How to avoid taxes with primary income from flipping properties?
Flipper/Rehabber · Glendale, AZ · Member since 2016 · 64 posts · 69 votes
How to avoid taxes with primary income from flipping properties?
Most Popular Reply
Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votesOriginally posted by @Clayton Coombs:
Thank you Carl, I completely agree.
I contribute about $18,000/ year towards my roth solo 401k and about the same about the same to my traditional sep IRA. I understand the traditional IRA gives me tax benefits now and the roth will give me benefits in the future. However I still have a lot of years left before I can start drawing from those accounts. I did recently make them self directed so I can use them with some real estate investments but ultimately those accounts are still a little low without getting a loan.
You can do few things:
1) Start to leverage more rentals so the you can offset rental loss againsts your income. You will have no limitations as you are a real estate professional. But a rentals that’s has more equity appreciation( In a nicer area), they will either break even Cashflow and will give you taxloss via depreciation.
2) depending on your situation, start hiring your family member to shift income to Lower bracket or with no tax. . That way kids can fund their own education and even retirement accounts starting now rather than you funding their school/college via after tax money.
3) you need to be contributing towards qualified profit sharing plans via your businesse. You can shelter more than 60k for you, and may be 60k for your spouse, if your entity is structured properly to make it happen.
4) hopefully you are running your flips via S -crop to save on self employment taxes.
You need to talk to a good Professional.
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88 Replies
- Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes7y
As mentioned "Based on what you've laid out so far, that discussion should focus on your potential QBI deduction and if you're above the threshold amount (and therefore phased into the limitation). If you are, lowering taxable income to get below the threshold amount, or making an S election and paying out wages become front-burner priorities"
Issue is deadlines for filing S corp have passed. There are allegedly a few ways around deadline though. @Eamonn McElroy could you please explain in more detail if this is possible?
I am in a similar position with commission income over $200k and very little write offs. Talked to CPA briefly some options....
1) Set up S corp if have not already
2) Buy leveraged class A low cashflow property for the tax write offs
3) Tax deductable retirement accounts/medical fund (but doesn't make sense for people like us who can see higher returns in real estate)
4) Increasing marketing before end of year
5) Rolling over/delaying any commisions/profits into next year to stay away from losing QBI thresholds.
- Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes7y
@Henry Lazerow "Issue is deadlines for filing S corp have passed."
Depends on when you want the S election effective date to be...
Late filing relief is available depending on individual facts and circumstances.
You say you talked to your CPA? Surprising he/she did not walk you through this...
- @Eamonn McElroy is on point and I second pretty much everything he’s mentioned.... sometimes what you think is bad advice from a CPA is actually the right advice that you just don’t like to hear... but Eamonn brings up excellent points that your should be focusing on before 12/31
- Investor · Avilla, IN · Member since 2013 · 796 posts · 769 votes7y@Clayton Coombs You’ve gotten a lot of short term ideas that will help. It sounds like you’re quite successful at flipping houses so I would suggest that you continue to focus on that. I don’t agree that buying rental houses is the best idea though. You’d need a ton of them to offset your flipping taxes and that would create a whole new set of problems. It takes a lot of time and effort to buy that many properties and then there’s the management of it all. It may solve your problem partly because dealing with the portfolio would cause to divert attention away from flipping and you’ll see your income drop as a result. I’d recommend that you find some good multifamily syndicators to align with that are long term hold guys and invest in their deals as a limited partner. You’d get the tax breaks you’re after as a passive investor and at some point you’d not even need to flip to generate $250-300k in income. And that income would not be taxed as aggressively as your flipping income.
- Chagrin Falls, OH · Member since 2018 · 9 posts · 6 votes7y
Originally posted by @Eric Nurmi:
@Clayton Coombs a friend of mine has strategies I’m using to significantly lower my taxes. There are new laws coming into effect this year that we can take advantage of and even use for 2018. I sent you an email.You can say something more
- Yuma, AZ · Member since 2015 · 140 posts · 137 votes7y@Clayton Coombs more rentals..your working too hard. Uncle Sam loves you Im sure.
