gains and some depreciation, recapture and live a passive life have passive cash, flowing income where you’re doing minimal work

01:02:23.470 –> 01:02:29.420
Joe Clark: absolutely. There there are a lot of options. But again you get into that, proceed with caution

01:02:29.580 –> 01:02:45.600
Joe Clark: and and make sure you’re working with a collaborative cohesive group of people who understand that you can look at it from different sides. Yeah, I I love the he, he! He’s Brothers Chip and Dan, or offers. One of their books is called decisive.

01:02:45.870 –> 01:02:49.480
Joe Clark: and it’s the it’s kind of the art of decision making.

01:02:49.700 –> 01:03:06.620
Joe Clark: and I would, before you make a major decision like that, I would read the book. And just think about your metrics for making a decision, so that you’ve thought about it as clearly as you can both the good and the bad. But but use mark or somebody who’s qualified to help you walk through those

01:03:06.740 –> 01:03:08.270
Joe Clark: technical loopholes.

01:03:08.620 –> 01:03:12.880
Mark Perlberg: Awesome. Well, Joe, we’re at about time. Can you tell everybody

01:03:13.070 –> 01:03:20.740
Joe Clark: how they can learn more about from you and and where they can access some of your material and content and user services.

01:03:20.840 –> 01:03:24.480
Sure you go. You can go to your life after work.com.

01:03:24.540 –> 01:03:33.590
Joe Clark: People ask why it doesn’t say financial enhancement group. I started the company in 97, and if you didn’t if you misspelled something, Google didn’t take you anywhere

01:03:33.720 –> 01:03:44.450
Joe Clark: your life after work that’s hard to mess up. It’s a little long, but your life after work.com you can get signed up for our weekly since 2,007. We send out a video commentary

01:03:44.460 –> 01:03:48.830
Joe Clark: about what’s going on in the market that comes from my Cfa and our Charter Market technician

01:03:48.900 –> 01:03:57.860
Joe Clark: and elements and focus comes from my director of financial planning and manager of advisor operations. Those are free things that we send to the public to try to help.

01:03:58.020 –> 01:04:04.530
Joe Clark: You can get signed up for a next steps meeting where somebody on my team will call you. and and actually asked

01:04:04.670 –> 01:04:11.600
Joe Clark: We ask questions like I said, we take care of people in 31 States, and I likely they are a family just like you.

01:04:11.910 –> 01:04:17.330
Joe Clark: But it’s your life after work.com 809-28-4000ne.

01:04:17.360 –> 01:04:25.660
Mark Perlberg: Okay, one more. One more question. What do you do for fun? Tell us something interesting about you. I golf. I just took the ice pack off my knee.

01:04:25.760 –> 01:04:32.580
Joe Clark: I am an avid golfer. It’s the hardest thing I’ve ever done in my entire life. I’ve been married to my wife for 35 years.

01:04:32.610 –> 01:04:48.120
Joe Clark: and I common I I frequently share with her. If If golf, if dating was as hard, i’d still be single, I get, I I I injure myself, and I will do it anytime that I possibly can. But it’s I. I love a game that simply can’t be licked.

01:04:48.610 –> 01:05:05.540
Joe Clark: Okay, maybe I should probably start golfing. I would not encourage that. It’s it. You’re You’re too young. I took 10 years off to raise the kids and build the company, you know. Now I get to do it, and I have a little bit of fun. But no, it’s a it is a wonderful, wonderful day, mark

01:05:05.560 –> 01:05:19.820
Mark Perlberg: Nice? Well, I like cooking because it is I I have to cook anyways. Might as well enjoy it has to fun with it. So all right. Well, hey, you guys can watch. The recording is going to be published on my Youtube and in the podcast.

01:05:19.820 –> 01:05:38.940
Mark Perlberg: Joe, I might actually reach out to you guys to see if you help my dad and Joe. I really appreciate your time. He definitely provided our our guests and me with a lot of really great ideas and and wisdom and insight here. So really really enjoy this conversation, and thanks a lot for your time.

01:05:38.940 –> 01:05:45.130
Joe Clark: Thanks for having me. Mark you all have a great night, Ashley. It was good to hear from you. Bye, guys, take care.


Real Estate Tax GEEKOUT

Real Estate Tax GEEKOUT

Listen to me and Bernard Reisz of Resure Financial as we dive into a variety of tax and real estate investing topics. We discuss retirement accounts, capital gains planning, grouping elections, material participation, 1031 exchanges, capital gains planning and real estate syndications. Lots of great topics to geek out about!

A little about Bernard: Bernard Reisz, CPA founded ReSure to deliver real estate tax and financial tools based on professional expertise, going beyond execution of real estate tax tools to include expert and unbiased investor education. Prior to founding ReSure, Bernard served as Director of CoMetrics Partners, managing an array of engagements involving financial consulting and due diligence. Bernard advised owners of closely-held middle-market companies on advanced tax mitigation strategies. As a guest on numerous financial, tax, real estate, and legal forums Bernard delivers straight-talk and unique insight for real estate investors nationwide.


Mark Perlberg
Let’s get into it. We’re going to start so the recording for the YouTube eventual and podcast of this. All right, guys, thanks for joining me today. I’m really excited to have a fellow real estate tax nerd for a geek out session on real estate tax strategies here. And we are joined by Bernard Race. Is that race?

Bernard Reisz
Phonetically. It’s the reese.

Mark Perlberg
Got you. Okay, that’s cool.

Bernard Reisz
That happens, Mark, just, you know, that happens on almost every show. Reese rice, roast Oakle.

Mark Perlberg
Okay, cool. You have a company that helps out advising people on all sorts of ideas with real estate here and giving all sorts of guidance on topics like retirement accounts and cost segregation, all that beautiful stuff. But tell me in your own words what you do.

Bernard Reisz
Got it. I think this is a great context and a great place to have this because we’re both tax professionals and really we stepped into a void that exists. I think, in the tax service place, there are tax advisors like yourself. Obviously not all tax advisors are created equal, but there are tax professionals that are working with clients and being their tax advisors that are providing the tax guidance. Maybe a CPA that’s doing a tax return in addition to advising. And then there are tax services, cost segregation, 1031 exchange, self directed retirement accounts, to name the ones that we’re primarily involved in. But there are many of them, whether it’s trust and estates, a range of tools that are out there kind of that are called them arrows in the quiver that can be used for tax strategy.

Bernard Reisz
So many of these other tax tools have, in a sense, been productized. And working with taxpayers, I’ve seen that there’s a gap there. Oftentimes a CPA will say, hey, get this thing done. Maybe this might be something to look into. But to provide as a tax service. They have the tax background. Number one, the background. But number two, their Mo is not really to provide any type of guidance. It’s like, okay, you want to sign up for the service? Hey, this is our fee. We’ll do it for you. Where the void is kind of connecting the tax profile to the tax tool. So to illustrate an email that I just sent today, people called me up, says he wants a solo 401.

Bernard Reisz
And I explained to him it’s so easy for us to just sign you up here, click here, pay the fee, we’ll set it up for you. But we’d rather have a conversation with your CPA and ensure that this is really a good fit. And we talk the same language as CPAs to make sure that what’s actually being set up is optimal and compliant for your tax profile. So in a nutshell, we do 1031 exchange self directed retirement accounts cost segregation. The differentiating factor is we take it a professional approach that’s informed by a broader tax expertise.

Mark Perlberg
Awesome. Great. And so, you know, let’s just so with all these topics here now, a lot of our clients, you know, we talk a lot about cost segregation studies and 1031 exchanges. We don’t talk a lot about retirement accounts with our clients. A lot of our clients don’t realize you can invest in real estate with their retirement accounts. Fill me in on some of the ideas that you’re sharing with your clients on what are they doing with their retirement accounts, what can they do? And also, where are some missed opportunities with using your retirement accounts, either for real estate or real estate investing or maybe even as a real estate investor for other endeavors?

Bernard Reisz
Yeah, awesome question. There’s so much going on with retirement accounts, and what you see on the web, what so many of these things are, is typically oversimplification. So you’ll see some people saying, hey, this is the smartest thing in the world. Everybody uses retirement accounts for real estate or some other endeavor. And some folks that’s saying, no, never use retirement accounts for real estate or never use retirement accounts at all. And the truth is always a little more nuanced. And typically for most investors, there is a smart way to use these. So just at a high level, what are the rules? Just about every single asset class, there are very few things that are off the table. Self directed retirement accounts, which is a term that’s used it’s a marketing term, right? There’s no tax code for self directed retirement account.

Bernard Reisz
You go, section 408 of the code is traditional IRAs. 408 a is world, IRAs. It’s not like 408 is self directed retirement accounts. Self directed retirement accounts are just retirement accounts that don’t have the artificial restrictions that are imposed by folks that have vested interests. So most IRAs are set up by people that are either a financial advisor that are making money on AUM, or even if you’re getting it directly from the brokerage, they’re in the business of making money on your investments, so they restrict you to investing in whatever is available through their platform. Same thing for qualified retirement plans. Qualified retirement plans are the group of plans that are employer sponsored. So those are the most well known as 401K plans, but you can also do defined benefit plans, cash balance plans, all sorts of combinations. That’s section 401 of the code.

Bernard Reisz
The Secure Act 2.0 just gave us the Roth version of those, gave us a lot more flexibility and added a new section there. But again, there’s no separate section of the tax code that talks about using these accounts for real estate. Visa, Vistas. In fact, the code says nothing about investing in stocks or real estate. It’s kind of silent on that. It’s like, hey, use this stuff and you’ll get tax advantages. That’s really it. Now, what are the kind of the question that we get? So some of the questions I’m going to jump into some more nuanced stuff because you’re a CPA and we’re supposed to be geeking out over here.

