BiggerPockets Podcast 269: How the New Tax Code Affects Your Real Estate Investments with Amanda Han and Brandon Hall

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Big changes are underway in the U.S. tax code—and it could make a huge difference to your bottom line. Thankfully, today on the BiggerPockets Podcast, we get to sit down with two CPAs who focus entirely on helping real estate investors navigate the tax code! Amanda Han and Brandon Hall join us today as we dive deep into the new changes—plus tackle some of the most common questions new real estate investors ask!

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Mindy: This is the BiggerPockets podcast Show 269.

“This is very important and I’m really glad that we’re doing this podcast today because it does also impact those individuals who have not yet filed 2017 tax returns. So before September—I think it was towards the end of September 2017—okay, so January to September of last year, what we were allowed to take was a 50% bonus depreciation. What does that mean? Well, if you’re running an Airbnb business and you bought new furniture for your business, you are potentially able to write off up to 50% of that purchase price immediately and then the rest, you would depreciate over the life of the asset. Effective in September of last year as part of the tax reform, they’ve upped that deduction to 100%”.

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Scott: What’s going on, everybody? I’m Scott Trench, co-host of the BiggerPockets podcast, here with my co-host, Mr. Brandon Turner. How’s it going, Brandon?

Brandon: Man, I’m fantastic. How are you doing?

Scott: I am doing great, although it’s a 90 degree day here in Denver, Colorado.

Brandon: 90 degrees, wow.

Scott: That’s a little different than Hawaii, huh?

Brandon: A little bit different. Four surfing trips this week already, so it’s not bad. It’s been good weather.

Scott: I think I’m actually going to go on a business trip to visit Brandon here in the next couple of days.

Brandon: That is what I hear. Yeah, actually when this show comes out, I think you’ll have already been hanging out here, but we’ll see. Anyway, what’s up, everybody? So today’s show is all about taxes, which everyone just turned off their podcast and they’re like, oh, I don’t want to hear about taxes. But today is important because there were a lot of big changes that happened recently under the new tax plan that was just announced.

And today, we’re actually lucky to sit down with two CPAs that we look up to quite a bit around BiggerPockets and they dish out the dirty details about what’s all involved and how it affects you guys. So it’s really, really good information today.

Scott: Yeah, there’s a ton of detail on the changes and how they’re going to impact various investing strategies, what rumors kind of were going around about some changes that didn’t take place, and so those strategies aren’t changing, so there’s lots of information on both sides of this. I think that’s really important in directing your strategy going forward.

One thing to note is that much of what we talk about today does not affect what you’re going to be filing in 2017. So a lot of these changes are going to be taking place January 1st, 2018 or later. There’s one exception that took place—

Brandon: Yeah, the one exception actually is super, super important. It’s about the way that—what is it, like, changes from 50% bonus depreciation—you guys are going to hear all about it. Listen up. But like Scott said, a lot of this stuff doesn’t take place until later but anyway, yeah, I think today I learned a ton on today’s show. You know, sometimes our shows are very inspirational, like stories about people doing stuff. And then sometimes, you just become a whole lot smarter after listening. So today is one of those you get really smart.

Scott: And one thing I’ve been saying about this little teaser is I think a lot of entrepreneurs must have this question, at least you and I did, but we’ve been too afraid to ask it like maybe in a public setting, which is what happens when you have a business that just fails? It doesn’t produce any revenue and you’ve put a lot of expenses into it. Can you write that off or not? How’s that work out?

Brandon: Like when you try to sell wooden sunglasses online for a year and end up selling hardly any? Yeah, I know all about that.

Scott: I actually have a pair of wooden sunglasses. I got them for free. That’s one of the reasons why you didn’t make any revenue.

Brandon: Probably why I didn’t make any money, I just give one out to everyone for free. Who knows, maybe BiggerPockets someday will have wooden sunglasses for sale because they’re pretty legit. Anyway, before we get into that—

Scott: Wooden that be great?

Brandon: I almost ruined your great pun. All right, before we get into the rest of the show, let’s hear today’s Quick Tip. Short and sweet, today’s Quick Tip is, taxes are important. Tax planning and knowing, you’ve got to make sure you get the most money out of your taxes and back and all of that good stuff. So we actually put the tax book on sale—I think it’s 20% off right now, up until Tax Day.

So The Book on Tax Strategies for the Savvy Real Estate Investor written by Amanda Han who is one of our guests today is on sale at until Tax Day. But get it now because it’s one of those books that it’s hard not to make back the cost of a book. It’s like, what, $15-$20 bucks or whatever? It’s like really hard not to make that back a hundred-fold over your life if you learn just one tip. So it’s stupid not to own it. Go own it. Get it on sale right now.

Scott: And that book was written before the tax changes that have taken place. However, it is not a specific tactical book. There are specific tactical discussions in there but what that book will give you is a fundamental approach of how to manage your business, how to set up your accounting, that kind of stuff so that you can apply those fundamentals in a way that enables your account to do things that much better, pick a good accountant, that kind of stuff.

Brandon: Yeah. And there’s some cool bonuses that come with it as well when you buy it on BiggerPockets so check it out. All right. So without further ado, let’s hear a quick word from today’s show sponsor.

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All right, a big thanks to our sponsors, always. And now, I think we should just jump into this thing. I want to hear about taxes. Does that sound good to you, Scott?

Scott: That sounds fantastic.

Brandon: All right. Mr. Brandon and Miss Amanda Hahn, how are you doing?

Amanda: Doing good.

Brandon: Did you like how I used Amanda’s last name but not yours, Brandon? Brandon Hall.

Brandon Hall: Yeah, yeah. Okay.

Amanda: Hall, not Hahn.

Brandon: Yes. Hall, not Hahn. Yeah. So welcome to the show. You guys have been on the show before but today is an important time of the year because it’s tax time. It’s like everyone’s favorite holiday that lasts like four months and so we’re going to go really, really deep and boring into taxes. We’re actually going to read the Tax Code for like an hour and a half before we get into this thing and then we’re going to talk—I’m totally kidding.

We’re going to try to keep this light, fun, and helpful. Kind of our goal today is like what do investors that are listening to this need to know today that’s going to help them this year, going forward, Tax Code, all of that stuff. So, with that, before we get any further, I want to make sure that people know who you guys are.

So maybe Amanda, do you want to go first? Let us know who you are, what kind of your story is, and then we’ll move to Brandon and find out the same.

Amanda: Sure. I guess ladies first. Thanks for having me back on the show. I’m really excited to be here with all of you fine gentlemen. My name is Amanda Hahn. I am with Keystone CPA and we’re a boutique small firm located in Southern California and we specialize in working with real estate investors on how to save money on taxes and make best use of their funds—well, whether it’s cash or retirement investing.

Outside of that, outside of my time at work, I also am a real estate investor myself. Mainly my stuff is the boring long-term holds. We have clients that do all sorts of stuff in terms of syndications, fix and flips, wholesale, but I’m a pretty boring investor in that it’s strictly long-term holds. Because my passion itself is actually still in tax and the planning side of things, although I love having real estate as one of my vehicles and I’m very fortunate to be able to see all the inside details to our clients’ numbers and be able to kind of mimic what it is that they’re doing. So, excited to be here. Lots of new things to talk about and I’m looking forward to the next 30 minutes or an hour.