- Real Estate Broker · DFW · Member since 2015 · 350 posts · 270 votes7y@Clayton Coombs Some people have already hit on these points but the biggest things you should be focusing on in order to lower your tax liability are as follows 1. Getting your taxable income under the QBI deduction limit of 315k assuming you are married filing jointly. 2. Setting up your own S-Corp if you’re gonna continue to crush it. By doing this there are numerous tax strategies that come into play by increasing deductions including meals/travel write offs, paying family member on payroll so you’re shifting the income on to them so you’re essentially paying the SE tax. Also by setting up an Scorp you will have a “board of directors” in which you can write off your annual BoD trip 3. Setting up a 401k plan through your Scorp. By doing this you can put 36.5k tax deferred into a retirement plan along with your 18.5k in deferrals. If you get your wife on payroll double that amount and the 36.5k will be a business deduction. 4. Conservation Easement. I’m really surprised this didn’t show up, this is a charitable contribution in which you typically get around a 4x multille deduction on your “investment”. This would probably be the best option for 2018 since the other items will take time to set up with a legal team and a CPA who knows what they’re talking about. These are all things i would ask a CPA about
- Developer · Houston TX · Member since 2018 · 423 posts · 400 votes7y
Hello. I am new to this site but have been investing in both flips and long term holds for the past 14 years. Own over 30 properties and own a couple of businesses. To buy a property in hopes of appreciation sounds like the same advise I heard from everyone while living in CA back 2006. Back then the so called next door investor whether it was the waitress at Dennys or my Mailman everyone was telling me how they bought a house in X city, with little or no money down and is loosing $500 per month while renting it out but that was not a problem because they felt it was a small price to pay given the upside in appreciation. All they had to do is sale in one year and they would make $50-$100k. I never considered that investing. Investing in my option is to make money the day you buy. Sure there is value play and other methods but in this market it is just too hot to think values will keep going up. One day and it can be 3 months or in a year but there will be alot of investors left standing when the music stops during musical chairs in this market.
Buy, Buy, Buy.. who cares if you dont make any cashflow because you are banking on appreciation. I have always treated Appreciation as a bonus and never bought a deal in hopes of appreciation. What Flippers need to know if you sale more than 5 in one year you will be considered a Dealer. IRS taxes the heck out of you thus many dont realize they loose alot of their "profits" to taxes. As a Flipper you have gotten yourself a job not a business. I like that you are cautious and dont want debt but real estate is a leverage play. If you talk to any SUPER successful old timer who has over $10 million net worth you will hear they used some leverage but did not bet the farm on any one deal. They did not over leverage. In real estate you make your money on the purchase. If you buy correct and are well capitalized you can push through the down markets. Some good points made here about using S corp to reduce SS and employment taxes. I would suggest getting a small mortgage on your investment properties no more than 60-70% thus giving you some cushion if the market goes south. Another strategy might be to do the BRRRR method as that will give you conservative loan to value but you dont sale you keep and make monthly cashflow from each deal while increasing your net worth. The bank looks at your Financial Statements to determine your risk. FS is like the adults report card when they come into adulthood. Having a high net worth helps to open doors. Having high income from flipping is not always a good thing for bankers. Also another option that I have been hearing but I personally dont use is using self directed IRA. The money has to go back into that account including profits but you might be able to pay yourself as a Project Manager thus giving yourself a good salary while growing your cash from one flip into another and thus building a great retirement account. You can always dip into it and pay the taxes/penalties as you take out so not like you cant access until you are at legal retirement age.
Sorry for the long response but just think people forgot what happens when markets turn and all this easy money goes away. It was not long ago that all the over leveraged, banking on appreciation investors walked away from their investments when that play was no longer feasible.
One last point, as many others said you have to do smart tax planning ahead of time to do it right and legit. Trying to do after the fact is tough. If you end up paying the taxes just remember you are a business and not employee so you can take all the deductions to run the flips.
Keep up the great job and keep finding yourself great deals that you can make money from.
L
- Fort Smith, AR · Member since 2017 · 2 posts · 2 votes7yHSA...Health Savings Account to reduce taxable income.
- Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes7y
Originally posted by @Eric Nurmi:
@Clayton Coombs a friend of mine has strategies I’m using to significantly lower my taxes. There are new laws coming into effect this year that we can take advantage of and even use for 2018. I sent you an email.Sign me up. I like money and I like keeping as much of my money as legally allowed.
- Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes7y
@Harrison Sharp "4. Conservation Easement. I’m really surprised this didn’t show up, this is a charitable contribution in which you typically get around a 4x multille deduction on your “investment”. This would probably be the best option for 2018 since the other items will take time to set up with a legal team and a CPA who knows what they’re talking about."
I assume you're talking about conservation easement syndications.... I wouldn't call them a valid tax avoidance strategy and their efficacy is debatable at best.