Mark Perlberg
Absolutely. Let’s do it.

Bernard Reisz
All right. So one thing that I hear is from people can also pull it out. That really more of a financial thing. Some people will say, hey, I don’t want to put money in anything that doesn’t pay me. I have restrictions on it, right? I can’t use that money today. I find that is true to a certain extent, but the people that say that have a very narrow perspective because once you have a certain level of your needs being met, then it’s a question of what’s the smartest way to grow this, right? Yes, of course, if you need the money to pay the bills, don’t put it in your retirement account. Right?

Bernard Reisz
But if you’re saying, hey, I don’t need this money to pay bills, now, is the benefit of sticking it into an account where you’re going to have tax free compounding for decades, which can be worth hundreds of thousands to millions of dollars. Alternatively, putting it in a Roth account where you may be able to turn that money double, triple, quadruple, ten, 100 exit, which we’ve seen, and not have to pay any taxes on that. So it’s really a financial move. And the folks that say, hey, don’t do this ever, because I want something that I can use today, are really failing to see the big picture to get into some more nuanced stuff. Something comes up. A lot is, I want depreciation. Deductions. Can I get that? Am I giving those up by investing in real estate through retirement account? I love that question.

Bernard Reisz
That’s an awesome question. And it’s something that everybody should be thinking about. And it’s a great example of where this gets nuanced, but it’s also a great example of where folks on social media are saying, don’t ever do this for that reason. And they’re missing some of the details. So a couple of things, definitely the ROI is going to vary. So let’s say somebody is a real estate professional and they’re materially participating, right? So this is a real estate investment that they may benefit from getting depreciation passed through to them. That is definitely a factor. But what happens if somebody is not a real estate professional or this is an asset they’re not materially participating in?

Bernard Reisz
This gets into the weeds of real estate professional with aggregation and all sorts of stuff like, hey, maybe you’re not getting you’re going to end up suspended passive losses, so maybe it’s not all that valuable. Alternatively, if it’s something that’s a limited partnership investment, which can actually totally mess up your aggregation elections, potentially on the real estate professional side, maybe you want that segregated, right? You may actually benefit. This is way into the weeds of taxes. But for folks that are not just to give you high level real estate losses are typically treated as passive. If you qualify as real estate professional, you can get real estate losses if you materially participate. However, you have to materially participate in every single asset. You got a lot of assets that gets to be difficult.

Bernard Reisz
So there’s an aggregation election that you can make that would make it easier to meet your material participation. But if the aggregation election is an all or nothing deal now if your real estate rentals include a limited partnership, all your real estate rentals become subject to the rules that apply to limited partnerships. And so there’s actually a trap there for folks that are investing in syndications and making the aggregation election. So you may actually be very well served by taking your syndication investment and taking it out of your personal tax return and moving it into a retirement account. So I’ve spoken, I said a mouthful. There’s so many directions we keep going forward. Any commentary, questions that you would like.

Mark Perlberg
When we think about because to aggregate the losses you’ll get from a syndication into your other activities here, but you’re saying that there are adverse consequences to the aggregation election. Can you tell me a little more about that?

Bernard Reisz
Absolutely. So there are really there are two different aggregations. There are aggregations that apply to, that are not related to real estate professional. So that’s almost for any type of business can make him, you know, kind of an informal aggregation of activities that are economically related, but it’s not specifically related to rentals. And those are like under the, you know, in the regulations that’s 469 four. Then there’s the aggregation under 469 nine. And that’s specific to, for real estate professionals to aggregate their real estate rental activities. So it’s rental activities only. And that’s an all or nothing deal. Just to give listeners a little more context. So somebody wants to meet real estate professional status, tax status, that doesn’t mean that you can automatically claim all losses from any activity.

Mark Perlberg
Forget about exactly.

Bernard Reisz
It’s amazing. You go out there, people say like, oh, I use the Reps, like I’m a realtor professional, I can claim everything. Absolutely not. Reps is just overcomes the first hurdle and enables you to claim losses from rental activities in which you materially participate. Now, material participation give us like seven ways to meet material participation. So those will vary, but typically you can use all seven. However, if one of your activities is a limited partnership, then you’re restricted to three of those. Practically what that means is you’ve got to do 500 hours, which is not happening with a limited partnership.

Mark Perlberg
Sorry for interrupting. Let’s talk about those three qualifications now that you have to have, not just so you have to now say that looking at you fit that three those three qualifications and not just you. It can also be the combination of activities between you and your spouse. So hopefully your spouse is chipping in on helping you get this qualification. But as you’re saying here, you may not be able to be one of these three even based on you and your spouse for your whole portfolio. But let’s talk a little more about what those are.

Bernard Reisz
So when we talk about typically leaving limited partnerships out, you can be the fact that you are the only one participating, right, that you did substantially, all right, you did everything and then we don’t have to think about hours. Alternatively, what you can have is that you did the other extreme. You did 500 hours. And then again, it’s really straightforward. You had 500 hours in the activity and you’re treated as having materially participated. Now, outside of those two extremes, it gets a little tricky. So let’s call our sudden let’s call them like intermediate rules. So one is that you did 100 hours in the activity and nobody else spent more time in the activity than you. That’s not getting tricky because if you have a property manager, obviously that’s not happening.

Bernard Reisz
But the moment you start bringing other people in, it gets very difficult to achieve material participation if you have a team because they may be spending more time on it than you also did.

Mark Perlberg
That if you’re under scrutiny, it’s going to be very hard to substantiate that this will be hard to produce a log of everybody’s hours as well.

Bernard Reisz
That’s an awesome point. Everybody talks about having their olog they don’t realize that in these cases you’ve got to have a log for other folks, which is impossible.

Mark Perlberg
So so you have the 100 hours test that you now what are the other ones?

Bernard Reisz
Then there are significant participation activities. So that’s a tricky one, but there’s something called having it’s a significant participation activity. This is geeky stuff. The tax code has active participation, significant participation, and material participation. Now, active participation is the lowest level of activity required. That’s all that’s needed. If your income is between 100 to 150K, then you can qualify, take up to estate losses so long as an activity that you actively participated in. Significant participation is not really we don’t get a hard and fast number. It’s not so easily defined what’s a significant participation activity, but if you meet that requirement, then you can claim some losses. But significant participation is something that is not well defined in tax code or regulations.

Bernard Reisz
So typically what we’re looking at is the 100 hours, the 500 or the substantially all the rest of the tests are more about like, oh, if you participated for five out of the last ten years, right? Even if you fail this year, you can qualify because you participated in the last five years. But to initially qualify, we’re typically looking at either substantially all 100 hours and no less than anybody else, or 500 hours. And it’s based on each rental activity. Now, the moment you start hiring people, it gets tricky because you’re no longer doing substantially all. You may no longer be doing 100 hours per activity and more than anybody else. So here’s where the aggregation election comes in.

Bernard Reisz
Now, the thing is, the moment you make the aggregation election, if one of your rental activities is in LP interest, the entire rental portfolio has to meet the material participation threshold that’s required for LP interests. And that’s the 500 hours. So you can no longer pass based on 100 hours. You have to be able to do 500 hours. Now, if you’re somebody that is investing kind of on the side, right, you don’t really do this. You have some other job, you have some other thing that’s taking your time. Now you’re an hour test, which could be a trap, because if you don’t meet that, all of a sudden you have just made all your other rentals passive. So occasionally making an aggregation election can actually take rental activities that you were otherwise materially participating in, right?

Bernard Reisz
Say, hey, you’re the only one that does this. I do substantially, all right? Or I meet significant participate, or I meet the 100 hours test one of the other rentals. But now that I have aggregated it with my LP interest, I now fail matild participation for the entire asset, right?

Mark Perlberg
And because when you aggregate, when you choose to aggregate all your rentals correct me if I’m wrong, but it’s my understanding once you choose that aggregation election, it incorporates all your rental activity, right?

Bernard Reisz
That’s exactly it. It’s an all or nothing deal. And the conceptually, what it’s saying is it gets treated as a single activity. It becomes one big activity and we no longer see we don’t see the separate part. Essentially, we see one big new activity. And so you have to meet the material participation threshold for, let’s call it the highest or lowest common denominator within that new activity, which is the LP interest.

Mark Perlberg
So some other things I’ve been thinking about with this is now a lot of people, they know the 100 hours, they know the 500 hours test, and they overlook the substantially all tests. When you look at that original documentation, you’re like, what does substantially all mean? And from what I found in professional guidance, because I was a little stuck on this as well, was I have found professional guidance that said, as long as you do at least 50% of the total activity, we could say that you did substantially all. What are your thoughts on that? Because I haven’t really found a very clear definition anywhere, but maybe there’s something I’m missing here. Have you seen anything?

Bernard Reisz
I have not. And I would love to know what the source for the fifth greater than 50%? Yeah, I would love to see that would be super helpful.

Mark Perlberg
Yeah, because they say substantially all, and then they don’t define it. If you hire a lawnmower, you’re not doing all the work on the house, and you’re no longer materially participating. So there’s some ambiguity here, and we’ll have to pull up some guidance. But what we have decided on was that if you do 50% or more of all the activities, we could pass that test based on some guys that I’ll pull up for, I’ll send it to you in a follow up email. But the cool thing about that, at least, is let’s say you get your first rental and it’s a long term rental. There’s not a whole lot of activity going on with that long term rental, and it won’t be too hard to pass that substantially all test, even if you’re not putting in a ton of hours.

Mark Perlberg
So if you’re just getting started in and just got that first rental and have rep status, you should be all right. Now, the challenge here is when you want to do a short term rental, and let’s say you don’t have rep status, you’re doing the short term rental. Now you have all these cleaners coming in and out. It’s really hard to pass that substantially all tests. But what we have found is that the cleaners with the 100 hours test, because the short term rental takes so much work, if you could pass that 100 hours test, even though the cleaners are doing tons of work between each guest, you usually have a team of cleaners.