Brandon: Cool.

Brandon Hall: Brandon Hall. I run The Real Estate CPA. We’re a virtual CPA firm. We work with solely real estate investors, so similar to Amanda, we’re exclusively focused on the real estate niche. I also invest outside of the tax realm so I do hold my own rentals and then I’ve got a capital group that we’ve just started middle of last year with a partner of mine, so we’ve been investing in some larger syndicates and kind of expanding our knowledge there. Which is cool because then I can go and talk to our clients that are doing these syndications and talk more on a one-to-one rather than just purely from a well, this is what I’ve seen now. This is what I’ve done. So let’s really talk about it.

Brandon: Cool. All right, so, Scott?

Scott: Awesome. I was going to say, can we get a quick overview of the changes that occurred in the new tax bill maybe, and talk about that for a few minutes? So kind of go through the high-level changes and how they might impact real estate investors?

Brandon Hall: How quick is quick?

Scott: Let’s see if you can do it in five minutes or so.

Brandon Hall: All right, Amanda, do you want to start or do you want me to start?

Amanda: You can start.

Brandon Hall: All right, all the pressure. So, there are lots of changes. I guess for me the two biggest ones or the three biggest ones would be the new passthrough reduction. That’s for sole proprietors, LLCs, and S-Corporations. You’ve all 100% bonus depreciation. So that’s up from 50% bonus depreciation. And we’ve got the business interest limitation.

I’m thinking that the business interest limitation is probably one of the bigger negative impacts. It’s going to be affecting a lot of people even though there’s a huge exclusion if you’re earning less than $25 million, you’re excluded. But then there’s an exclusion to the exclusion, which subjects a lot of what I think a lot of real estate investors, even small-time, to the new business interest limitation.

Brandon: All right, so I want to go into each of those and go a little bit deeper on those three, if we could. So, what is passthrough deduction? Let’s start there. The first one you said. What is that going to mean?

Brandon Hall: Do you want to take that, Amanda?

Amanda: Sure. So, the boring term for that is “Section 199-A” for those of you codeheads who want to write it down. What does that mean, like you were saying, Brandon? Essentially, it means that for certain types of income that we earn as taxpayers, that the first 20% of net taxable income could be at zero tax rate. It means if you made $100 of the right type of income, then maybe $20 of that would be at no taxes at all. So tax-free income, essentially.

One of the biggest myths or misconceptions we see is in the media you hear a lot about this flowthrough entity tax benefit. Flowthrough deduction. So one of the questions we’re getting a lot, especially now and also at the beginning of last year is do I need to set up an entity? Do I need an S-Corp? Do I need an LLC to take advantage of this 20% tax-free money? And the answer like Brandon mentioned earlier is no, you don’t need to have a legal entity.

It’s strictly depending on what type of income so one of the greatest things for investors, for those of us who own rental real estate, who are doing fix and flips or even syndications, who are earning acquisition fees—these all potentially qualify for this deduction or tax-free treatment whether or not you have a legal entity.

Brandon Hall: And that’s an important point, too, because we’ve had a lot of clients ask us hey, should I change my entity structure? Like C-Corporations. They have 21% passthrough rate. That’s awesome. Well, C-Corps are still subject to the double taxation so we’re still saying no, this passthrough deduction that Amanda just described allows you to pretty much get a freebie deduction on your business income and you don’t need to go set up an LLC in order to do that. Like Amanda said, you can be reporting on Schedule C or Schedule E and still qualify for the deduction.

Brandon: So let me put this into like a hypothetical sort of scenario. Let’s say I as an investor am going to make, I don’t know, let’s say $50,000 next year on rental income just from cash flow. And that’s all the money I made next year is $50,000 in cash flow. Are you saying that the first $20,000 of that, we just knock off and now I only pay tax on $30,000? Is that essentially the idea?

Amanda: Potentially. So if you’re talking about—the key definition of what we’re talking about is taxable income. And we all know as real estate investors, when you say you’re making $20,000 cash flow, the reality is, you’re probably having zero or very low taxable income because from your cash flow, we’re claiming home office, travel, and depreciation, right?

But assuming that cash flow equals your taxable income, then your example would be correct. Basically, 20% of that $50,000 would be taxed at zero rate. One of the reasons this particular tax change or loophole is really beneficial to those of us who own rentals and also again, it does apply to people who are in the fix and flip business, too. So active real estate.

Scott: One qualifying question on this. So suppose that using this example of $50,000, does my taxable income now go down to $40,000 or do I still have a taxable income or is my tax bracket going to be based on that $40,000 or $50,000 number?

Brandon Hall: Right, from what we understand, it’s taxable income minus your 20% deduction, so your taxable income will be 50 or I guess, gross taxable income would be 50? And then you would have the 20% deduction of $10,000 and then you would have the $40K deduction.

But that’s also assuming that the $50,000 is the qualified business income, so your net operating income after depreciation, amortization, interest, taxes, all that stuff. So at the end of the day, what are we reporting on the tax returns as net income. If that’s equal to taxable income, then yes. You’d pretty much be paying taxes on $40K instead of $50K.

Scott: Okay, awesome. Let’s talk about the talking point you mentioned earlier, which was moving or increasing the depreciation schedule, advancing it from 50% to 100% bonus depreciation.

Amanda: Yeah, I can just add a little tidbit to that. This is very important and I’m really glad we’re doing this podcast today because it does also impact those individuals who have not yet filed 2017 tax returns. So before September—I think it was towards the end of September 2017—okay, so January to September of last year, what we were allowed to take was a 50% bonus depreciation. What does that mean?

Well, if you’re running an Airbnb business and you bought new furniture for your business, you are potentially able to write off up to 50% of that purchase price immediately and then the rest, you would depreciate over the life of the asset. Effective in September of last year as part of the tax reform, they’ve upped that deduction to 100%.

So in that example, if you spent $1,000 on furniture and fixture, you’re writing off the entire thing. And it’s really important for those who haven’t yet filed their tax returns to know that because if you’re providing information to your CPA now, I know sometimes we say, well, you know, I bought it sometime last year. Let’s just say middle of the road June. Well, that could mean you’re losing out on the bonus depreciation so you want to be pretty accurate about your dates.

Scott: Awesome. So that’s really helpful. Brandon, you wrote an article maybe three, four, five months ago, about the BARRR Method, which is Buy Advertised, Rehab, Refinance, Repeat, and the reason you suggested that is because you wanted to begin marketing the property prior to making some of these repairs so that you could potentially have the option to write them off, or I guess, get this accelerated depreciation schedule or call expenses. Does that strategy change in light of this new rule?

Brandon Hall: No, it doesn’t. So that strategy, by the way, most of our clients wait until the very, very end of the rehab to advertise their property for rent. So all they’re doing is they’re saying, hey, Mr. IRS Agent, my advertisement date occurred after I was done with the entire rehab. So what we were saying is just advertise it right up front and then do the rehab. You’re not going to place it into service the day that you advertise it because you still have to do a big rehab but at some point along the line, we might be able to argue that the property is now in service, so now the costs become operating costs rather than capital improvements. That doesn’t change with the 100% bonus depreciation.

Well, I guess—no, it’s not going to change because the 100% bonus depreciation is going to be focused on the capital improvements and just a quick note about that—we can’t go buy a rental property and deduct the costs of the rental property. The reason for that is 100% bonus depreciation applies to property of a useful life of less than 20 years. So rental property has a 27 and a half year period.