- Real Estate Broker · DFW · Member since 2015 · 350 posts · 270 votes7y
Originally posted by @Eamonn McElroy:
@Harrison Sharp "4. Conservation Easement. I’m really surprised this didn’t show up, this is a charitable contribution in which you typically get around a 4x multille deduction on your “investment”. This would probably be the best option for 2018 since the other items will take time to set up with a legal team and a CPA who knows what they’re talking about."
I assume you're talking about conservation easement syndications.... I wouldn't call them a valid tax avoidance strategy and their efficacy is debatable at best.
Yeah that's what i'm referring to. It depends on how aggressive you want to be on your return. The key is finding a syndication company that do them right. I have multiple clients getting an ROI of 40% to 80% on these easements and the most the IRS has disallowed was based on the valuation and they only lowered it 20%.
For this guys situation and depending on his comfort level, this would make the most sense for 2018 at least
- Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes7y
Originally posted by @Harrison Sharp:
Originally posted by @Eamonn McElroy:
@Harrison Sharp "4. Conservation Easement. I’m really surprised this didn’t show up, this is a charitable contribution in which you typically get around a 4x multille deduction on your “investment”. This would probably be the best option for 2018 since the other items will take time to set up with a legal team and a CPA who knows what they’re talking about."
I assume you're talking about conservation easement syndications.... I wouldn't call them a valid tax avoidance strategy and their efficacy is debatable at best.
Yeah that's what i'm referring to. It depends on how aggressive you want to be on your return. The key is finding a syndication company that do them right. I have multiple clients getting an ROI of 40% to 80% on these easements and the most the IRS has disallowed was based on the valuation and they only lowered it 20%.
For this guys situation and depending on his comfort level, this would make the most sense for 2018 at least
It has nothing to do with being aggressive... Ignoring the valuation question, which is determined according to "highest and best use", which by itself is open to broad interpretation, the majority of these syndications I have seen violate the partnership anti-abuse rules under Treasury Reg Sec 1.701-2 and the substantial economic effect rules of IRC Sec 704(b) and the related regs.
The strong majority of these (but not all) dealing with "investors" are nothing more than thinly veiled attempts to sell tax deductions, and the Service and tax courts are quite clear on where they stand on that.
According to your profile you're a CPA too. Are you going to stand behind your advice to clients and cover interest and penalties if your client's charitable contribution allocation is adjusted to reflect economic interest?
- @Eric Nurmi were you able to avoid the early withdrawal penalty with your 401K? I’m interested in doing the same; however, the early withdrawal penalty and IRS penalties are not worth taking half my hard earned money. Would love to hear about your strategy. Thanks.
- Real Estate Broker · DFW · Member since 2015 · 350 posts · 270 votes7y
Originally posted by @Eamonn McElroy:
Originally posted by @Harrison Sharp:
Originally posted by @Eamonn McElroy:
@Harrison Sharp "4. Conservation Easement. I’m really surprised this didn’t show up, this is a charitable contribution in which you typically get around a 4x multille deduction on your “investment”. This would probably be the best option for 2018 since the other items will take time to set up with a legal team and a CPA who knows what they’re talking about."
I assume you're talking about conservation easement syndications.... I wouldn't call them a valid tax avoidance strategy and their efficacy is debatable at best.
Yeah that's what i'm referring to. It depends on how aggressive you want to be on your return. The key is finding a syndication company that do them right. I have multiple clients getting an ROI of 40% to 80% on these easements and the most the IRS has disallowed was based on the valuation and they only lowered it 20%.
For this guys situation and depending on his comfort level, this would make the most sense for 2018 at least
It has nothing to do with being aggressive... Ignoring the valuation question, which is determined according to "highest and best use", which by itself is open to broad interpretation, the majority of these syndications I have seen violate the partnership anti-abuse rules under Treasury Reg Sec 1.701-2 and the substantial economic effect rules of IRC Sec 704(b) and the related regs.
The strong majority of these (but not all) dealing with "investors" are nothing more than thinly veiled attempts to sell tax deductions, and the Service and tax courts are quite clear on where they stand on that.
According to your profile you're a CPA too. Are you going to stand behind your advice to clients and cover interest and penalties if your client's charitable contribution allocation is adjusted to reflect economic interest?
I wouldn't recommend if I didn't stand behind my advice. Like I said, the biggest risk is having a syndication who doesn't know what they're doing or has some crazy 12x multiple valuation - clearly that's abuse. The companies I use get multiple valuations by certified experts and their valuations are reasonable so the IRS doesn't have a case to disallow these deductions. And again the highest amount I've seen the IRS disallow on the valuation is 20% which still saves my clients a ton of money. Its aggressive yes, but its completely legal. If you don't agree that's fine
- Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes7y
@Harrison Sharp Not sure if you read my post or not...