Mark Perlberg
And we can say that we put in more time than any individual cleaner and 100 hours to pass a test, and then there’s additional hours getting the property set up to make sure we hit that threshold for material participation.

Bernard Reisz
That’s an awesome tip. And I think this really highlights the value of true tax knowledge. I know it’s not as exciting for us to watch this as is to watch three minutes.

Mark Perlberg
My cat just jumped up onto my laptop. He had to hear about this stuff right here. He was very excited.

Bernard Reisz
A three minute video on YouTube or TikTok that says, hey, invest in real estate. Claim deductions probably is a lot more entertaining, but there’s huge value. And the real value is in this nuance we’re seeing, hey, how you can really qualify for this stuff. Do it in a way that’s not going to create any risks with the IRS, and know that you can kind of sleep well at night and know that you’re doing the most intelligent and smartest tax strategy, and you can see things are not black and white. And this is exactly why I got involved in delivering these tax tools, so I can have these kind of conversations and bridge the gap with a tax advisor that people are seeing on the Internet, hey, do this.

Bernard Reisz
And sometimes there’s information that we can collaborate with your tax advisor, with your CPA, and together figure out, hey, is this worthwhile for you? Is this really going to give you the ROI that you’re looking for and working? Frankly, we love it when our clients have good tax advice. It makes us effective. It makes us efficient. It means that we can reach out, we can have a conversation with the CPA, and very quickly we speak the same language, figure out the optimal path for an investor or business owner to take.

Mark Perlberg
And another thing here, let’s talk about syndications real quick, and retirement accounts. So with 100% bonus depreciation, let’s say you are able to use those non passive losses in the syndication. And that sounds wonderful, but most of these syndications have usually, what, five to seven year or shorter sometimes exit strategies. They’re eventually going to sell. And when they sell, there’s going to be capital gains tax and there’s going to be depreciation recapture. And not only is it hard to 1031 out of the syndication, you can’t 1031 out of the recapture on all those losses you took from the cost set. So what’s going to happen?

Mark Perlberg
Now, you may think that you’ve won the tax game, you get all these wonderful losses from the syndications, but when that syndication exits and there’s gains, you’re going to get hit in the head with the recapture at your marginal rate, not the long term cap gains rate and the long term cap gains from the sale. And it’s going to be hard to offset with other cost segments because the 100% bonus depreciation is phasing down to now this year is 80 and 60, then 40 to 20. So it’s going to be hard to use other cost losses to offset that potential cap gain. So some of our syndicator clients may be sitting on a tax time bomb. Meanwhile, you put this into a retirement account is a good way of alleviating the tax burdens on these capital gains with the exit.

Bernard Reisz
That’s an awesome point. Here’s what I’d say, here’s what I because it’s really, that’s why we think it was important for us to be able to provide, let’s call it this trifecta retirement account, cost irrigation, 1031, because they can work together or independently and they provide. What I like about it is they call it optionality. You know, you can, we don’t know what route you’re going to take, but investors can have options. So let’s talk about cost SEG for a moment. It is typically true that on cost SEG, bonus appreciation percentage is gradually decreasing over the next couple of years. But on a good exit, folks will be buying, assuming folks will have the equity to buy into a bigger asset.

Bernard Reisz
So it is true that the percentage is dropping down, but they’re going to be able to buy into a much larger asset that will be able to deliver much higher depreciation deductions than what they just exited. We don’t have a crystal ball, but conceptually the question is to what extent these will offset each other or even provide excess deductions. Another factor is it may depend what kind of asset they’re exiting and getting into. Right. So different assets have different cost SEG profiles, right. So if you’re getting out of multifamily but going into a mobile home, right? Exactly. There are so many ways to approach this. There are so many ways to skim that cat, you know, not that one. Yeah, not the one. So many ways to just skid the cat. And it’s really about knowing a, how can we navigate this.

Bernard Reisz
Another thing, 1031 exchange. This is a, again, another area of, you know, a lot of discussion, but the rules for what qualifies for as real estate for 1031 purposes yeah, do not mirror what we call 1245 property for cost segregation purposes. So it’s certainly still possible that you can actually defer depreciation recapture using a 1031 exchange. So Congress, they issued while the IRS issued final regulations that kind of let investors have their cake and eat it too on the cost of creation and 1031 exchange side. So interestingly, Trump tax reform said no more 1031 exchange on personal property. So we had to figure out what’s personal property, what’s real property. And that got to be defined very much in taxpayer favor in terms of what qualifies as real property for 1031 exchange purposes.

Bernard Reisz
And it does not mirror what we call for cost segregation purposes, 1245 property. So there certainly remains opportunity to avoid depreciation recapture. So what is it? What we like, really, we feel real estate investors have a lot of options that they have to be aware of and that there’s typically going to be different. We can’t guarantee it, but if you get into a deal, makes sense to be called surrogation, but it does make the consideration say, hey, should I do this in a retirement account or not? It definitely adds a lot of texture and color to that discussion, but an alternative to switch gears a bit. The truth is, what do I, you know, you want to use retirement accounts for the asset classes that need the most amount of shielding.

Bernard Reisz
So what’s my favorite real estate asset class for retirement accounts is not equity investing, but debt investing. Right. So that means being the lender doing a hard money loan, a private loan or debt investments are syndicated just like equity investments are. Most folks have become very familiar with equity syndication, but there’s also debt syndication and debt doesn’t come along with any we can’t do a cost segregation on your debt investment. You’re the lender, but we can put in a retirement account. Right. And you can avoid getting that interest, which is taxed at ordinary income tax rates and does not have any debt, doesn’t have any depreciation shield, doesn’t have 1031 exchange. So it’s really about, I think this is like your main focus is like taking that holistic look at people and saying, hey, this is. What you got to do.

Bernard Reisz
You have these different asset classes that you invest in. You got to mix and match and say, okay, this is where I do my retirement account. This is what I do my own aim. That’s really what it’s about, is bringing that big picture focus and integrate. I think that’s where the real value is because everything has its place. But you need your tax advisor to help you figure out what to put where for maximum ROI.

Mark Perlberg
Yeah. When it comes to deferring taxes, I think of the most favorable ways to do this. We’ve explored a bunch of concepts. We’re also starting to explore doing this out of a trust, a complex trust that can serve as a tax deferred vehicle, and all sorts of creative strategies where you can take money out of those trust accounts without paying taxes as well, which is a really exciting area we’re dipping into. So lots of cool opportunities here. When you look at it from different angles.

Bernard Reisz
Yeah, I’d say trusts are incredibly flexible. I do find that trust creates some more opportunity being the trust, but there’s.

Mark Perlberg
Some scary tax rate through those trust. Exactly.

Bernard Reisz
It trusts are incredibly flexible. But if somebody makes a wrong move, trust taxation, it’s amazing. Go on the Internet. I set up a trust that don’t pay any taxes. That’s like the first indication that it’s like something is not right. Trusts are very flexible with the right fancy footwork, can be very advantageous. But trusts in and of themselves are not magical because trusts are in fact taxed at much higher tax rates and are missing a lot of the exemptions and deductions. You may qualify personally right. But are not available for trust. But yes, that’s really the name of the game. You need a tax advisor in your corner. So we don’t provide trust as a product. We’re pretty well versed in them, and they’re out there and they have their place.

Bernard Reisz
But that’s why I need somebody like Mars to tell you, hey, you need this trust that trust don’t do it for anybody.

Mark Perlberg
Listen, do not DIY a trust tax strategy. You’re going to DIY anything because like Ian Bernard said, if you don’t know what you’re doing, those marginal trust tax rates will hit you in the head. So you’ve really got to be collaborative with the CPA and make sure that this would make sense for you and that you’re structuring it properly. So some of the things I’m curious about here what are some of the things and opportunities that you are most excited about right now in the current legislation and in the tax code and just things that you’re doing with your clients and the people you serve that you could maybe tell us some stories about and things that you glad to love.

Bernard Reisz
Storytelling time. One thing that I love talking about is 1031 exchanges and partnerships and syndications. Very often the question gets to be with 1031 exchanges, folks want to go their separate ways. You know how to set that up. So there are options for dropping and swapping and dropping. But there actually is a lot of interesting detail that we can do to try to optimize the structure with regards to syndications. The key thing to be aware of, and I’ve put out some content here about this, when the folks will say, sure, 1031 into a synthetic, or you can’t the truth is always a little more, a little tricky. The reality is that when it comes to 1031 exchanges and ticks, we do not have a safe harbor.

Bernard Reisz
Safe harbors are something that are really great for us as tax professionals and for taxpayers, a safe harbor, since the IRS telling you, if you do it the way we’ve outlined, we will leave you alone. And then there are many areas of taxation where there is no safe harbor. And so we structure it as optimally as possible, but there are no guarantees. So tenancy in commons is one of those examples. It’s commonly done, no pun intended, but it really comes down to trying to structure it as optimally as possible so that the IRS will respect it. The key thing that the IRS is looking at, what’s the major concern with ticks and 1031 exchanges?

Mark Perlberg
I just want to jump in here for some of our non account listeners, although I have a feeling most of the people who listen to me are other tax accounts, which I’m fine with. You guys can take all the ideas, or you can refer them to me, or you can apply because we’re hiring, but with the tendency and comment to those of folks in there, because you have to exchange, the real estate has to go in your name when you exchange it eventually between the escrow and all that. So if you exchange the real estate, you have to own a new piece of real estate. It can’t be shares of that syndication partnership.

