Tax Reduction Podcast

Episode 20. First Rental Tax Strategy Write-Off for S-Corporation Owners

• Boris Musheyev • Episode 20

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Unlock the secrets to maximizing your tax savings with our first rental tax strategy for S-Corporation owners! In this podcast, we'll delve into how depreciation can be a powerful write-off, boosting your passive income and minimizing passive losses.

Discover the top deductions and write-offs available to you and learn how S-Corporation benefits can elevate your tax planning game. Whether you're new to rental properties or a seasoned investor, these tips will help you save more and keep more of your hard-earned money. Don't miss out on these essential tax strategies!


I've put together this FREE resource for you:

7 Write-Offs Every S-Corporation Business Owner MUST Know
🆓 Download FREE PDF here: https://7taxwriteoffs.com/

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*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, ...

Speaker 1:

Boom. If you start generating a lot of profits from your S-corporation and now you start entertaining an idea of investing in real estate and this is your first time and you're thinking about the tax benefits. I'm going to break out exactly for you what you need to know before investing in real estate and how real estate investing could really help you save money on taxes, taking big depreciation deductions against your S-corporation or really LLC or any business profits. Ready, let's get going.

Speaker 2:

Welcome to the Tax Reduction Podcast for money-making entrepreneurs with Boris Mushaev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies, and this podcast is all about saving you money on taxes. Boris will share with you in-depth and easy to understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

Speaker 1:

Now I really want to talk about what are the benefits of investing in real estate? So you're obviously a profitable business owner and you've got profits coming in. You've got accumulating cash. You've got to start taking out more distributions. What can you do with that money to be able to save money on taxes? And you're thinking about real estate. So let's talk about those benefits. Now, one of the benefits, one of the few benefits we're going to talk about, one of the few benefits Investing in real estate is that it produces positive cash flow.

Speaker 1:

People want to have a passive income, they want to have a positive cash flow. At the same time, it produces what's called a paper loss, meaning to say it's loss on paper, but money is coming into your bank account. And we can talk about more about those details when I cover a very detailed example on this side. Now, so what happens when you invest in real estate? Like we said, it produces positive cash flow. You have that passive income coming into your bank account. At the same time, it produces a paper loss and that is due to depreciation, a really nice big depreciation, which we're also going to talk about in a couple of examples here. I'll make it very clear for you as a business owner, to understand what you need to do to invest in real estate for tax purposes and how that can help you. Another benefit that business owners invest in real estate is appreciation right. They want the return on their investment not only in terms of tax deductions, but also an appreciation of value. Real estates could appreciate by 5% or even 10% in some areas on an annual basis. Not only do you get a deduction, you get to write off expenses, you get depreciation, but also appreciation.

Speaker 1:

Another biggest thing is 1031 exchange. If you don't know what 1031 exchange is, let me quickly tell you. So IRS has this beautiful tax law that says hey, if you want to sell a rental real estate, a property, an investment property that you have and you're going to have gains on it, well, guess what? You don't have to pay taxes on those gains if you do what's called a 1031 exchange. 1031 exchange basically is a like-kind exchange If you're going to exchange your property for the same type of property in a transaction. So business owners find it very attractive. You know they've bought the business, excuse me. They bought the rental real estate. They produced positive cash flow. They took some losses. It has appreciated in value. Now they want to sell it and have gains. Well, guess what? They can defer those gains by purchasing a like-kind asset, a like-kind investment property. And bam, that's another huge benefit of it, and we're going to talk about all of that in more detail here.

Speaker 1:

Then there's something that's called a step-up basis. Now, when a business owner, when the time comes right and the business owner passes away and leaves to their children the rental properties that they have, the assets that he has, well, guess what? They were able to take positive cash flow, take the loss, appreciation and value, did the 1031 exchanges. And now when their children inherit the property, they get what's called a step-up basis. Let's say, you, as a business owner, bought a property for $500,000, you depreciated it all out and now you didn't sell it, you give it to your children. They inherited the property after the business owner's death. What happens is that and this property, let's say, is valued at a million dollars at the time of death. Well, children get a step-up basis, that fair market value, and if they turn around and sell it, there is no taxation there. So really just a lot of benefits of doing it. So, if you're investing, if you're thinking of investing your profits into real estate. This is a huge opportunity for you, the business owner, and you've got to start working with a tax advisor to plan for each one of these things. Start working with a tax advisor to plan for each one of these things and you can really save big and grow your wealth.