You're still talking about valuation...I put valuation aside...
"Its aggressive yes, but its completely legal."
How can you say that all conservation easement syndications are in compliance with Treas Reg Sec 1.701-2 and IRC Sec 704(b)? That's a blanket statement. That will get you into trouble.
It is not legal to sell income tax deductions. The Tax Courts are clear on that.
- Rental Property Investor · Scottsdale, AZ · Member since 2016 · 184 posts · 223 votes7y
I'm surprised nobody else brought it up already: Bonus Depreciation.
@Jay Hinrichs mentioned it in the context of buying a airplanes, but there are actually many other ways to take advantage of it.
Firstly, for the houses you bought this year, you can take the full 5,7,15 year depreciation schedules *this year*. Depending on that cost basis of your rentals, that could be a very big paper-loss. Since you would easily qualify for as a "real estate professional" according to the IRS code, there is no limit to how much depreciation you can take.
This will require to pay for a cost-segration study. Previous to this year, this strategy was typically not recommended because the cost of the study often outweighs the benefits for SFRs. However, you can do a low-cost "residental" study. That coupled with the new bonus deprecation rules probably change the cost/benefit ratio in your favor. Check out kbkg for the residential study.
Secondly, you can buy a car. If you buy a regular passenger vehicle for business use, you can get 18K deprecation this year. If you buy a larger vehicle (6K+ lbs), you get the *whole enchilada* in depreciation. That's right: then entire cost of the vehicle. Of course it doesn't make sense to buy a car just for the deprecation (or an airplane for that matter), but if you were thinking about getting one in the next couple of years anyways, now's the time to act.
Thirdly, and it may be a little late in the game for this: you can invest in multi-family syndications. Cost-segs may or may not work for SFR, but they almost always work for larger MFRs. A knowledgeable syndication lead can commission a cost-segregation study, and pass the depreciation straight through to the passive investors.
Please keep in mind those are 2-3 sentence descriptions of very complicated and new tax rules, so don't go off half-cocked and try to implement them without getting some real advice from a tax pro. And speaking of which, if your CPA isn't already talking to you about bonus depreciation, then you need to find a new CPA asap. I had a CPA for 15 years whom I absolutely loved, but he wasn't a REI specialist, and he didn't know about stuff like this. You *need* a specialist for your field.Disclaimer: I'M NOT A CPA AND THIS IS NOT ADVICE! :)
Hope that helps!
James Kojo
- Investor · Santa Barbara, CA · Member since 2016 · 75 posts · 35 votes7y
You can organize your flipping company as an S Corp- pay about a third of the income to yourself and pay taxes only on that (80k), and receive the remaining as dividends which is not taxed or at a drastically lower rate. Also get your SDIRA investing in properties and deals and although you can only directly put 18k into it a year, and deals IT does can add back in as much as it makes- without penalty. I have a good friend in PHX area who can fill in more details and get you in touch with the right people to assist you further.
- Investor · Phoenix, AZ · Member since 2013 · 37 posts · 10 votes7y@Luciano Armani I did the self directed IRA. I started with $110k (from an old 401k) 7 years ago n today it’s worth $515k. I took out loans in the self directed IRA through 1ST Bank n reinvested that cash. I am currently liquidating the two SFHs inside the self directed IRA. They total $370k and I have $145k in equities. My plan is to now take my $515k n move it into multifamily properties. The nice thing is I pay no taxes until I am 59 1/2. There are pro n cons to everything.
