How do rich pay zero taxes legally?

Buying & Selling Real Estate
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How do rich pay zero taxes legally?

Mary Jay
Glendale, AZ · Member since 2017 · 1k+ posts · 236 votes

Hi guys,

So I hear often (Robert Kiyosaki, Trump, other rich etc) pay zero taxes legally.

Lets say Kiyosaki's business "Rich Dad, poor dad, educational LLC" made 100K.

The same LLC went and bought a rental house for 100K.

Since all the money were spent  now  the tax liability is zero?

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3y

When you buy a rental property for $100k  you didn’t “spend” the $100k, you invested it, that’s not the deduction. (If you bought $100k in Tesla stock, you don’t get to take that off your taxes.)

Imagine you buy $100k property and rent it for $1,000/mo. You have $12k in income. Minus $600 mortgage payment ($100 principle, $500 interest.) x 12 - $7,200, $1000 for insurance, $1000 for property taxes, $1,000 property management. That’s $10,200, so you put $1,800 in your pocket and made another $1,200 in loan paydown. You made $3,000 profit. Then you get to deduct $3,636 in depreciation. Your taxable income is minus $636.

Now apply that to a $500k house, or a $100 million apartment complex. All of this is before you deduct your cpa, vehicle, cellphone, and a collection of other things “regular people” have to pay for after they pay taxes. You’re taking them off your taxes. They are part of your business. 

Don’t forget your first $11k as a single person is tax free also. 

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  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    Plus why would you want a strategy to pay zero taxes?  You need to run the numbers and understand each persons risk reward tolerances.

    If I paid 20% for discussion and they paid zero for 40 years.  They will have maybe double or tripled their wealth.  I would have increased my wealth say 20 or 30 times.
     You have to get past the allure of zero taxes and run the numbers and the risk reward strategies involved.  
    Look at your personal situation versus others and optimize it. 

    0Reply
  • Mark S.
    Real Estate Investor · Saint Paul, MN · Member since 2017 · 543 posts · 474 votes
    3y

    @Jay Hinrichs Where can I find your blog on Belize timber?

    1Reply
  • Joel Schaarschmidt
    Rental Property Investor · Honolulu, HI · Member since 2020 · 6 posts · 3 votes
    3y

    @Terrell Garren Rich Dad Poor Dad is the gateway drug 😁

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    3y
    Quote from @Mark S.:

    @Jay Hinrichs Where can I find your blog on Belize timber?


     you have to ask Henry Clark.. my timber holdings were in Oregon and Washington and a few in Northern California.  I looked at a big timber play in Baja California that one turned out to be a scam though.. 

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    3y

    Jeff for the win..

    0Reply
  • Mary Jay
    OP
    Glendale, AZ · Member since 2017 · 1k+ posts · 236 votes
    3y
    Quote from @John Malone:

    @Mary Jay the answer is complex. Beyond RE, there are a lot of HNW strategies to deploy.

    Do we have tax strategy clients that have completely eliminated their tax? Yes, the concept of “tax free wealth” some may say.

    However, this is not extremely common and the lessons of Rich Dad should be to think this way, but have realistic goals.

    For example, it could be as simple as saving $3,000 per year in taxes by working with your advisor and reinvesting that at 7% etc. Everyone has to start somewhere!


     Thank you John,

    does your company help with strategies to lower/eliminate the taxes legally?

    1Reply
  • John Malone
    Attorney · Boston, MA · Member since 2023 · 139 posts · 75 votes
    3y

    @Mary Jay yes feel free to send me a message!

    0Reply
  • Mary Jay
    OP
    Glendale, AZ · Member since 2017 · 1k+ posts · 236 votes
    3y
    Quote from @John Malone:

    @Mary Jay yes feel free to send me a message!


     Done. Thank you sir! 

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    3y
    Quote from @Joe S.:
    Quote from @Mary Jay:

    Hi guys,

    So I hear often (Robert Kiyosaki, Trump, other rich etc) pay zero taxes legally.

    Lets say Kiyosaki's business "Rich Dad, poor dad, educational LLC" made 100K.

    The same LLC went and bought a rental house for 100K.

    Since all the money were spent  now  the tax liability is zero?

     I wouldn’t say zero taxes. Extreme statement like that Gives a lot of ammunition to certain flavors of politicians.

    Agreed.  Nothing is ever solved with class warfare.  I know a lot of wealthy people and they pay an absurd amount of taxes (that our government then uses to create high inflation and high interest rates).

    1Reply
  • Mary Jay
    OP
    Glendale, AZ · Member since 2017 · 1k+ posts · 236 votes
    3y
    Quote from @Jeff Nash:

    The simple answer to your question is that they are Real Estate Professionals and can use accelerated depreciation on real estate investments to offset other active income.  


     Thank you sir! How does it work? For example, lets say one bought a rental for 100K (for simplicity), so instead of depreciating it over 27 years, they can depreciate it over 5 years. So100k divide by 5 years=20k per year could be subtracted from their income (due to depreciation)?

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