Speaker 1:

Another thing is tax deduction Benefits. For example, you know you bought a property in Florida. You love to travel to Florida. Now all of your travel becomes tax deductible because you're going to visit your property. You're going to do some work on the property. Depreciation is the biggest one. It's the depreciation that helps you produce paper loss. So a lot of benefits of investing in the real estate. And this is your first time investing. You definitely need to speak to a tax advisor as well, because investing in real estate is not just about, hey, I'm going to make money on my investment when I sell it. But if you plan it and craft it carefully, you could really rip a lot of benefits from it and not give away money in taxes for this great, amazing investment. Now we're going to talk about how does real estate really help you produce that loss as well, to help you take advantage of the tax benefits, and we're going to talk about an example right here, right after this break.

Speaker 2:

If you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Bora's put together a free PDF for you, the business owner Seven tax write-offs every S-corporation business owner must know. In this PDF you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.

Speaker 1:

Let's get back to it Now. Tax loss, rental, real estate in general, long-term rentals help you produce losses. Now, the biggest tax deduction is an asset in the business, like a lot of people. A lot of business owners ask me look, boris, I'm making like millions of dollars, or my profits are hundreds of thousands of dollars and I'm really giving a lot to the IRS. How come people like Donald Trump are paying very little in taxes? Or how do I? I've seen a lot on the internet that you can pay $0 or very little in taxes. How is that being done? Well, here's the thing. The biggest write-off I tell the business owners, the biggest write-off that you can have in your personal life right, not just in a business is real estate. Real estate is a big investment, right, it's an asset that can be written off. If you plan for it properly, if you plan on turning those passive losses into ordinary losses, you can write it off all against your business income. That is what I tell people either your business income or your other sources of ordinary income. The biggest tax deduction that you can get in your business is buying an asset, right, it could be. Of course, we're talking about an asset that you need not that you want for a tax deduction. So, before we get into rental real estate and how real estate produces loss via depreciation, I think it's really, really important that we understand how depreciation in general works, and I'm not going to spend too much time on it, but I'm going to make it very, very clear and understandable.

Speaker 1:

Let's take, for example you've got a business, right, I don't know. You've got a gym, whatever. That may be okay. You need to buy an equipment and it costs $80,000. You don't want to pay $80,000 cash, nor do you want to pay anything down payment, and your vendor is offering 100% finance. Hey, finance it, pay it off over the course of five years. Well, the IRS rules allow you to take a depreciation on this equipment even though you put $0 down. Even if you finance the whole thing, the entire $80,000 becomes a write-off. It could be a write-off over the five or seven years, depending how you treat that asset. Or you can take a section 179. It's like a hundred percent write-off, even if you put zero dollars down. That's the beauty of depreciation, that is the beauty of buying an asset. Or you can do a bonus depreciation, which in 2024, based on the current tax laws right, it's at 60%. But the point that I'm trying to make is that buying an asset could be really beneficial. A lot of business owners properly plan with their advisors before year-end they're like, hey, we're actually going to need this type of equipment in our business for next year, but we need a big deduction, but we do not have a cash to pay for it. Before year-end they finance some of the equipment, put it into use before year-end and guess what? Zero dollars down, 100% deduction, beautiful write-off. That is an asset.