Mark Perlberg
So when you do that exchange, you do what’s called you structure the new real estate as tenancy in common, meaning instead of owning shares in the stock, you’re exchanging it for a piece of that real estate to substantiate 1031 exchange. So that’s tenancy in common. That creates some challenges in what we’re talking about here.

Bernard Reisz
Awesome. That’s exactly it. So you’ve got you can’t 1031 into a partnership. It’s got to be real estate, and you get that tenancy in common, which is an undivided interest in the underlying real estate. And most folks think it’s like, hey, all right, there’s no partnership because I’m not in the LLC as an LP, right? I’ve bought an interest in the real estate. But here’s the catch. Partnership for tax purposes in the IRS’s eyes is not necessarily what would be a partnership for legal purposes. So you may go to your attorney and they may say, do you have a partnership? Here. He’s like, no, we did the LLC documents, or we did the tick, we did the deed. There’s no partnership here. And a strictly legal perspective, that would be 100% correct response.

Bernard Reisz
But a partnership for tax purposes doesn’t need the legal structure of a partnership. What it needs is any folks that are joint venturing that are collaborating in activity. Even if there’s no LLC, all of a sudden you’ve got a partnership for tax purposes. Now, near co ownership of real estate doesn’t create a partnership. So if you’re just the only real estate together and you’re distributing and collecting rents pro rata, if I own 50% of the real estate, I get 50% of the rent. That’s not a partnership. But what happens if you start operating this together right now, all of a sudden you’re doing improvements, there’s property management, and one of the co owners is doing all that and the other isn’t. The IRS would say, hey, maybe we’ve got a partnership here.

Bernard Reisz
There may not be a legal structure of a partnership, but you guys are really functioning and running an operation together. You’re not just collecting rents. Are one of you guys getting paid by the other to run this? Are you getting an unequal share of the payout? Now, all of a sudden, we have something that the IRS would say is a partnership. And all of a sudden, the tick that the attorney says, and rightfully so, for the legal perspective is not a partnership, but the IRS’s eyes is a partnership. So the IRS did give us a revenue procedure where they list bullet points. Not bullet points, but about 20. You know, if you if I can screen my share, my screen, I can show you kind of the key ones are seeing it. Let’s see. Share that?

Mark Perlberg

Bernard Reisz
All right. Share screen. Let me know if you’re seeing this.

Mark Perlberg
I see it.

Bernard Reisz
1031 exchange. Let’s go to tick. Intro to 1031. Tick rules. So these are not all the rules, but we’ve kind of isolated the main ones. So to go through here, we’re getting how many did we highlight? And there are more, right? So there are about 15 factors that the IR there’s more than 1515 that we highlighted the main ones that the IRS is looking at to say, all right, did you guys create a partnership here even though you had tenancy and common interest? So this is where we see a lot of opportunity to optimize and structure things so that folks can have the highest level of confidence.

Bernard Reisz
And as always, the case when we do this, we want to be working with your CPA, with your professional advisors that know there are judgment calls to be made, and those judgment calls are best made by an exchanger’s advisors that know that investors complete tax profile, we love to provide the support in the context. Judgment calls are really best made by an investor’s tax advisor, which is why our favorite clients are the ones good tax advice.

Mark Perlberg
And with the tick structure, if you do it right, obviously it creates so much more flexibility. Now what I’ve seen is 30, 40, 50 could have a couple of hundred members now to restructure this as a tick on your exit or your entry. That could create all sorts of back and forth and lots of dialogue, I imagine. I imagine there are alsome challenges getting everybody on board and to understand what this means some of the parties can 1031. So definitely a lot of conversation here. Another thing that I’m actually talking to one of my clients about right now is we’re considering a 1031 as a tick into an oil and gas mining well. We haven’t finalized it, but we’ve heard of it being done.

Mark Perlberg
But the advantages of the oil and gas mining well is ninety cents of every dollar contributed in capital can be deducted as ordered as non pass, really non passive ordinary losses for intangible drilling rights. What that’s going to look like on the current and future year tax returns and what kind of challenges and complexity it creates with the reduction in basis from the deferred gain of the 1031 exchange. So we’re having some interesting conversations on that.

Bernard Reisz
Yeah, that’s fascinating. Mineral rights. So when you get to things that are not like what we would typically call real estate, there are a lot of things that be defined as real estate, you know, for 1031 purposes, and mineral rights can be on that list. A 30 year lease, for example, even though it’s a lease or any lease that has 30 years left on its term is real estate for 1031 purposes. The depreciation is interesting because the depletion right now, the thing is on a 1031 exchange basis, calculation gets a little tricky. So it’s interesting and I actually don’t know, you know, how that interacts. I think that’s something worth doing a little research on. Have you done that yet?

Mark Perlberg
I am as much as I can during tax season. But it’s so rare that we see all of these concepts coming together to create new areas of complexity. So we’ll have to do a follow up web. I’ll tell you how it goes.

Bernard Reisz
Okay. We do have something on the calendar so that might be a great up. That would be an interesting opportunity.

Mark Perlberg
Yeah, very interesting. And oil and gas mining wells are something that we’re going to be exploring a little more with our clients who maybe can’t find deals as short term rail investors or find other opportunities. And they still want to reduce. Their taxes, and maybe they don’t want to manage any more properties and maybe they can’t materially participate as one of several vehicles and other ideas we’re bringing to our clients this year. So it’s going to be with having Donald Trump’s tax code phase out a former real estate investor, it’s harder sometimes it’ll be harder with the bonus depreciation phase out to reduce taxes and with other economic trends to find good deals for our clients. But it’s exciting for the new opportunities we’re going to introduce. So lots of interesting conversations to come.

Bernard Reisz
I’d be intrigued. One thing that I’d say I toss out to people, though, is not to let the tax tail wag the dog.

Mark Perlberg
The dog, yeah.

Bernard Reisz
Because the oil and gas, I guess it’s interesting. I always tell people treat their tax tools the same way you treat an investment, right? You want to do due diligence and calculate your risk adjusted return. That means like, hey, how much money are you saving by implementing this tax tool? What’s the compounding return say? All right, now you have another one hundred K in your pocket. What can you turn that into? On a 1031 exchange, that’s almost like an infinite number. Because you can always the cool thing about real estate is the benefits of leverage. So folks, hey, you go into a property, you sell on the exit, you’re getting a million dollars. Now, some folks say, I don’t like country one exchange complicates my life. I just want to pay the tax and move on. All right, what’s the tax?

Bernard Reisz
Depends where you live. But between if the gain is substantial, between state, federal, plus net investment income tax, even on a long term gain, it starts approaching 40%. Now, if you’re in a state that doesn’t have that kind of tax, you’re still looking at 24%. You know, between long term cap gains and, you know, when net investment income tax and if there’s depreciation recapture 25%, if there’s capture depreciation recapture in 1245, all of a sudden you get that your marginal income tax rates. That could be, you know, 30, 37%. Now suppose let’s just use a round number. You would have to give $300,000 in taxes. So now you walk it away with seven hundred K in your pocket and you want to redeploy that. In real estate, you have 300K less.


Now think about what you could earn on 300K that would have been invested in real estate or invested in anything. Now let’s take it a step further in real estate and I’m going to oversimplify. You benefit from leverage. So really every dollar that you give the IRS, you’re really giving up $4 in real estate. So by giving up $300,000 in taxes, you just gave away $1.2 million in real estate.


You know what, that’s also what’s interesting. Talking about leverage, it goes back to one of the great things about using real estate with your self directed 401 cases that you can now that you’re using leverage, you want to compare that to investing in mutual funds and stocks where you’re paying fees and this and that. You’re seeing the benefits of cash flow appreciation and leverage in these accounts as well. A lot of people may be overlooking that as well.


That’s absolutely huge. Now we talk about debt, something that I have toss out. One of the most misunderstood topics out there is Uvfi. Unrelated debt financed income. Unfortunately, this is the one topic that has some topics have good info, bad info.


That’s webinar right there.


Yes, but this is the one topic for which there is almost zero really? On target info on the web about the point is what I would say for purposes of today’s discussion. UDFI is not a reason not to use retirement accounts for real estate investing. When it’s properly understood, it’s a factor, but it should not intimidate folks. And when properly understood, it’s never a reason not to use retirement accounts for leveraged deals. Unfortunately, it’s something that’s used based on the misunderstanding of the topic, to talk people out of using self directed IRAs or using retirement accounts at all for real estate. Like everything else out there, the truth is a little more nuanced. And UDFI, you can say, is never a reason not to use self directed retirement accounts for real estate investing.


Yeah, I’ll have to do an episode of breaking down what that means and what the real impact is for our clients. Maybe another thing I’d like to talk to you about is exit strategies of these retirement accounts. Because you have it in a tax is deferred. Maybe when I come on as a guest in front of your audience, you can talk about some negative strategies and I’ll talk about some of the things we’re doing as well. So as we wrap things up, one of the things we didn’t get to talk about here is the community you have with research, financial. What do you do and how can people learn more about you and connect with you also?


Appreciate that question mark, really. I’ve got a bit of a mission, and I think we’re totally in alignment with that, which is a mission to benefit all real estate investors. It started from tax, which is getting good, reliable trustworthy info out to people and investors, because when the information that’s out there is not reliable, it harms the landscape for everybody eventually. But if folks take advantage of the rules the way they’re written and maximize the value real estate has so many powerful tax tools and Congress put them there for us to use, right? So these are not loopholes. These are totally above board. There are certain things out there, tax tools that, let’s call them, can be a little bit questionable, dubious. Those are tax tools that are created that Congress does not intend for.