But what you can now deduct is like carpeting, if you get your driveway redone, if you do any sort of landscaping like say you take down a tree and plant a new one—that can all be 100% expensed now. Well, starting September 2017 and going on into the future.

Amanda: I just wanted to add to that and that’s a great point, Brandon. I do get that as questions sometimes from clients—I bought a property for $100,000. Can I write off $100,000 now with a bonus depreciation now? And I wish the answer was yes. Unfortunately, it’s no. However, just another kind of layer of strategy some of our listeners might be familiar with, the concept of cost segregation.

And that’s essentially saying instead of saying the whole thing is building, we’re going to accelerate this purchase price of $100,000 into carpet, flooring, and things like that. So what you can do is you can combine the two strategies and say, well, by doing a cost segregation, I’m moving some of that into 100% deductible item. So that could be an extremely powerful tool as well.

Brandon Hall: And on that note, I’m glad you brought up cost segregation. So anybody with a relatively large property, especially if you’re syndicating any sort of deal, cost segregation is going to become extremely important for you to take advantage of in the first year. You want to apply that cost-seg study to the first year that you buy the property because at that point, all the components in the property are new to you.

So bonus depreciation only applies if the components are new to you. So we wouldn’t want to do it in the second year, apply that cost-seg study to the second year because at that point, we can’t qualify for the bonus depreciation. So big benefit there to cost-seg.

I guess another point, and maybe Amanda, you have some thoughts on this—the 1031 exchange provisions have been modified to only include real—Amanda’s laughing. Yeah, she knows where I’m going with this. The 1031 exchange provisions have been modified to only include real estate—sorry, real property.

So then the question is, if I do a cost segregation study where I specifically do the study to identify personal property components that I can depreciate over a faster timeframe, since I’ve self-identified personal property, and personal property is no longer included in 1031 exchange provisions, when I do a 1031 exchange, can I roll over the gain associated with the personal property? I don’t know. I know that we’re waiting on technical guidance to come out to really see but I don’t know if Amanda had any thoughts on that.

Amanda: Yeah, I mean, it’s really interesting you bring up that point because even yesterday, I was having a conversation with a couple of different colleagues—actually one, a cost segregation expert, another one, a 1031 exchange intermediary, someone who, Brandon Turner, you’ve worked with in the past. You know, it’s kind of three sides of the coin—we’re all talking about it from our perspective. I think we are in agreement that ideally, if you had broken out, accelerated properties, we’d still want that to be part of that 1031 exchange, but as of today, it’s an unknown. That does not mean we should not look at cost segregation though because the reality is, even if you have accelerated depreciation, breaking out into furniture and fixture and carpeting, what you can potentially do is exclude that from the 1031 exchange, right?

Because if you’re going to break out properties and sell it, well, how much is the carpet going to be worth? How much is the fridge going to be worth, right? Those things don’t actually appreciate in value. So, even if they said that’s not a part of the 1031. Are we really going to end up paying a lot of taxes? Probably not because used carpet is not really valuable.

Scott: And just for the listeners that are maybe a little step behind here in the conversation, the reason this has a lot of impact is because when you fully depreciate personal property like this, it’s not an expense. You’re going to have to reclaim that depreciation when you go and sell the property. And so one way to avoid that or defer that tax is through a 1031 exchange. Just for some folks out there who might have been not following this whole thing.

Brandon: Yeah, recently, so I did a 1031 exchange—Amanda, you are very well aware of that—was it last October or something like that, I sold my 24-unit property and we cleared a couple hundred thousand dollars in profit. But because I had done a cost segregation study, I had to then go and—if I’m going to pay taxes, I’ve got to pay all of that back and I think we figured out it was like $120,000 I owe in taxes if I didn’t do a 1031. So then I had to go do a 1031 and I did it and I bought two more properties because of it.

So anyways, there’s a whole fun story there and maybe I’ll tell it someday here on the podcast but today is not that day. So let’s move to the third thing that you mentioned there. So we talked about the bonus depreciation and we talked about the other thing. But what about the business interest limitation? I think I wrote it in a note here. What was that?

Brandon Hall: Yeah, so a lot of this was breezed over, even by me initially. But after we did a second dive, we realize it’s probably going to apply to a lot more people than we originally thought. So business interest limitations—what it is, is it’s a 30% limit on pretty much your operating income, at least for the next four years, I think. It goes through 2022. So what it is, it’s a 30% limitation on what they call EBIDAT. So Earnings Before Interest Depreciation Amortization Taxes. Maybe that was it. Yeah. So if I have like $10,000 net operating income before I take into account interest taxes, depreciation, and amortization, I am now limited to a $3,000 interest deduction. So 30% of my debt operating income. You’re excluded from this if you have revenue and you have revenue of less than 25 million. So that’s like almost everybody, I’m assuming, that’s listening to this. It’s definitely me.

But there’s an exclusion to the exclusion—that’s probably not the right way to say it. There’s an exception to the exclusion that basically says if you’re running a tax shelter, then that $25 million dollar allowance does not apply to you. And the interest limitation at that point does apply to you. In the past, the tax shelter has been a bad thing. It’s an entity that’s set up purely for tax avoidance or tax evasion. There’s no real economic benefit. But in this new code section, a tax shelter simply means an entity in which more than 35% of the ownership is held by limited partners.

So if I’m a syndicator, I have probably given away 60-70% of my entity to my limited partners, my investors. All of a sudden, that subjects me to this business interest limitation. And all of a sudden, I’m scrambling to try to figure out how to not be subject to the business interest limitation. But this also applies to people that—like, let’s say I’ve set up an entity and my dad comes in and he’s a private equity and he’s a money guy or whatever, but he takes a 50% stake of my entity. It’s just me and him.

We’re not doing anything big. We’re buying little $50,000 homes. If he’s not actively involved in the business, he’s limited in that case. He’s a limited partner in that case. And all of a sudden, I’m that entity, that small entity is now subject to the business interest limitation. So it is going to apply to multiple people, not just the bigger fish.

Scott: Can we go through a specific example for maybe someone who’s syndicating on a $500,000 deal with two or three partners? How would this—or, you make up the numbers. How would this apply to a listener from BiggerPockets?

Brandon Hall: Let’s say that all four of us partner and we all own a 25% stake. And let’s say that Scott and Brandon are the limited partners. So they’re bringing the money to the table and Amanda and I are hustling—we’re flipping and wholesaling or whatever. If Scott and Brandon are not actively involved in the business, then they can be classified as limited partners in the business. And because your combined ownership is greater than 35%, this business is now classified as a tax shelter per this section of the code, which means that we are now subject to the business interest limitation.

So any amount of net income that we receive, we now have a 30% limitation on that—a 30% interest limitation on the net operating income. So we net $100,000 and we have $50,000 in interest expenses because we netted $100K, we can only take a $30K interest limitation. So the net $20K of our interest just carries forward until it can be utilized. We’re not going to be able to apply it this year.

Amanda: This is really interesting because for larger deals, syndications specifically speaking—they’re almost by definition—the investors are almost by definition going to be passive, right? Most syndications, you’re going to have 100 investors. You’re not going to take a vote of 100 people every time you fire a manager or hire a property manager. So that does become an issue just by definition of most people are going to be passive, I think the trick or the strategy going forward is to look at, well how can we shift the definition and have less interest expense?