- Developer · CA · Member since 2017 · 21 posts · 30 votes7y@Clayton Coombs You can pay 15% flat tax only when you develop, flip or wholesale properties First of all let me congratulate you Clayton on your success. Flipping homes is one of the fastest and best way to build your wealth. It looks lIke you are payIng 40% In taxes and you could easily drop it to 15% flat no matter how much you make ImagIne on every $100k in net income you pay $15k Instead of $40k+ That‘s a net saving of $25k so you could brIng home $85k Instead of $60k on each $100k ... this changed my life Actually the tax attorney who helped me is also on BIgger Pockets and her name is Pat Marco - I private messaged her about this post I met her in a seminar heId by a real estate fund manager in the name of cherif medawar In california and it was 6 years ago, the rest Is hIstory. In the past 5 years I netted more than I had made in the prevIous 12 years due to the compounding effect of the tax savings (I am a real estate developer) The basic idea is I continue to develop and flip homes in California but use a consulting firm in Puerto Rico (This US PossessIon has a special tax Incentive extended by Congress) It is all about knowing the right jurisdictions and tax incentive laws without going offshore or complicating your business I verified it with my CPA and got his blessings and you can reach out to the same company (PrIvate message me for theIr contact Info) - you have to have a net income of at least $200k and they have some other criteria and guidelines but it can be set up in a few days Good luck to you
- @Dan Heimer @Clayton Coombs I am a retired tax attorney from NY - best strategies are usually little known and used only by the top real estate or wall street fund managers There is a lot of advice here that is either complicated or takes you off course. The reason I “retired” from being a tax attorney is because I was flipping real estate and I realized that there are laws in the US territory of Puerto Rico that can significantly reduce my taxable gains while avoiding complicated structures or buying assets that do not perform etc There are 2 laws that Mr Dan Heimer is mentioning about Puerto Rico to reduce taxes legally (I assure you most CPAs can search this info but will not grasp it totally) The two laws are Law 22 if you personally relocate and take residence in Puerto Rico (just like moving to Florida or Texas there are benefits with no state taxes), well Puerto Rico has special rules approved by Congress for those applying under that tax incentive law - but this is too dramatic and it only makes sense if you are a billionaire like John Paulson or many other wall street gurus who moved there to reduce their taxes Then there is Law 20 which is for businesses. It has a requirement for residence but what you can do is work with an affiliate office there and yes your taxes back in Arizona (or in New York like in my case) could be reduced to 15% flat even on millions in income This is not for 100% of your income but it could be for around 60% of your net income - it cuts your working life in half and if you continue investing like I did, it will cut your working life by 2/3 - That‘s how I retired much earlIer I can refer you to the company we have dealt with when I had my law firm in New York and they can set you up and show you the tax opinion letters and the decree with the government etc It is all in the US and all per Congress’s tax incentives to get money into Puerto Rico which is a beautiful US possession under some economic challenges (yet the billionaires are flying in and out with their private jets there every week to take advantage of these incredible and little known tax incentives) Reach out to me privately because I cannot post their info in this section
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @James Kojo:
I'm surprised nobody else brought it up already: Bonus Depreciation.
@Jay Hinrichs mentioned it in the context of buying a airplanes, but there are actually many other ways to take advantage of it.
Firstly, for the houses you bought this year, you can take the full 5,7,15 year depreciation schedules *this year*. Depending on that cost basis of your rentals, that could be a very big paper-loss. Since you would easily qualify for as a "real estate professional" according to the IRS code, there is no limit to how much depreciation you can take.
This will require to pay for a cost-segration study. Previous to this year, this strategy was typically not recommended because the cost of the study often outweighs the benefits for SFRs. However, you can do a low-cost "residental" study. That coupled with the new bonus deprecation rules probably change the cost/benefit ratio in your favor. Check out kbkg for the residential study.
Secondly, you can buy a car. If you buy a regular passenger vehicle for business use, you can get 18K deprecation this year. If you buy a larger vehicle (6K+ lbs), you get the *whole enchilada* in depreciation. That's right: then entire cost of the vehicle. Of course it doesn't make sense to buy a car just for the deprecation (or an airplane for that matter), but if you were thinking about getting one in the next couple of years anyways, now's the time to act.
Thirdly, and it may be a little late in the game for this: you can invest in multi-family syndications. Cost-segs may or may not work for SFR, but they almost always work for larger MFRs. A knowledgeable syndication lead can commission a cost-segregation study, and pass the depreciation straight through to the passive investors.
Please keep in mind those are 2-3 sentence descriptions of very complicated and new tax rules, so don't go off half-cocked and try to implement them without getting some real advice from a tax pro. And speaking of which, if your CPA isn't already talking to you about bonus depreciation, then you need to find a new CPA asap. I had a CPA for 15 years whom I absolutely loved, but he wasn't a REI specialist, and he didn't know about stuff like this. You *need* a specialist for your field.Disclaimer: I'M NOT A CPA AND THIS IS NOT ADVICE! :)
Hope that helps!