And more often than not, those kind of tax dodges get shot down. It’s a matter of time. Cost segregation. 1031 exchange self retirement accounts. These are totally above board. However, they can still be misused and abused. And then what happens is folks get into trouble and the IRS says congress, hey, people are misusing these things. Right? We can see what happened with captive insurance conservation easements, right? Those are all things that were put in the tax code that had great tax incentives and they still have their place. But we can see how the IRS went ahead and is targeting those and is telling Congress, hey, maybe we should rewrite the rules here because folks are abusing this. We want to be able to keep using these powerful tools to accumulate wealth and benefit real estate investors.


And to do that, we’ve got to use them in a way that plays within the rules. Yet we can be aggressive, we can be creative, but the key is to use them expertly and knowledgeably. And that’s what this space is all about. It’s got education about, you see on the left hand side, 1031 exchange cost, segregation, self directed IRA, some financial products, not into these things, but as a financial geek, I can’t resist getting involved in it. And we’ve also got a meet up which is to give folks bring on true experts to do presentations and educate. There are a lot of true experts out there and no one expert knows everything about everything. And we want to really highlight and showcase true tax professionals so that the industry sees those professionals, uses their tools and engages with the tax code intelligently.


Awesome. So where can we find this? Because some people are going to be listening on our podcast.


Absolutely. So that’s Bernard Resurefinancial.com, free to join, easy to join. It’s designed to be a space for folks that have the same mentality that are looking for honest, unbiased, expert information deliberately kind of taken away from social media where you can get lost in the noise. This is supposed to be a zone where people can step aside and say, hey, I know I can come here. And what’s here is going to be it’s reliable straight talk on real estate taxes.


Fantastic. Bernard, thank you so much for your time. We’ll be having some more interesting conversations. I’ll be poking around there too and really appreciate your conversation. So hope you guys all enjoyed this. Subscribe for more and we’ll be keeping in touch.


Mark, thanks so much for hosting and looking forward to our future collaborations.


Absolutely. Have a good one. All right, Bernard, I’m going to jump into another podcast episode right now. Appreciate your time. We’ll talk soon.

Rent to Own and Trust Strategies

Rent to Own and Trust Strategies

Mark Perlberg:
All right. I guys, I am joined by Lou Brown. He has lots of expertise and experience in a variety of areas of real estate, and also in trust and trust tax strategies. He coaches on real estate and advises on topics relating to real estate and trust and entity, structure and opportunities that will not only help you build a port, successful real estate business, but also some strategies to reduce your taxes and create asset protection with trust.
So we have a whole lot of stuff that Lou and I can riff on today we could probably have multiple episodes. But i’ll respect your time, Lou. I really really appreciate your time today and let’s start off. Lou. Give this. Get a quick introduction to you to start off. Tell us a little bit about yourself in 60 s or less.

Lou Brown:
Well, Mark, thank you for the opportunity. You know I love real estate. I love trust. You know. It’s something that you and I hold a lot of close kinship kinship on, and I’ve been buying, holding and selling real estate now for over 40 years, bought my first house. When I was 18 years old I was able to buy that house by taking over the existing financing on the property. I’ve done that ever since. I’ve never been to the bank. I’ve never qualified for a loan on a single family or small multi family property.
I discovered that the seller could be the bank when you structure it correctly, and so, as a result, I’ve continued to do that way. Also, I’ve developed hotels, land divided by land divided into lots, condominiums. I’ve done a lot of things and I love love love single family homes. I think there’s so much wealth and so much protection and safety and single family homes, and there’s so much we can do with them that I created a program called the Path to Home Ownership where we help deserving families, regardless of credit or financial background, to end up with home ownership.
So in the evolution of that I actually created a brand called certified, affordable housing provider, where I show real estate entrepreneurs how they can get in the business, do the business. And now I have licenses all across America, and, in fact, in other parts of the world that are doing exactly that they’re helping, deserving families end up with home ownership and actually becoming the bank for them as well. So there’s a lot of financial side to what we do, and tax strategies for sure, because we’re taking all the elements that are available in real estate and putting it together under one brand and offering the path to home Ownership also is an amazing path to tax savings and passed to 0 taxes as well.

Mark Perlberg:
Amazing. So you know what’s interesting, what you told me about right here. Well, first, I want to share just some of the things that I’ve found for some of our clients. So we do have a lot of early professionals, and there’s something called a professional mortgage. For your first time you buy a home, and so, if you are a Cpa, a pilot or nurse practitioner, a lawyer or a doctor. They say you have the credentials in education to show that you are capable, or will be capable to hold a mortgage while you may not qualify or have the down payment. You can get a home with 0 money down and 0 Pmi doing not to go through the Va loan or anything like that. So that’s a good opportunity there’s. And then for there’s Naca doc there’s Naca and Aca. But that takes a lot of work and commitment from what I hear and cost. Yeah, I I hear it. It takes a lot of energy. If you could go through it you’d be all right, but it is I. From what I hear from a handful of people, it is a lot a lot of work to go through. Naca, right?

Lou Brown:
Yeah, ours is a lot easier, and and Naka is very expensive as well in terms of there’s a burden put upon the seller to have to eat a lot of those costs, so we do it a different way. We’re actually helping deserving families to get into home ownership. Then, while they’re living with us, we’re helping them build their credit, build their down payment, and eventually, when they get good enough credit or down payment, they can get a new loan from the bank if they choose to. or they can remain in our in house financing program, and we’ll finance them for the next 40 years.

Mark Perlberg:
That’s so. That’s really cool, like. The what I found is for so many people just getting that first mortgage is so hard. and especially in New York City, where a lot of my family is that you have to come up with 20 down in New York. You can’t get anything decent. for you know, under a 1 million dollars. and if you have a. D. A normal salary, it’s really hard to come up with $50,000 living in that city. So you know, when there are opportunity. You know it’s great to see that there there are opportunities out there, and just getting that first home creates a whole world of opportunities. As you build your equity. It’s just amazing what other doors that’s that’s gonna open.

Lou Brown:
Well, you know they’ve done this studies, and they say that people who are renters their net worth is around $5,000, and people who are buyers or owners. Their net worth is $250,000. So there’s a great divide between those that rent and those that buy. So we really encourage that. You know I was raised in apartments. I was raised by a single mom immigrant to this country who came over on the Queen Mary. She was a war bride and everything was gonna be great and ended up just being the 2 of us against the world, and I was raised in apartments until about my first house, when I was 18 years old, and I can tell you. It was one of the best decisions I have ever made in my life. because that really got me on the trajectory to be able to build wealth, and it is a truly amazing vehicle. I don’t know anything that comes close to real estate and truly building safe, secure wealth.

Mark Perlberg: Now.

Lou Brown:
so are you to help for families purchase properties with 0 money down low money down what was what? No, we don’t do no money down. However, we do have a vip, or might call it a house on layaway program, where people can join us with little funds, and then every pay period give us more build up on our vip program until they earn or build up enough for their option to purchase a property. So an option to purchase costs about 3.7 of the value of the property we give them up to 3 years to buy while they’re living there. We also credit them every month a $100 towards the purchase of the home every month that they pay on time. So we’re helping them build up their down payment. And then, when they do exercise their option to buy. We’ll take that original option the at amount and credit it to the purchase of the home as well. So we’re really giving them an ability to build up that money while they’re living with us. And then when they get to 10, we convert them to our in-house financing program, 10% of the value of the property based upon the option that they signed with us, and that number becomes the value of the property at that time and then we require 10, which we deduct their original option fee and their rent credits from

Mark Perlberg:
Nice. Well, that I mean, that sounds really helpful for someone just starting off now and then. I think about this from your perspective here, right when you compare this to just selling a home outright. That’s ordinary income. When you’re flipping a property but if you make them your tenant first, you have a fixed asset and the disposition is now capital gains asset, and once we convert ordinary income into capital gains income. You’re gonna be have so many more opportunities to defer or eliminate the tax liabilities and that we’ll talk about how you can do that within a trust in a little bit. But there’s also obviously the obviously answers, or are the 1031 exchange is is a not is another option. But we’ll talk about some things that’ll maybe the 1031 the same.

Lou Brown: That’s it. That’s called also known as pain and suffering. Is it 31 tax to per exchange, though we actually have developed a tax strategy that I think you’ll appreciate as a tax advisor, because our so we have 4 levels to our program. It’s rent rent to own in house financing and cash sale. So in the tax code arena well rent and rent to own. That gives you depreciation. Write offs well a lot of tax advisors say you ought to do straight line method which is 27 and a half years. I don’t say that I say a house is made up of component parts, and the irs let you write off those component parts over 5, 7 and 15 years. So we componentize the house also known as cost segregation, and we we take those component parts and write them off a lot faster, so that creates a loss that creates big losses. Now let’s go into the next arena, which is the in-house, financing, and as you know that now can be spread over many, many years, so your capital gain is spread over many years and in that arena you’re only taking your gain as you receive it. So it’s spread out over a long time. You can use those losses in your rent rent to own portfolio, to offset the gains which is now ordinary income in your long term portfolio and long term note acquisition, portfolio. And then, finally, when those folks get good enough credit good enough down payment and pay you off now you have cashed out when you cash out. Of course that’s ordinary income, and all of the of the capital gain, and everything would be due. Then, however, you’ve got this big pot of money losses from your rent rent on that you can offset that ordinary income, gain and 0 out your taxes, and then any any other money as it’s coming in. Imagine that going into a vehicle that defers the gain forever and literally forever. Not only your lifetime, your children’s lifetime, your grandchildren’s lifetime, and even plus 21 years before it becomes taxable.