So maybe in the past, you took on a lot of private lenders, big financing that you generally do a lot of interest expense. But instead of having private lenders, maybe they become your equity partners or some sort of a profit-share so that it’s no longer under the definition of interest expense, therefore it being limited. So I think there will be a lot of more planning or new ways to look at how we structure these types of joint venture agreements.

Scott: My brain’s spinning. I’m thinking already about how to get out of this. For example, you could do like the preferred equity or preferred return, something like that, that would—

Amanda: Yeah. That’s exactly what we’re saying. Instead of saying, you’re paying me or I’m paying you interest, instead, I’m giving you equity spill that you’re going to get more participation of the capital gain down the road or something like that.

Brandon Hall: We’ll have more guidance come out on this. Right now, what we’re telling our clients is just start thinking about if I’m going to engage in a new partnership, how am I going to write that operating agreement to not clearly indicate that somebody is a limited partner in my entity?

So if we’re coming back to what we were talking about where all four of us are partners, I’m probably going to Scott and Brandon and saying, hey, we need to build a paper trail of you guys actively participating in the business at this point.

There is an exception. So real estate businesses can elect to be treated as a real property trader business. Amanda, did you want to touch on that at all?

Amanda: I mean yeah, like you said, you can make an election to be excluded from this. Like, the caveat then is you’re limited to certain types of depreciation calculations. That’s different from the norm so that is an analysis that you kind of have to go through. I imagine, I mean for most real estate investors, we’re looking at accelerated depreciation write-off as much as possible so that’s going to be a real thing. You kind of have to work the numbers through and say, does that really make sense for me, too? Like out of this limitation.

Brandon Hall: To expand on that, if I make an election to be treated as a real property trader business, then I have elected out of the business interest limitations. But the downside is that I’m no longer eligible for the bonus depreciation so the 100% bonus depreciation we just talked about, I can’t take that anymore. But I can take my full amount of interest.

Brandon: Okay. So we just talked about those three things—Amanda, anything you want to point out as well? I wanted to give you—like anything that stood out to you besides those as influential or impactful for our listeners from the new tax code?

Amanda: Yeah, I think kind of taking it a step further beyond the 100% bonus depreciation, there’s also Section 179, which is essentially the same thing that allows you to write off 100% of an asset that you’re purchasing. In the past, it’s always excluded real estate income and under the tax reform for the first time, it is now also available to real estate. Again, not available for the property itself, the purchase price of the building, but it is eligible for a lot of other things that you would otherwise capitalize for non-residential real estate.

And also this is pretty significant for our short-term real estate operators, dormitories, apartments, student housing, Airbnb. So similar to the bonus depreciation, the 179 allows a deduction of I believe, it’s a million dollars now. And another one that I thought was interesting was an opportunity zone credit, so that’s a new thing that came out. I don’t know if you guys remember.

Many, many years ago, there was the go zone credit where you invest in property, you’re actually allowed to write off up to 50% of the purchase price of a real estate. This is something a little bit similar to that. Now, the government is going to identify what they are considered opportunity zones, based on our understanding this is going to be low-income areas or areas where they’re looking for real estate investors to bring in money to build up the infrastructure.

And the opportunity zone, what it’s going to allow people to do is if you wanted to sell your stocks, for example, you have Apple stocks or Tesla stocks have gone up significantly, in the past, you’d have to pay the capital gains. You couldn’t do a 1031 exchange to move it into real estate. However, if you are interested in buying real estate in the opportunity zone, or if you were interested in using that money to invest in a syndication where the real estate is in an opportunity zone, then you could potentially sell your stock and pay no capital gain tax, defer it almost like a 1031 exchange as long as you’re reinvesting your money into the opportunity zone areas.

And the other part that’s extremely interesting for me was that currently, it looks like if you actually held onto the opportunity zone asset for over 10 years, then your capital gains goes away permanently. So there’s no more capital gains at all from the sale of your initial asset. So I thought that was something very interesting. We haven’t really seen any deals come through yet in the opportunity zone, because they’re still trying to identify what those areas are. But I bet when they do, there’s going to be a lot of real estate investors flocking over there to buy up all the real estate.

Brandon: There you go. Cool.

Scott: I’ve never heard of anything of that at all. That’s fantastic. I would love to hear from you guys after one or two of these have come through, like how that works in practice.

Amanda: Yeah, I mean we’re just hoping those are actually good deals. Several years ago, when they had the go zone from the hurricane, the Gulf, we had claims that had really, really great tax savings. Again, writing off 50% of the purchase price of an investment, that’s huge. But some of the issues is you had not so good syndicators and the deals actually weren’t so good. So that’s what we’re hoping for this time around. Good tax savings and good real estate investment.

Brandon: All right. So let’s kind of summarize where we’re at now. Is there anything—first of all, when did all the changes that are happening, all these tax changes—when do they come into effect? Is there anything that our listeners should be doing now to prepare or to better the situation because of them?

Brandon Hall: Yeah, most of them were taking effect January 1st, 2018. At this time, Amanda might have some specifics. I don’t really have specifics. We are kind of waiting on technical guidance to come out from the Treasury before we really start like implementing some of this stuff. But it’s really just getting familiar. If you’re running any sort of deal management, and that’s all the way from the syndicators to the person who is buying a single-family home. It’s just getting familiar with the different changes.

You don’t have to know the nuance like I don’t know, the technical details, but understanding what 100% bonus depreciation is, understanding what the business interest limitation is, understanding what the passthrough limitations—just make sure that you understand what these things are and then we can really start building things out.

The one piece of advice that we give to all of our clients, and we’ve always given this advice but now it becomes even more imperative. When you’re getting a rehab done, just make sure that it’s all itemized. I don’t want you to send me an invoice that says kitchen rehab, $50,000. I want to know exactly what went into that kitchen rehab, down to the nuts and bolts. You don’t have to get like that detailed but as much as the contractor will allow without throwing his hands up and getting really mad, right?

Brandon: Cool. All right. Awesome.

Amanda: On my end, I would just say the main thing to do is just keep that line of communication open with your CPA. I agree with Brandon Hall. It’s not up to the investor to memorize all the rules and I think even some of the stuff that we talked about today, it may or may not be actually finalized in its final format. But the key really is just to keep your tax advisor updated. You’re buying a property, you’re selling a property, you’re getting to some kind of creative deal. You’re thinking of refinancing or relocating to Hawaii. These are things that you want to talk to your CPA about way in advance so that you can plan ahead instead of kind of knowing that you did something wrong after the fact.

Brandon: And you know I wanted to expand on that. Like that’s really my biggest takeaway from all of this. You don’t necessarily need to know all of this stuff. People listening right now, a lot of you guys are probably like well, this is way over my head. I don’t know what I’m doing. Like, you don’t need to know all this stuff. Just find somebody who does know this stuff. In other words, hire the right person.

If I could look back in my career and one of the biggest mistakes I’ve made in my entire investing is what, I waited until two years ago to hire a CPA, to hire you. It took me like forever because I don’t know, I was like arrogant and I was like, I don’t need a tax person. Come on, taxes aren’t that complicated. I would recommend people like, just put that into your system. Build that into your team early on.