Speaker 1:

Now, if you talk about real estate, investing in real estate, well, guess what you're buying. When you buy real estate, whether it's a residential or commercial, you're buying an asset and an asset is a tax write-off. Now, of course, for real estate, for residential, the depreciation life is 27 and a half years. The commercial property is 39 years, but you can do all other things in it. So you can also do accelerated depreciation, because depreciation is a huge deduction when you buy real estate. Now again, you don't have to buy real estate with an S corporation. Okay, you can buy real estate personally. You don't have to buy it with an S corporation. You can buy it personally and you plan properly, you can take those losses. Now that we understand how depreciation works in general and how it can be applied to real estate, let's talk about a real estate investing example for your first time, real estate investment right after this break.

Speaker 2:

If all your accountant does is taxes, you may be overpaying in taxes by thousands of dollars every year. Every week, Boris releases a tax strategy on his podcast so that you, the business owner, can pay less in taxes every single year. Be sure to subscribe to our podcast to be notified when a new tax strategy is released. If you're ready to work with a tax advisor on your tax strategy and planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom.

Speaker 1:

Again, that's wwwtaxplanningcallcom. Again, that's wwwtaxplanningcallcom. Perfect, welcome back. Thank you so much Again.

Speaker 1:

Let's continue with the real estate investing over here. Now I have a really nice example over here. Let's say you want to buy your first real estate property, okay, and the purchase price is $500,000. You put 20% down payment and you basically were out of pocket $100,000. Remember the asset, the real estate, costs $500,000, but you are out of pocket $100,000 because that is the down payment you gave and we determined that the net value of a building after the land is $425,000. Now, because the land is not depreciated, it's not something that can be depreciated. So the IRS says if you buy a building, just you know what is the value of the land and only the building can be depreciated. So in this example let's use that land is $75,000 and the building is $425,000. Now, when you start filing your taxes, the depreciation that you can take is on a four hundred and twenty five thousand dollars. Ok, and not one hundred thousand dollars. You might say, oh, boris, but I only paid a hundred thousand dollars for the real estate. Yes, but you purchased it for five hundred thousand. Ok, just like an example over here, this could provide a huge benefit for you Now, it's not $100,000, it's $500,000 purchase price and $425,000 is a net value. So that means that you can take a depreciation on the entire $425,000.

Speaker 1:

And generally, in rental real estate, generally speaking, depreciation produces, or helps you produce, a loss. The higher is the cost of the value of the building, the higher is that depreciation deduction. Now, when you're filing your taxes, right, you're putting in all of your expenses and you're also putting depreciation expense, but it's not a cash expense that you had, it's a paper expense, so to speak, and that's why it helps you produce a paper loss while you are cash flow positive. Okay, now you can accelerate the depreciation using cost segregation. And another thing to consider is that rental real estate losses, generally speaking, in most cases are considered passive losses. Right, if you're net, if you're having net income, it's passive income and you have losses, those are passive losses. Now, those passive losses may not be deducted against your S-corporation or LLC or business profits.

Speaker 1:

So you may think well, boris, then why would I want to invest in real estate? Well, first of all, there's, first of all, many benefits. There are definitely tax benefits and even if you do have a business, you may still be able to deduct those losses against the business profits by structuring yourself correctly and I definitely speak, excuse me. I definitely recommend speaking to your tax advisor about it, because you can write off passive losses against your business income. If you qualify, your spouse qualifies what's called a real estate professional, this is a great example.

Speaker 1:

And if you this is your first time investing in real estate, don't go running into investing without speaking to your tax advisor. I always tell my clients look, I'm not a financial advisor. I cannot teach you how to invest in real estate, but if anything touches the word tax, I'd like to know. So you've got to speak to your tax advisor. If anything that you're doing is related to your taxes either going to help you, benefit you or worsen your tax situation you've got to speak to your tax advisor, because the tax advisor will give you a plan and a guidance hey, don't do this, but do that. A tax preparer, a bookkeeper or an accountant that you speak once a year will not do that. What you need is to meet with your tax advisor regularly and tax advisor can also help you and guide you when it comes for you investing your S corporation, your LLC, your business profits into your first rental real estate purchase. Thank you so much. Till the next time.

Speaker 2:

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. That's wwwtaxplanningcallcom. And be sure to subscribe to our podcast to be notified when the next strategy is released.