Mark Perlberg:
Yeah. So I mean, those are all really awesome opportunities, and you know what else is awesome is you? Don’t need real estate professional tax status to use depreciation to offset capital gains from your rental portfolio. So these are some tag strategies, even if you have a W 2, and this is your side hustle. You could still use the the losses from your cost sag, and to offset capital gains from your rental portfolio. And now, let’s say you are using. You have rep status, and you use your depreciation to bring you in a 0 to tax bracket. Married filing joint roughly. Your first $80,000 of capital gains is untaxed at the Federal level. So if you get some cap gains and you spread it out, I said, recognizing that gain on year one you break it out into 5 year installment sale. Now you have the opportunity to have that. It’s kind of like a capital gains standard deduction that eats it up year after year after year, and can potentially eliminate a a good chunk of capital gains tax, drive it into the Lord Capital gains or $0, cat games, bracket, and here’s a little extra bonus that I learned from Dominique Molina. The Ct. You see, called the reverse wash sale. You find yourself in a $0 cap bracket with all these strategies, and with cost sag, and you have some stock that’s at a higher value than you bought it at. Why not sell it and buy it back at a higher higher basis. So let’s say you do that a few years every year you could potentially add $80,000 to basis and eliminate $80,000 of taxable capital gains in the future lots of cool things when we combine different elements of strategies. And look at all your sources of income and assets.


Lou Brown:
Yes, it’s like throwing everything in the basket, and seeing, you know kind of sifting and sorting, and seeing what falls out the bottom, and with proper planning, and that’s one of the reasons we created the path to home ownership the way we did, because we’re helping people, and that’s a wonderful thing, and we do that on purpose with purpose. In fact, our mission is to transform lives through affordable housing, to empower families and individuals to enjoy the American dream of home ownership. Now, with that mission. Imagine that as your business model, and you’re helping people. Meanwhile, you’re attracting a whole lot of different folks that are deserving families, and they would love to have home ownership, however, due to circumstances. Maybe they had a setback. A medical setback break ups breakdowns, you know. All kinds of things happen to human beings during their lifetime. I say that we’re beings and bodies on a journey and we’re here to learn whatever it is. We’re here to learn, and so based upon that experience that a lot of people had, we’re able to step in and help them. And so different people come to us at different stages in their life and their spectrum. Given that we’re able to serve them. And it’s an amazing tax model because of the fact that we’re taking different parts of the tax code, and we’re putting it all together. So the the rental depreciation, the cost segregation, the installment sale, and then the cash sale, using these offsets puts us in that 0 or hopefully lower tax world.

Mark Perlberg:
Yeah. So you know. And I, you know, this may be the point. Our conversation, where allow the casual people may have dropped off when I was talking about taxes for a little long there in the last point. But what I really find interesting here is that you said Your favorite type of asset is short is single family, Reynolds, because what I’ve found a lot of investors in my network say is that they’re not a fan of single family, Reynolds, because it takes a while to close on the asset in the same amount of time you could close on a multi family, or you could do a short term rental vacation home. They’ll cash, flow twice as much. But my guess here. Why it works for you is, if you’re doing this with least to own you’re going to get tenants who really respect the property. If they intend to turn to their homes. But I you know I’ve I’ve heard, you know. So horror stories on on 10, and it’s abusing single family homes. Can you enlighten me in the audience on why you love single family home so much.

Lou Brown:
Well think about it when that person is moving in they’re giving me a big hunk of money right? And from a tax from an income standpoint as a landlord. And I certainly have been a landlord, and we certainly have done multi family properties and all that sort of thing. So it’s not a foreign matter to me, but all those people. When they moved in they gave me something called a security deposit that I had to put in the bank and tell them what bank it was in, and what account number it was in, and in some states you even have to pay interest on that money and you can’t spend it. You can’t do anything with it as opposed to an option when I get an option fee in or down payment in that money is mine to spend, so I can recycle that money. I can reinvest that money, put it into more assets, making more money so definitely. It’s the attraction of getting that big fat down payment when they move in and get that monthly payment, month after month after month after month after month, that they’re living. It’s like getting a monthly dividend instead of a quarterly or an annual dividend. We get monthly dividends on our assets, and then I’ve got a caretaker exactly as you pointed out. I’ve got a caretaker living in that property, improving that property. Mark, it would shock you. What a lot of our residents have done. Brand new flooring. new lightings, new ceiling, fans, counter tops, sinks, faucets, you know they’re fixing it up for themselves. They’re fixing it up as their own property. You never find renters doing that, or extremely rarely do you find them putting any of their own money into a property. No, we’re doing something different. We’re getting these people into the properties, and then we’re keeping them there. We’re giving them an opportunity. We’re working with them while they’re there. In fact, if they have less than perfect credit, we’re putting them into credit restoration. We’re educating them. We have a twice a month meeting with our clients. We form education standpoint to help them so definitely. There’s a big commitment on our part to see them win at this game, and when they win we win.

Mark Perlberg:
So you know it’s always great when we have models like that, and it’s, you know we even grout. So look up for this because he’s so excited my cat and to my understanding also, when you get these down payments, these options, it’s not taxable income until you it’s treated as a credit of the purchaser. When you close on the sale. so it it also has tax advantages as well, and that you’re getting access to additional cash before you’re actually paying taxes on it, as because it’s going to count as a credit towards the purchase of that property. When that takes place.

Lou Brown:
Well, mark you put your finger on another tax benefit. That’s a great one, and it is exactly correct. When you get an option fee in well, that option fee is not taxable until they either exercise their option to buy, or they don’t exercise their option to buy. So, as a result. You’ve got that money, and you’re using that money, and it’s not even taxable to a later day.

Mark Perlberg:
Yeah, that is so. Just another awesome advantage. There. Have you ever done anything with this model in? I’m. Wondering if if qualified opportunity you’ve taken advantage of qualified opportunity zones with this as well?

Lou Brown:
That’s another whole level that absolutely could be done. You know there’s there’s there’s 8 800 opportunity zones around the country. They came in during the trump administration. They did some amazing things in communities all over to really give them an opportunity to have a better life in those kind of communities, and that was under Dr. Ben Carson. And oh, my gosh! What what great opportunities that presented for investors as well, because we can come into those areas. It’s a 10 year span and basically you invest in that area for 10 years, and you have no capital gains.

Mark Perlberg:
Yeah, it’s so. And it’s like a supercharged Roth. I race, I will say, because you keep it for 10 years, and then any gain after that is on tax, and you have a lot more control and flexibility, and you don’t have to wait until you’re 59 and a half like with a raw and you can invest in businesses and qos, and even oil and gas Mining Wells as a strategy in Q. O’s. A. Which can be part of your elimination Reduction of the deferred captains. We talked about that in our last webinar titled tax advantage investments to chase rafts, and which was a lot of fun. But you know we can rip on this forever, and may we go back to some of these these strategies. But what I what i’m most excited to talk to you about now is having to do with trust and trust tax strategies and asset protection strategies with trust. So there’s there’s so many ways when you understand how the the tax code works with trust that almost anyone who pays a decent amount in taxes. So let’s say, let’s say you are paying more than $0 in taxes after all these strategies. So let’s say you have a high paying billing 2 job, and you’re like a normal person paying more than $20,000 in taxes. Now we we’re with our clients to implement some trust. And one of the reasons why our practice is diving into this strategy is because, with bonus depreciation phasing out by 20% a year. It’s going to get harder and harder to use costs to bring you that down to a $0 tax bracket. and our clients are getting more successful. They’ve already front loaded the appreciation on the Reynolds with the cost sags, and they’re maybe running out of time to manage more. So we have some potential tax liabilities, and we’re looking to to use trust. And then we’re gonna even we’re gonna integrate that with college financial playing with our clients. And, by the way, Ron Carruthers, I was talking to him last night. He says, Hi! He’s he’s an awesome duty. He’s coming on in 2 weeks on the fifteenth to talk about college planning, and we can use, trust and integrate that with a college financial planning to take assets out of the names of the clients, and help them qualify for more aid and finance, financing from universities, but by putting the assets out of their name. and therefore having more advantages, results when they apply for college tuition and financing. So to so many cool things to do here.

Lou Brown:
So i’m. I’m glad you brought up the subject of trucks trusts Mark, because I date back to 1982 learning about trust. and it was the Government that forced me to learn about trust. They passed a law called the Garn Saint Germane, Federal Depository Institutions Act of 1,982 Now back story is, I was able to buy my first property at 18 years old by taking over the existing financing on the property. It’s called an inn. Q. Loan non escalating, non-qualifying loan, and for $45 you could step in and take over someone else’s financing. It was perfect. It was wonderful, and we know that the banking industry is the banking industry and all that Congress is bought and paid for by the banking industry. So what did they do? They passed a law that put an end to that. They put it that they were allowed legally to put the do upon sale clause in the mortgage. So everybody, when they read paragraph 17, or wherever it is in your mortgage do upon sale. When you sell your home you have to pay off the loan. So I got to reading that law. And what did I find 1701 J. 3, D. 6, c. Way way down. In the law I found exceptions. and one of the exceptions is when someone places their own property into their own trust for a State planning purposes. The lender is prohibited from calling the loan do now here, fast forward over 40 years later. That’s still an effect. Isn’t that interesting. So, in other words, there was a reason they put that loophole in there. Why? Because Congress people, of course, when they adopt trust, and they might buy their property, and then later want to put it in trust. They don’t want the lender to have the power to call to do upon the this loan do upon sale. So, sure enough, here we are. We’re in this learning phase, and I realized that when a seller places their property and trust for State planning purposes when they use a particular type of trust. So I teach a thing called Land Trust and Land trust, convert real estate into personal property interest. In other words, in a land trust, you have an interest in the avails and proceeds which may flow from the trust. So so what happens is your interest in a property held in a Land Trust is only personal property. So imagine that a personal property trust comes along and purchases that beneficial interest. So I figured all that out years ago. I’ve been teaching people that for over 40 years now, and it’s it’s the funnest thing ever, because when you learned that number one, you can do that yourself when you’ve got the right paperwork, and I’ve got a whole system that I teach around what to do and how to do it. Provide the paperwork on digitized so people can do their own. And then what happens is You’ve now got this wonderful asset that you did not have to go to the bank. You did not have to qualify for loans. and you’ve got the benefit of the income off of it, the down pavement money, and eventually, when people pay you off it’s a beautiful thing. So that’s really where I started with, with a very low cost, easy to use trust. That really made a whole lot of sense. However, the Land Trust and personal Property Trust have no tax benefits. So then, when people find themselves with W 2 income 1099 income, they’ve got these big hunks of money coming in on them on an annual basis. and they want to offset that. I had to find another vehicle. And, mark.