I don’t know, would you guys actually say a first property should have a CPA? Obviously, there’s some—you guys are CPAs but do you think first properties—when does somebody need that?

Brandon Hall: I plead the fifth.

Amanda: You know, well I mean for me, I think it depends. That’s everyone’s favorite answer. So I don’t know if you have a first property, do you need to have a CPA? It really depends on how financially savvy you are, how much time you like to spend researching and things like that. We have clients who make maybe a million or half a million dollars a year. They have their one first property, should I hire a CPA? Probably, if they’re not someone who is financially savvy because if they’re paying 37 or 39% taxes, they could be saving a lot, even with just one rental property.

But if it’s someone maybe with an accounting background themselves, not really making a whole lot of money yet and just buying this first property with you know, and pretty much, strapped for cash—then you might be able to work through some of these with a lot of great new information on BiggerPockets or a podcast that you’re hearing. So I think it kind of comes down to the person and what they have going on, too.

Brandon Hall: Yeah to follow up on that point, kind of along the same lines, if you’re analytical, I would say you could probably handle the first by yourself. Maybe even your second. You just have to make sure that you really catch everything. Because we always find mistakes. The few people that have done it on TurboTax or even H&R Block, we’re always finding these mistakes. What I would recommend that you do, if you’re unsure, you can pull up your Schedule whatever you’re preparing, just Google IRS Schedule E, pull up the PDF—I think you can scroll all the way down to the bottom and you can see the projected hours that it takes for a non-expert to bill this stuff out. I think Schedule E is like 80 hours. I don’t think that it would actually take that long for you to do that, but just like something that you should keep in mind.

And then the other thing too is like we always get these people that have these really high net worths and then they want to do their own bookkeeping. It’s like, man, your time is so valuable, don’t waste your time doing this. Just offload it. Go focus on what you’re doing. So in that case, I would agree with Amanda, yeah. If you’ve got a high net worth and your time is not worth digging through everything, offload it as quick as you can.

Brandon: Yeah, I would generally—anybody who asks me my opinion, I would always tell them, like hire the right people right away. I am such a big believer in that because I see myself fail that time and time again. And that’s like the big lesson I learned. If I could sum up the last couple of years of my life, it’s like, hire the right people right away.

So all right, let’s move on. We’re actually going to shift gears here and head over to the fun part of the show which we lovingly refer to as our Fire Round.

It’s Time for the Fire Round.

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All right, so today’s Fire Round, obviously these questions in the Fire Round always come from the BiggerPockets forums. Today we’re going to be focusing on tax questions that people in our forums asked and because I knew you guys were going to come on this show, we’re going to use this time to get free tax advice. Of course, you are not officially, any of them, probably none of them, CPAs. So this is just general advice, right? Do you guys have any like disclaimers to throw out there? You’re not telling people exactly what to do. How does that work?

Amanda: Yeah. I would just say we don’t want anyone to go to jail, so before implementing anything, do speak with your tax advisor to confirm the right action item.

Brandon: Nice.

Brandon Hall: I second that, on the record.

Brandon: Scott, you want to kick us off?

Scott: Yeah, so, I house hack—this is not my question but I can related to it very much. I house hack in my duplex. I’m learning that the homestead tax exemption doesn’t apply to my full property since I rent the other side out. Is there any way I can still qualify for the homestead exemption without getting into trouble with the county? And then just basically, how do I manage my—what are some basic tax tips for people that are house hacking? How do we declare income? What’s personal property? What’s a business expense?

Amanda: So if you’re house hacking, what’s the best way to account for everything? I would say, so there’s one—let’s say it’s a duplex. One side of it is your primary home. The other side of it is your investment property. Generally speaking, unless you’re going to be selling the primary home portion soon, improvements you’re doing to your primary home really does not have a lot of tax benefits. It’s kind of like if I want to own my own home and I want to make it beautiful, great. That’s a personal preference. It’s personal money that you’re spending on.

Now, improvements you’re making to the duplex where you’re going to rent it out, that definitely is going to be, we talked about depreciation, bonus depreciation, maybe even in it being a write-off. So it’s really important to make sure you’re tracking those, something that Brandon said earlier, and we say this to our clients, too. Keep detailed record of what you’re doing. We don’t want to see $60,000 in improvements because that’s not very helpful. But of the $60,000, split up between carpet and flooring and all those different things so that your advisor can help accelerate. And again, this is important on the portion of the duplex that is going to become a rental property.

Scott: Okay, so to follow up with that, a homestead exemption, I think, is where if you live in a property for more than two years as a primary residence, you can sell it for a tax-free capital gain without having to do a 1031 exchange and that’s up to certain limits. How does that work when I go to sell the duplex in a few years?

Amanda: So assuming that you did live in that property for at least two years or you meet the primary home exchange exclusion, what you can actually do is you can do a 1031 exchange and a 121 exclusion. We have lots of clients who do that. They’re able to you know, defer part of the gain using a 1031 because technically, this is a rental property, but they can also sell and take cash out of this transaction to the extent that the gain was related to the primary home using the 121 exclusion. It’s actually the best of both worlds in that you can combine those two strategies together.

Brandon: That’s cool. I did not know that.

Scott: That’s fantastic. Yeah, I didn’t know that either.

Brandon: Next question, in a recent blog post from BiggerPockets, they mentioned that the new tax reform provides certain flowthrough business income with a 20% deduction, which we talked about earlier in the show. Which essentially makes 20% of the profits tax-free. Does this apply to income as an independent contractor, like if you’re a real estate agent, or is it only W-2 owners or like rental property income or is it all of it?

Brandon Hall: If your taxable income, not to be confused with your AGI—if your taxable income is below $157.5K and you’re single, then yes, you just take a 20% deduction on all qualified business income. If your taxable income is below $315K and you’re married, then yes, the 20% deduction applies to all business income. If you run a service-based business, so accounts, attorneys, brokers, property managers, real estate agents, and your taxable income is above those two thresholds—the $157.5K and $315K if you’re married, then no. The 20% does not apply. So service-based businesses get phased out.

Amanda: I do want to add one thing to this. One of the questions, I think I did read this on the forum, unfortunately, the 20% benefit does not apply to W-2 income. So if you’re someone who’s strictly working a job and you’re getting a W-2. Let’s say you work for Google. You’re getting paid a W-2 income of $100,000, this unfortunately does not apply to you. And like Brandon was saying, I don’t know, for whatever reasons, they don’t like CPAs and doctors and all that, so if you’re a higher-income service provider, then you are either being potentially phased out or excluded from this benefit altogether.

A really interesting real world example, we have a client who owns an assisted living house. So he owns the real estate. He also has beds in there where all the patients stay. And so for him, he has two types of income. He has rental income and he has income from providing medical services. So in that example, it’s really important for him to track those two income very separately because there is no limitations on rental income versus on the medical service side, he could be phased out or limited based on this 20% benefit.

Brandon: All right. Let’s see, next one. Scott, is it your turn? I forget.

Scott: Yeah, how about this one? I have several homes. I’d like to put each one of them into an LLC, one LLC for each house. I would like to have an LLC as a holding company of all the other LLCs so I can just have one bank account where all the income and expenses would go into and flow out of. Is that a good structure? Is that a practical one that you’ve seen before or do you have any advice on a structure of business for this many properties?