James Kojo
also If you really need that backhoe for your jobs go buy one. !!! or Order your Tesla within the next 7 days and get your 7500 . tax credit. this one you don't have to recapture.. keep in mind buying big ticket items with bonus depreciation you have to recapture when you sell. So look at the big picture. And I am surprised the govmit has not done in the hurricane zones what they did for Katrina.
they established GOZONE's Gulf Opportunities act.. and during the run of that act. any NEW construction real estate that a TRUE real Estate full time professional bought and put in service you could write off 50% of improvements year one.. I bought a couple million of new construction in those years.. So it worked for full time RE investors but not part time.. and of course any business owner that needed to build a new facility.. that's why you look at say Jackson MS which was the northern tip of the go zone.. and virtually every car dealer built a new facility during those years.
- Real Estate Broker · Hugo, MN · Member since 2016 · 688 posts · 596 votes7y@Clayton Coombs. Since the flipping market is like real estate and has highs and lows I would consider tax free annuities as part of yiur strategy. You are able to put your money in and collect either a lifelong payment or a set term. You only pay taxes on the money paid out. Great for stability and providing income streams for bank loans etc.
- Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes7y
I do want to congratulate Clayton on having a really great year!
First, I wanted to thank everyone here that offered advice that I did not @ Mentioned. Of course, however, that the reader of this thread really needs to understand this is a very complex topic and not all advice should be taken, but all should be researched thoroughly.
Second, I mentioned Luciano mainly because I do understand where he is coming from when he mentioned that the advice of buying for low cash flow AND high appreciation hurt him or others who have followed that strategy in the past.
Rest assured, there will be others that will be hurt by the low, no or negative cash flow AND high appreciation strategy in the future. BUT there will equally be those that will be hurt by buying high cash flow and NO appreciation as well. There is no monopoly of hurt by buying with the no cash flow high appreciation strategy. I personally know quite a bit of people who have been hurt by buying cash flowing properties where the cash flow suddenly disappeared when unemployment skyrocketed.
Now, many of us got into the Real Estate game one way of another and many of us will encounter Rich Dad, Poor Dad. While I don't really think of his advice as fantastic, he makes some really good points, including this one:
Note where the Self-Employed quadrant is. Note how he is dressed on each side.
The funny thing is that should you follow the advice from this diagram, and you actually make your way into the Investor quadrant, not only does your Money work hard for you (and you get to play a lot of golf), but you will AVOID paying a lot of taxes until you sell the Investment, and in the case of Real Estate, you can exchange until you die, or hand it down to your children at a stepped up basis.
Flipping to me is a job. Buying sound, good, quality Real Estate where you don't do much work because it's highly desirable, where the job market is very strong even in a down market, AND you hardly have to put any time into it because it runs like a well oiled machine, puts you in to the Investor's Quadrant, paying very little taxes until you die.
Over my 21 years of buy and hold Investing in Real Estate, while I was doing this before reading Rich Dad, I always understood that the way to avoid paying taxes is to be in the Investor's Quadrant. Unfortunately, many people either confused or ignored the concept of what an Investment really is.
The MORE you work, the more your Investment is a Business. The LESS your work, the MORE your investment IS AN Investment.
I mentioned Eammon and Matt here because they gave the advice of low cash flow, high appreciation as a tax avoidance strategy. In this case, that IS what I have practiced over 21 years. What they gave in theory is what I do in practice. AND IT WORKS.
The one gotcha is the dangers of a down market. This is why you have to be very smart and use the gift you have been given that separates you from the animals.
OR... even if you don't want to separate yourself from the animals, then think like a Squirrel!
Squirrels know that if they don't put away their nuts for the winter, by the time the winter comes, they may not make it through.
The Squirrel needs to think about the FUTURE because he isn't gathering his nuts to eat it NOW. It's this thought that allow him to weather the winter.
Us INVESTORs (by the way, I don't consider too many people Investors if they are owning Real Estate but are doing a LOT of work for it, those people have a job), in order to be good, need to think about the FUTURE, in my case, at least 10 years out, and always saying to myself, how many NUTS do I have to put away to weather the intensity of the WINTERs that I see in the FUTURE?
Since I'm from NYC and I buy in quality neighborhoods, over the several Economic WINTERs that I went through, the NUTS (Investments) that I have GATHERED have done so well, I slept like a Baby in my little squirrel hole, AND, I have successfully avoided paying a lot of Tax by utilizing the tax loopholes (think 1031 Exchanges, holding onto the Investments as you get taxed only if you sell, etc.).
I don't want to change the topic, but to me, Flipping is at BEST a business, and businesses pay Tax, which is unavoidable.
INVESTMENTs are you tax shelters.
You decide which quadrant you want to be in.
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