Mark Perlberg:
we certainly did. Didn’t we? Yes, we did. You want me to talk about that. Yeah. Oh, absolutely. And we’re going to be this year. We’re going to be doing a lot of it with our clients. We’re super excited, but take it away. Let’s let’s let’s get into it.

Lou Brown:
So what I found was that a lot of my people were becoming very, very successful with real real estate, you know I’ve been teaching since 1,986, and so, sure enough, I found that that when that was occurring, then, sure enough they would use up their depreciation. They would use up their other tax vehicles, and they would end up making money there. Then I had other people joining me. They were professionals. They were dentists, physicians. I I’ve got Cpas. I’ve got every tax professional attorneys. I’ve got all kinds of folks that joined us and they’ve got this ordinary income coming their way like our freight train that they gotta pay for every year. And so I was looking at that, and I’ve looked at different kinds of trust, and everybody needs to understand. There’s about 30 different kinds of trust. So when you hear the word trust that doesn’t necessarily mean. You know what you’re talking about, and the same is true with professionals that say the word trust. Well, there’s other vehicles out there that they are not familiar with. So when you take this information back to your tax, professional or others in your world, they may never have heard of this before, and they may even question it to say, Well, if if it’s that good, why, haven’t I heard about it before? Well there’s things that are suppressed, and if you’re like me, a conspiracy, theorist 101 I know. I know, for a fact that things are suppressed and information is not allowed to be out there for the general public. However, it’s available for all of us if we find out about it. Well, sure enough, I found about this amazing vehicle, which is, I call it, a dissing trust. I really call it the Elite Trust, because it’s what the elites use. and what the what this type of trust allows you to do? Is it’s discretionary meaning that the trustee of the Trust can declare any money that comes into the Trust as corpus to the trust, and that means that all of that money, whether it’s the sale of a property or income from a property, all of that money can come in and be claimed as corpus to the trust. What that means is no taxes, baby. The taxes are deferred. Not that they’re for free. They’re deferred until 21 years past the death of the final beneficiary, whenever that might be so literally generations to come can avoid the taxation on the capital gain. Corpus. So surely when I recognized and realized that I I realized that we had an amazing vehicle here to work with. And you know, seeing is believing there’s actually a place on a 1041. So everybody else files a 1040, but trust file a 1041 tax with regard Well, sure enough right there in the document is the place that you can put this deferral. So I love that. And as I’ve gotten deeper and deeper into this mark, it’s been an amazing journey. and I’ve been using now. I’m into my fifth year, and I’ve been teaching others how to use these. So remember I’ve been doing the the Land Trust and personal Property Trust since 1983. But now to to tie in with this new entity that was very hidden that’s actually been around since before the Irs was invented and and created as a tax collection agency. What happened before then is the Jp. Morgans, the Kennedys, the Rockefellers, all of them created this vehicle. So this vehicle actually has this carve out in the tax code to support it, because it’s been here before the Irs got here.

Mark Perlberg:
So couple of questions now, because we do have, there is a a tax rate for trust. So how do? How do we take a trust and a complex trust that has his own tax brackets. How do we make it? A tax deferred vehicle?

Lou Brown:
What! It’s simply to declare the income as corpus to the trust. So that’s where the deferral occurs. So you’re exactly right. There’s taxation. However, there’s deferral of that taxation. That’s that’s the that’s the short. Story.

Mark Perlberg:
And now another question I have here. So what’s interesting here is that if you’re thinking about putting real estate into a trust, real estate typically operates at a loss. Obviously, when you have gains and potential capital gains, not so much. But have you ever had an instance where you’re evaluating the You know you have a have real estate here that will let’s say you know you. You’ve front a little depreciation with the cost sa, and it’s generating taxable profits. At this point you could put it into this trust in this deferred tags vehicle. But what is there any recapt? Do you know there’s any recapture? So let’s say we’ve written off through depreciation. A good chunk. Is there any recapture in that transaction?

Lou Brown:
Well, that’s where the cost sag is so good because there’s no recapture of the cost sa, except the part that you haven’t used yet. But other than that, there’s no recapture of that. So that’s one way that you lower the overall gain on the property. Now, the rest of the story, though, is that you’re not You’re not gifting or giving this property. You’re actually selling it to the trust. So when you sell it to the trust, the trust doesn’t have any money today, it just got started right. So what can the trust give you. It can give you financing tool, so it can give you a note back. So you personally let’s say you personally were selling your property to the trust. Then you receive back from the Trust a note. and it’s a it’s a note with interest accruing so that in any time that you might need some money from the trust. You go to the trust and say, give me some money. And now you’ve got the money if you needed any, and you’re gonna be shocked that I can’t. I can’t really come up with a good reason why I would need money out of the Trust when the Trust pretty much is gonna own everything. Imagine that the Trust owns your personal residence. It owns vehicles. It owns everything. And I to describe it to people. I I say, Have you ever heard of the Kennedy compound, where all the Kennedy clan all have homes up in High Edinburgh, Massachusetts, and and what what they do is. All of those homes are owned by the Trust. and those vehicles are on by the Trust, and they were smart enough. Joseph Kennedy. He was smart enough to say, Look, I don’t know who my kids are gonna marry, who they’re not gonna marry, Who’s gonna Sue? Who what’s gonna happen? Who they’re gonna intermarry. There’s gonna be other families and all that sort of thing involved. I don’t want to put my work at risk, so therefore i’m gonna make these kids beneficiaries, but they cannot touch the money. They cannot touch the money. So, in other words, the money continues. It continues to make money and we make the kids beneficiaries where the kids are going to benefit from that for years to come. So just imagine that that opportunity just continues and continues and continues for generations to come, and the money is protected.

Mark Perlberg:
No. What I’m wondering is, do trust sometimes serve for some folks as an alternative to a pre nuptial agreement.

Lou Brown:
absolutely 100%. Imagine that the assets are already in the trust. And now you get married. Well, that has nothing to do with this. What happened before the marriage has nothing to do with marital assets. So what we actually created inside the Elite Trust is what we call a subtr. So the kids when they get married, and they start creating their own assets in their own life. Well, they can, and inside their subtr they can protect their assets. So they got the benefit of whatever comes down from the primary trust or the the mother trust, so to speak. It comes down, and then the beneficiaries also can have their own trusts for their own world.

Mark Perlberg:
And and then another cool thing that I mean, and then there, there’s also ability to create terrible deductions with the private family foundation, right where we’re donating our access to a trust that’s dedicated for for charity, and you know there’s the opportunity to reduce your taxes by 60% of agi.

Lou Brown:
So you you’re just gonna do it all at once, Aren’t. You mark we’re just gonna get into the whole Mary out of things. So now, people really do not. You wouldn’t do that, would you? Truly wealthy in this country They have a tax dodge extraordinaire, and we always think of them as really good do goodters, because oh, my gosh! They’ve got these foundations. and these foundations are building wings on hospitals, and they’re they’re building buildings at colleges and universities, and they’re donating this, that the other thing. Oh, my gosh! What a tax dodge! Because what really happens in the real world is any money that’s declared as Agi adjusted gross income. Well, they can donate 30% of that agi to their own foundation, and that that this is a it’s called a private family foundation, and that private family foundation. Oh, my goodness! They’ve got to travel the world over, and the whole family’s got to go to select the next project, and of course the foundation has to pay for all of that travel and pay to bring people in from all over the country and around the world to participate in that journey. And then there’s another 30 that could be donated to a public charity. Well guess what you can become your own public charity as well. So there’s just many ways that the the wealthy and we’ve heard this said for so many years, the wealthy. Just don’t pay taxes. but we really didn’t know how or why. Well, yeah, now, you know how and why they’ve got the the combination of the elite trust plus they’ve got the foundation, and there’s just no good reason for them to pay taxes. And, by the way, when you look up some of these foundations, like the Gates Foundation, for example, in the Buffett Foundation and the Pew Foundation and the Ford Foundation and the Clinton Foundation. And what do you do you actually look at their tax returns? And what do you find? 0 point 0 taxes on those foundations?

Mark Perlberg: Yeah, you know. And what’s cool is Now it. So there’s amazing things, and obviously you will work with your advisor. And you know some of our clients. We’re working on this with after tax season. Some of our clients we brought to a $0 agi with other strategies, so they’re not quite ready for the trust strategy yet, but it’s on the the foundation strategy. You or yeah, I mean, so trust for other reasons, maybe for asset protection and things like that which is. And and so you know, you have your your reverse corporate veil, even though your assets are in your Lc. What if you get in a car accident? You know what, if you have whatever or like a. You know, some sort of fictitious lawsuit against you, against you, and you are the owner of those assets. So in the reverse, the the trust can can help you protect your

Lou Brown:
your Llc. From being a your Lc’s assets from being C so there’s this whole other world of asset protection where the trust comes in as well. Exactly. So. That’s another reason why you want to do this. I say that there’s about 30 reasons to do trust over any other entity. Corporations, Llc’s limited partnerships. because trust can deliver things that other entities cannot. So we delve into things like probate probate is the thing that every dead person that’s the result of every dead person right, the opportunity for probate.