Brandon Hall: Sure, so obviously the more properties and the more LLCs that you add, the more complicated it gets. If you’re running a series LLC, you can likely get away with this by having one bank account and the primary or the overarching company, but generally speaking, even if you have sub-LLCs, if they’re not series-based LLCs, then you would need to have a bank account per LLC. And that’s just from a liability perspective. That’s not even from a tax perspective.

You need to show that the business is actually operating like a business. So if you’re going to break it all up, just understand that it’s going to get really complicated really quickly and you’re going to have a lot to manage. But this is a conversation that you should be having with your attorney because it could be very worthwhile to do just that.

Amanda: The other caveat I would add is to make sure you’re aware of all the fees that are required, especially for any investors in California, as an example, California recognizes series LLCs as different taxpayers. So in what you described, if you have a holding entity and you have three babies underneath that, that’s four entities in California, each subject to $800 annual fee. So like Brandon was saying, it could get costly and complicated really quickly. Not to say it’s a wrong structure but again, from our end, I always look at the cost-benefit. How much benefit are you getting from having this complexity and what is the cost?

Brandon: On a related question on that, this is something that I give the advice all the time—when people ask me about LLCs, I say talk to your CPA and attorney. But then the question I get back sometimes, and it’s a really good question—who do I talk to first and what do I do if they disagree? How do I even start that process?

Amanda: I don’t think there’s a preference in terms of who you speak to first. But I often recommend for our clients, if they’re talked to me first or an attorney first and if there’s a disagreement, what I recommend is getting on a conference call or a joint meeting because then we can bridge the gap. I want to know why is an attorney recommending all of these—what are the actual legal benefits? And the attorney probably wants to know, what is the cost? What is the tax issue associated?

And at the end of the day, we try to bridge the gap so that the taxpayer can make a decision maybe somewhere in the middle, right? Not having a holding company with ten subs. Maybe it’s a holding company with three subs or something like that where they get the asset protection but not at the high cost of $10,000-$20,000 a year.

Brandon Hall: And in terms of like who should you talk to first, I think it just depends on the personality of your service providers. It’s like me, personally, I like to quarterback the relationship. So I like to make the introduction to the attorney and the attorneys know what page I’m on and what we’re doing. But it could be vice versa, too. If you go to an attorney and they like to quarterback the relationship, then you start there.

The key though is like Amanda said, make sure everybody is in agreement before anything is executed. We have seen attorneys execute agreements and execute plans with our clients and they have horrible tax consequences and if they could have just dropped us a line, literally a short e-mail before they executed that, it would have saved them a lot of money. So just make sure that you do talk to both before you do anything.

Brandon: All right. Good answer. Next one—I’ve heard that in the new tax bill that home equity lines of credit and home equity loans – HELOCs and HELs, the interest is not tax deductible. I’ve also heard that it may be in some situations tax deductible and maybe not. Can we get some clarification on that?

Brandon Hall: So HELOCs, you can still take HELOCs and you can still deduct the interest as long as the loan proceeds have been applied to either rental or business use, so that’s the key. You can no longer take a HELOC and pay off your student loans and deduct the interest. You can no longer take the HELOC and buy a vehicle and deduct the interest. You have to use it for some form of business use.

Brandon: All right. So I gotta dig in on this. So I really want a Tesla. I really want a Tesla, right? Can I go and call my Tesla a business expense? You know, let’s say I’m a real estate agent or even just an investor. I want to drive around looking for properties. I need a new car. Can I call my Tesla that and then take the $100,000 100% depreciation then this year? Can I do that? Why or why not? Or can I use a HELOC to buy that Tesla and then do that?

Amanda: Well, there’s nothing that says you cannot drive a Tesla for your real estate business and if your name is Brandon Turner, I don’t see why you would not be required to have one.

Brandon: Exactly.

Amanda: But in all seriousness, there’s nothing that says you can’t drive a Tesla or a Mercedes or a Hummer for your real estate business. The question is, is it reasonable that you would be needing to drive a car for a business? So yes, if you’re driving it for your real estate, for your book, for any kind of business that you have as a realtor, as an agent, as a syndicator, then yes. If you took out HELOC loan proceeds, use that to purchase a vehicle used for business, the interest is still deductible.

Like Brandon said, the only time it’s not deductible is if you’re using it to go on vacation or something like that for your primary home. In terms of the bonus depreciation, unfortunately with a Tesla, it is not eligible for 100% write-off so I mean, if you’ve paid $100,000—I don’t even know how much they cost but if it was $100,000, it would not be an immediate write-off for it for cars. There are still certain limitations in terms of how much you can deduct every year. However, I do believe if you were actually going to buy a Tesla, I do believe there’s still tax credits for federal and the state if I’m not mistaken.

Brandon: All right. Awesome. So can we talk about how passive losses from real estate investing can or cannot be used to offset income from other sources like other investments or your job?

Brandon Hall: Sure. So I’ve gotten a lot of questions on, has anything around this changed? And the answer is no. So we’ve still got, if you are AGI, Adjusted Gross Income, $150K, you’re phased out of taking passive losses against your ordinary income. That’s still all the same. So nothing along those lines has changed. If you’re AGI, technically it’s modified adjusted gross income. We always just go to AGI because our clients are like way over their heads.

If your AGI is between $100,000 and $150,000, you can take anywhere between zero to $25,000 in passive losses from your rentals. So if my rental generates net income of $10,000 and then I take depreciation and amortization and all the other expenses, I’ve now got a $2000 loss, I can probably take that loss if my income is below $145K. What happens though is if my AGI exceeds 150, at that point, those losses become suspended so I can’t take those losses anymore. And then we’re talking about strategies that we can utilize to take those losses.

So they might be buying better deals, buying better property, that cash flows might be looping your spouse in and as a real estate professional or maybe you qualify as a real estate professional. Might be investing in a business as a passive partner so that you receive passive income to offset the passive losses. There’s a lot of creative things that we can do there so I always tell people, don’t get depressed when you can’t take the passive losses. And don’t not write things off because you can’t take the passive losses, right?

You still want to write everything off because at some point we will be able to utilize those losses. They get suspended and so we can offset them with passive income or liquidation of a rental.

Scott: All right, so this is one of the next questions that we’re going to ask in the Fire Round but you just mentioned it here. Can you talk about what it means to be a real estate professional and how to qualify as a real estate professional?

Amanda: Sure. So real estate professional—one of the most common myths that we hear about a real estate professional is people are under the impression that they have to be a realtor, get licensed, do open houses, take people around. And that’s actually not true. A real estate professional is only defined in the IRS Code and you don’t have to have a license. You don’t have to be showing real estate. All that means is that you have to spend at least 750 hours actively involved in real estate and you have to be spending more time in real estate than all of your other non-real estate income activities combined.

So you know, common examples we see would be like a stay-at-home spouse. We have someone who is out working you know, kind of a middle to high income earner and then we have another person who is a stay-at-home spouse and then they own a handful of real estate. If their income was over $150,000, generally, they wouldn’t be able to use any rental losses.

But now if the non-working spouse decides to take the active role in leading up all the real estate transactions and that’s you know, rentals, looking for more rentals, doing wholesale, being a realtor, anything that’s actively involved in real estate—now if you can qualify as a real estate professional, then you can use the rental losses to offset the W-2 income and any other income of the other working spouse as well. So it’s strictly an hours and activities test and it’s not related to any sort of licensing or you know, state requirement.

Brandon: All right, awesome. My last question of the Fire Round, and this is a really good question. I’ve always wondered this as well. I’m currently looking for my first deal. If the deal fell through, and this could be first deal or a millionth deal, right? If the deal fell through during an inspection, can I still deduct all the money spent on the deal like travel, inspection costs, whatever?

Brandon Hall: So we personally would probably capitalize those costs and apply them to the next deal instead of deducting them currently. I don’t know if Amanda does anything differently but that’s typically how we would approach that.

Amanda: Yeah, I think generally speaking, that’s what we would do if this was a very first deal for someone. On the other hand, if you own a rental property, you have another one to contract and it fell through, generally, we would deduct that because you’ve already started your investing business. It does come down to—a lot of it comes down to risk tolerance level of the particular taxpayer. If it’s your very first deal fell through but you can show that you’re in the flip business and you’ve made tons and tons of offers already this year, and you’re someone who’s more willing to take the risk, then there are instances where we do deduct at all in the initial year under the assumption that you are able to prove you’ve started actively working in this business.

Scott: So this is an actually really interesting point that I’d love to follow up with more general question about business—so if I start a couple of businesses a year and all of them fail and none of them generate more revenue than the expenses I put in, you’re saying you’re allowed to potentially capitalize some of these expenses into a future business, or how does that work for me as a maybe serial failing entrepreneur working a full-time job and starting some side hustles?

Brandon Hall: No, so what I was kind of referencing was related to rental properties, right? So if I’ve gone through appraisals and inspections and a deal falls through in general, we’re going to capitalize those costs and we’re going to apply it to the next rental property. But if I’m doing like a business, let’s say I go and start a consulting business and it just never goes anywhere, I can deduct those costs. The key is going to be, is your business in service? So your business has to be open and willing to accept clients or willing to I don’t know, buy flips like Amanda was saying, in order to deduct those costs until that point, until you place your business into service. You can’t deduct those costs.

So what I couldn’t do, for instance, is say that I’m going to start a consulting business, literally take no action and then I don’t know, deduct like $2500 a month mind group fee or whatever, subscription or something like that. I can’t do that. But I could say, I’m going to try to start a consulting business, do a lot of advertising, build out like my platform, and then just say all right, well, in 2018, I just didn’t get any clients. But I can still deduct it all in 2018.

Brandon: Awesome. Interesting. I’ve never really thought about that before. All right, so let’s shift gears one last time and head over to the world famous Famous Four.

All right, these are the same four questions we ask every guest every week. I know you guys have answered them before but we’ll ask them anyway. Number one, and we can just go, both of you. Number one, what’s your favorite real estate related book other than anything you’ve written? Amanda, you want to start?

Amanda: Real estate related book? That’s a hard one. Can I say Rich Dad, Poor Dad? That’s not really real estate related but—

Brandon: Nah, that’s good. I’ve said it.

Brandon Hall: All right, I’m going to say Amanda’s book. I mean, I’m not kidding. It was a great book. No, mine, I always stumble with the title but it’s The 26 Things You Need to Know About Cash Flow, whatever that long title is.

Brandon: Yeah, Frank Allen [inaudible][55:16].

Brandon Hall: Yeah.

Brandon: That’s a good book.

Brandon Hall: It’s a great book.

Brandon: Cool. All right, next one.

Scott: What’s your favorite business book that’s not Rich Dad, Poor Dad?

Amanda: Mine is The Four-Hour Work Week because I want to be as lazy as possible. It’s all about systems.

Scott: That’s actually why I asked the question I had earlier because I read The Four Hour Work Week probably like for the first time five or six years ago and then I tried to start all these online businesses. None of them generated any revenue. All of them incurred expenses. And I just never did anything with the tax implications of that. So I kind of missed out there. That was what I was thinking of when I asked that question.

Brandon Hall: My is The Story Bran. So I literally just wrapped this book up but it’s an awesome book.

Brandon: Yeah, I’ve read that, too. It’s very good.

Brandon Hall: It’s a great book.

Brandon: Cool. All right. Next question. Scott?

Scott: What do you guys do for fun?

Amanda: For me, I love cooking because I love eating. So when I’m stressed out and it’s tax season, I love to just go home and cook a great meal and eat it all by myself. No, I do eat it with Matt and my child. But yeah, that’s what I like to do.

Brandon: Nice.

Scott: Awesome.

Brandon Hall: I crunch numbers. Just kidding. Another joke. Bad joke probably. Accountant joke. No, I don’t know—

Brandon: That reminds me, wait, oh, accountant joke. Do you ever watch Parks and Rec? There’s like that continual running joke that the whole show will be the CPAs that laugh at everything. I don’t know. That’s one of my favorite shows because—anyways.

Brandon Hall: What you have to do is be able to force it out but make it sound genuine. And then you get friends that way. Anyways—mine, I just started CrossFit a couple months ago and it’s been a lot of fun and you’re supposed to tell everybody about CrossFit if you do CrossFit. So I’m telling you guys.

Amanda: Wow. So yours is the exact opposite of my hobby which is just eating and no exercise.

Brandon Hall: I love eating and red wine, but—I happen to work out there as well.

Brandon: Well, cool. All right. Last question of the day. What do you guys believe separates successful real estate investors from those who give up, fail, or never get started?

Amanda: For me, two things. Action and having good systems in play. I think if I look at all of my most successful investors, they’re the ones who take the advice that’s given, whether by us or an attorney or a mentor or someone and then they systematize it so that they can repeat the process over and over again.

Brandon Hall: Yeah, so those are two great ones. I would just throw on top of that just understanding that failure is a part of any business. And not just throwing in the towel the first time that that happens. Learning from it, figuring out how you can improve, and rolling with the punches and then continuing on.

Scott: And writing it off.

Brandon Hall: Writing it off. There you go. If we’re talking about that type of failure—yeah, true.

Scott: All right. Well you guys, where can people find out more about you guys?

Amanda: Well, on and also our website which is

Brandon Hall: For me, BiggerPockets, LinkedIn, I like to take stabs at the corporate world on LinkedIn with my posts and then and anywhere else, anywhere that I’m at social media wise.

Brandon: All right. Good deal. Well thank you guys, it’s been a lot of fun and super helpful. I definitely feel a lot better about the whole tax change code thing and hopefully everyone listening here does as well. So thank you guys and if people need to get in touch with you, they know where to find you. Everyone listening to this though, you can check out the Show Notes at You can leave comments there, questions, I can’t guarantee they’re going to jump in and answer your tax questions but you know, you can leave them if you really want to. And let them know what you thought of the show. Of course, if you enjoyed this, I was going to say share it on your social media channels, Facebook, whatever.

Scott: Yeah and I’ll chime in there that both of these guys have written what I think are really good articles kind of giving some overviews of some of the changes to the new tax bill which we will also link to in the Show Notes here. So you guys can check those out.

Brandon: All right, guys. Thanks so much for joining us today.

Amanda: Thank you.

Scott: Awesome. That was Brandon Hall and Amanda Han, two CPAs. I thought it was fantastic and full of a ton of information. I know I’m going to use a lot of it. I got to ask some selfish questions.