Mark Perlberg:
and if they left the will, that’s a guarantee for probate, if they left assets in an Llc. Or corporation as a guarantee for probate. By the way, this will return when it’s in probate. But sorry go on. I’m sorry

Lou Brown:
to do the additional state return when it’s in Prob. It is paying the neck. Yeah, there you go. And another another thing done which can be avoided when you own property, and trust any of your properties. Hopefully, all of your property and your money too. When that’s in trust, it avoids probate. and of course probate is the process by which we take the assets of a dead person and give it to the rightful living heirs whomever that might be, but that’s got to be sorted out with a by a court attorneys, filings, judgments, pleadings, all kinds of stuff. and you got the expense of that. The delay of that, the upsets, the breakdowns, the family responsibilities. Somebody’s gonna be burdened with having to deal with this. Everybody else thinks they’re stealing, and all they’re doing is just tearing their hair out, trying to deal with the assets and trying to deal with it. All of that can be avoided 100 by putting your assets into trust. So what happens is at death. The trust already says, who the beneficiary is going to be. So. If you’re the primary beneficiary, it immediately. instantly at the deaf. goes to the rightful living heirs. and so that is done through the probate Pro Excuse me through the trustee process. No probate is necessary. No filings with the court is necessary, no refiling of deeds and titles to vehicles, all of that is eliminated when you’ve already done it by placing it into trust, and then saying, who you want to get it. That’s exactly what the judge does, so there’s no need for a judge. Courts, delays, expenses, attorneys, or anything. So there’s yet another reason for trust. And then, mark, as you pointed out, asset protection it is. It is a big thing we know that our at least my belief is that our legal system is flawed, and there’s winners and losers, and sometimes the winners shouldn’t have been the winners, and the losers should not have been the losers. And that’s because of our flawed legal system. So what I’ve found is the smarter thing to do is. Get your assets into a tank. Just think about a tank. If a mortar shell goes off next to a tank, the tank might rock a little bit, but it does not blow up, and we’ve got other vehicles out here in the world. Lcs. Corporations, limited partnerships, weak trust that people can easily blow up using the court system. This trust is another whole thing. So it has spendthrift provisions in there which think about Teddy Kennedy. Think about Mary Joe Capckney. Think about. There was a murder death, whatever you want to call it. And what happened was they didn’t go after him criminally. But the Kopeckni family went after him civilly. What did they get? They got a big, fat judgment against Teddy Kennedy. Were they able to collect? No at all? Why? Because all the assets where this trust, this type of trust. And so they went after him personally. He didn’t own anything, so they weren’t able to collect on their big, fat multi 1 million dollar judgment. So and and by the way O. J. Same deal. So we start to remember stories from our past and start to realize. Oh, my gosh! This has been around for a long time. I just didn’t know about it.

Mark Perlberg:
Yes, so and what else is cool and correct me if i’m wrong with my understanding, even with the trust and and going through and avoid. Not only do you get to avoid probate, but you still see the tax advantages of the step of basis in the property, and as an additional advantage here, let’s say you were on the offense, on whether or not to do a cost sa this year next year, and let’s for your clients as a. And so we’ve done this actually where the client passed away. even though after the data to death we were still able to run a cost sag on the clients tax return. So we saw the benefits of the accelerated appreciation on that clients 1,040, and then it went to be right away to be inherited by the years, and that basis went right back up to to fair market value in in the put in the in the on to the 10 fortys and income statements of the the heirs who inherited the property.

Lou Brown:
Yes, correct. So you know, that’s the the cool thing about having assets in this type of vehicle, because what happens is it passes from generation to generation and

Mark Perlberg:
the kids. They just have their own personal tax returns. That might not show a lot. If you know what I mean. It’s just seeing how, when you talk about general generational wealth with real estate, I don’t know if anything that’s so much more powerful, because, even you know, if you have a I mean, there’s tons of strategies out there, but when you have a portfolio of stocks or other types of vehicles, you’re not, You know the Ccorp stock isn’t going to get that step up to fair market value. No, nor is that for stock but your ownership, that real estate that you’ve been using depreciation to offset the profits year after year. And then right when your your air is inherited, the depreciation starts all all over again from step one again.

Lou Brown:
It’s a beautiful thing. And so you know you think about what you’re trying to accomplish in life. You wanna you’ve worked hard. You want to keep what you’ve got. You don’t want frivolous lawsuits to be able to take everything that you’ve already earned, and you know I I equate it to. You know there’s somebody that’s completely broke. and they run into you, and you’ve got a claim against them. What can you get? Absolutely nothing right? So this to me levels the playing field, because nobody ought to be able to get nothing out of anybody if they didn’t work for it right. And so I I think, work for it and protect yourself. And I don’t mean to teach this in any form or fashion is a way to get away with something. I’m just saying that when frivolous people are out there definitely using the system in order to collect. I want to be very cautious, and think in advance that they could be out to get me sooner or later, and therefore I want to make sure that i’m out of the line of fire. You look up and you don’t find anything. That’s the way you ought to look on public record. You can’t find anything in your name worth having. So so if if everything has been sold to the trust, and you don’t own it anymore to me that’s the perfect place to be

Mark Perlberg:
awesome. So so I and so you have so many projects with the real estate, with with the stuff that you’re helping out with with the trust. And you know. So you know I and I look through your site, and there’s just so many resources for people either looking for affordable housing, looking to get into the real estate looking for tax strategies. Where can people go to to learn more about the stuff that you’re working on

Lou Brown:
Definitely Street Smart investor.com Street smart investor.com. You want to know more about becoming a certified, affordable housing provider. You can go to certified affordable housing provider.com, and also you can get my book doing good while doing Well, it’s get doing good book.com. You can get a free copy of my International Amazon bestseller right there at Get doing good book.com, and that tells you more stories from our licenses from all over the country, many of which have adopted this type of trust in their world because they’ve evolved right. They started with me with no properties, and now they’re not only millionaires, but multi millionaires, and they needed a vehicle like this. So i’m very pleased that I was able to learn it and bring it to them. and pleased that I was able to be an expert and and trust because the Government forced me to. So it’s it’s kind of a a pay it forward thing where I can share it with other folks. And by the way, those folks that are not ready for the Elite trust. We still have the Land Trust and the Personal Property Trust, and certainly I started all my folks with the Land Trust and Personal Property Trust. But i’ll leave you with these words. Do not own anything in your own name in this country period. That is the worst place you can be from a liability, from an asset. Protection from a probate standpoint, is to own things in your own name, and encourage your parents and your grandparents to also get their assets into trust. Because who’s that? Gonna help that’s gonna help you, because you’re the one that’s gonna have to deal with that probate pain and suffering, expenses, delay, and costs that could be avoided just because you paid attention to this podcast today that Mark is providing to you so very smart on your part to be here. I have a full blown Webinar that teaches land, trust, and personal property. Trust, as well as the elite trust. and Mark is going to put those links here as well. So definitely love to have you explore and educate yourself. Learn more, and I would love to see you at one of my upcoming events.

Mark Perlberg:
awesome. So tell us what your tell. Tell us what you do outside of work, where we’re some of the other things that in the world of Lou Brown.

Lou Brown:
So I have a a son and a daughter and a foster daughter, and I love spending time with them, and I have a granddaughter now, and a new one on the way, very, very happy from my son. So you know life is good. I spend time with them. I I honestly my work is my hobby. I love what I do, and so I spend a lot of time with my licenses. We have weekly meetings together, and I’m. Supporting and helping them grow their businesses. I do coaching and training and consulting, so as a result of that. It keeps me very busy. It’s something that I absolutely love

Mark Perlberg:
awesome. And do you have, maybe an ask of the audience, or is there a big goal. You’re working on that

Lou Brown:
Well, absolutely, you know. I’m. I’m just one single person, and I believe that we can transform housing in America. I know for a fact that we have transformed many lives. Harvard has done the studies on people that grow up in apartments versus in homes and kids that grow up in homes, go on to a better life. They go on to higher education. They go on to more income, and they go on to more stable relationships, and that’s a Harvard study. That proves that. So it just goes on to show that you are making a difference in other People’s lives when you help them to obtain home ownership. So it is a vision, dream, desire, and goal of what I do, and definitely I love teaching others how to build businesses doing exactly the same thing. So my ask is just to explore. We have a one day training called Wealth builder, workshop, wealth, builder, workshop, dot online where you can join me for a whole dollar for a whole day. and there you can learn more about what we do and how we do it. We do teach trust there as well as finding the buyer before you even buy the property. So we’re looking for these type of folks that want to be served by us, and then we go about finding a property that will match their situation. making a nice equity in between arbitrage, where you’re making some income on an ongoing basis. From that asset the big, fat down payment monthly income, and then a big fat payment when they pay you off and give you an opportunity to defer the taxes on that forever. So love just teaching that whole process, and would love to have you come join us. Our 800 number is 1, 800, 5, 7, 8, 8, 5, 8, 0. That’s 805-78-8580. Look forward to seeing you in the future

Mark Perlberg:
awesome. And so lots of great information there, Lou, I really really appreciate this conversation, getting your perspective on this stuff in a unique perspective and a thoughtful perspective in hearing about your mission and you know success is not a 0 sum game. So when you could be successful by helping other people. It is always just a a wonderful and gratifying experience. So, hopefully, you’ve inspired some of our listeners to do some wonderful things, and we, you know we’re. We’re really excited to share this to everyone. and thanks again for for showing everything you got.

Lou Brown:
All right, brother. Well, thank you for the opportunity as well, and I always say good luck, good health, and may God bless, have a great day.

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