Brandon: I know, me too. It was one of the shows that I want to go back and like listen to again because I need to like take some better notes. Like while we were doing this, I was writing notes like make sure I do my cost-segregation this year in 2018. I’m like, okay, I’ve got to do this stuff so anyways, it was funny. When we stopped recording them, one of them asked, so do we bill you guys this time? We’re like, yeah just bill us for every hour of every single listener of the show, you know? It’ll be good.

Scott: So like 150,000 hours or so.

Brandon: Yeah you know, something like that. That’s good timing. They’ll make some good money off of that bill. It’ll be great if they actually send us a bill just to be funny. That would be really funny.

Scott: No, what’s funny though is that Amanda and Brandon are both practicing CPAs that have real clients and also invest in real estate but they give out so much great information and perspective on this subject, just like in the forums each day on our blog and through the content that they create. So definitely go check out their stuff on the BiggerPockets RE Newsblog. That’s and you can see them on the right hand side if you scroll down and click on them. Go to their profiles.

Brandon: You want to know a little Quick Tip here, Trench?

Scott: What’s that?

Brandon: Do you know that we have a redirect set up so you can just say, it goes to the same place. Fancy, huh?

Scott: Oh gosh, I’m learning things every day. What do I do here?

Brandon: I know, why do you say that? It takes like 20 minutes to say RE News Blog. Okay maybe not 20.

Scott: Go to There you go.

Brandon: Quick Tip!

Scott: That makes way more sense.

Brandon: Doesn’t it? Josh set up RE News Blog back in like 1912 and since then, we’ve cleaned up the site a little bit. Anyway. Well, now you know.

Scott: The more you know! It’s like that NBC logo thing. Insert here.

Brandon: Anyway, all right, we’ve got to get out of here.

Scott: The last thing, there’s a lot of things—we have resources that were discussed today on the podcast. We will be linking to those things in the Show Notes of this episode which you can find at That is a sensible URL that is very easy to say.

Brandon: It is much easier to say than like RE News Blog slash—actually, that’s a redirect as well. But anyway, and a reminder from the Quick Tip earlier on the episode, the tax book, The Book on Tax Strategies for Savvy Real Estate Investors is on sale right now, 20% off on, so get it there and get a bunch of cool bonuses including an entire conversation about how solo 401Ks work which I really wanted to talk about that today. We did not get time. So definitely check that out, that hour-long video I did with Amanda is unbelievable. You’re going to be blown away at how cool solo 401Ks are. They’re super cool. Anyway, check it out. And with that, Scott, go get in your 90 degree weather and go get some lunch or something.

Scott: Yes, I’m very hungry.

Brandon: All right, guys. Thanks so much for being a part of BiggerPockets and we will see you around. Make sure you leave us ratings, reviews, tell your friends, and you know, be awesome. So thanks for being a part of BP today. For, my name is Brandon.

Scott: My name is Scott. Signing off.

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In This Episode We Cover:

  • Who are Amanda and Brandon?
  • Changes of the new tax bill
  • What is passthrough deduction?
  • Increasing the depreciation schedule
  • The concept of cost segregation
  • The 1031 exchange provisions have been modified
  • Using 1031
  • Business interest limitation
  • What is a tax shelter?
  • Section 179 — write off 100 percent as an asset
  • What can a investor do now?
  • When do you need a CPA?
  • Some more free tax advice
  • And SO much more!

Links from the Show

Books Mentioned in this Show

Tweetable Topics:

Connect with Amanda

Connect with Brandon

About Author

Thanks for checking out the BiggerPockets Real Estate Investing & Wealth Building Podcast. Hosts Joshua Dorkin & Brandon Turner strive to bring top-notch educational content and interviews to our listeners — without the non-stop pitch prevalent around the industry.

With over 1500,000 listeners per show, the BiggerPockets Podcast has become the biggest real estate podcast in the world. But don’t take our word for it. We’re the top-rated and reviewed real estate show on iTunes — check it out, read the reviews on iTunes, and get busy listening and learning!


  1. Patrick Liska

    Very informative podcast Amanda and Brandon. thank you for taking the time and explaining and updating us on the new changes. biggest thing for me was the pass through deduction, as a real estates investor, general contractor plus another service business. I am in the process of purchasing a building to convert to apartments and i have already taken steps for cost segregation and advertising as soon as i close on the property, all from advice i have listen too from both of you and my own CPA. thanks for a good show !

  2. Don Spafford

    I always love listening to both Amanda and Brandon. great advice and I love Amanda’s book, it was the very first BP book I purchased over a year ago. Excellent information contained in this podcast. I too was wondering about the multiple bank account question that was asked. not sure if it was really clarified or not.

  3. Cam Jimmy

    Thanks Amanda, Brandon Hall, Brandon Turner, and Scott! I have a question about the whole opportunity zone thing. I currently invest a small percentage of money into my “employee stock purchase plan” which I get a %15(minimum) discount on the company’s stock right off the bat. If I was to cash out all of my stock and and re-invest this money into a 4-plex in an opportunity zone in my area, would I be able to defer all of those gains? This is what I was planning to do anyways, so this may work out in my favor!

  4. Very good podcast. Question.. How do you move a property you own in one LLC to another LLC on your tax return withiut paying any tax on the move. Both LLCs are owned by my wife and I.

    • Brandon Hall

      Hi Fred – switching title will not cause a taxable event. It would just be some additional paperwork for your CPA to move the property into the other LLC.

      Note there may be local transfer taxes so watch out for those!

  5. yonah weiss

    Brandon, thanks for bringing up my question about the personal property not being allowed on 1031’s.
    Here’s a great way to get around out it (courtesy of the director of our 1031 department):
    If you do cost segregation, thereby identifying personal property, you can no longer 1031 that property, as Amanda mentioned. BUT, that 5 year property is not tax as capital gains, rather regular income tax rates on the depreciation recapture…(still following)
    Potentially up to 20-30% of the value of your property, that’s a lot!
    Now when you 1031 exchange into your new property, you can utilize 50% or 100% bonus depreciation of the new 5 year property, and defer your taxes!!!
    Any thoughts?
    Disclaimer, I am not a CPA so please consult your accountant.

    • Brandon Hall

      Hi Yonah – that strategy has been around and is a great one. We advise clients to first consider a cost-seg on the next property rather than even do a 1031 exchange. Could remove the reason to do a 1031 in totality.

  6. Ruthy taylor

    This episode was so helpful as we bought a vacation rental in Dec of 2016, and renovated it in March 2017. My question is if we purchased it with a loan for a second home, does the pass through deduction apply? And will 100% of the renovations be deductible?

  7. Rob Gillispie

    My research on the home equity loan tax deduct-ability doesn’t seem to match what I heard on the pod. Any googling I can find says that the interest is only deductible if you improve the same property that the loan is collateralized against. Meaning, it looks like I cant grab a HELOC on my primary residence to buy a rental. Can you confirm?

    • Brandon Hall

      Sec. 1.163-8T describes tracing rules. You trace the debt proceeds to see where they were applied. You then allocate interest to those debt proceeds. If the debt proceeds are used in income producing activities, the interest on those debt proceeds is deductible.

  8. Shannon Schellenberg

    Question about the Section 179 that you mentioned about being able to take 100% bonus depreciation. Everything I’ve read is that it doesn’t apply to residential real estate. Can you confirm that it is true? I think this may be confusing to a lot of taxpayers that file a Schedule E and not Form 4562.

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