I Am Rich Yet Pay NO Tax (Uncut) 03-29-2025

I Am Rich Yet Pay NO Tax- Here’s What The IRS Won’t Tell You About Taxes

What if I told you the government actually doesn’t want you to pay tax? The tax code is full of legal loopholes that reward people who play by the rules. The problem is that most people don’t even know these rules exist. So today I brought my tax advisor to discuss how wealthy people navigate taxes and how you can as well.

So before we start going over how to reduce your taxes today, we first need to address some common misconceptions about tax. So, Eric, what are some common misconceptions about tax? So there’s a lot of misconceptions, but I would say most of the time there are actually incentives written into the code that the government wants you to take advantage of because it helps society in some way. So I think part of it is just reframing from this loophole to what does the government want to incentivize? Am I already doing it? And can take advantage of that? Or is there something that I need to change if I want to take advantage of it? So another misconception would be people think that the wealthy just take advantage of the tax code and evade taxes.

Evasion is actually illegal. However, what’s not illegal is tax avoidance. So what a lot of wealthy people do is actually tax avoidance, not evasion.

And that means that they are earning income and spending dollars in a way that will give them tax advantages versus the average person is just is earning income from a W-2 or something like that. And so there’s not as many incentives for that. And I’ll give you a couple examples.

So you guys might know that we’re exiting some properties this year, right? We have five properties. We’re doing what’s called a recap, which means that we’re having a sale at 1031. But there’s some that could potentially have a capital gain issue.

Right. And we’ve been all over this for months. But one of the strategies, a legal strategy, is going out and find real estate that qualifies for what’s called bonus depreciation.

And guys, I did not know what this was when I started. I had no clue what this was. But it’s out there.

And bonus depreciation allows you to offset capital gains from something else. And so that’s why Ross and I are moving into the billboard media space, right? MC media, like we’re starting to buy billboards at cash flow, but also they have a bonus depreciation piece so we can take a billboard acquisition that we’re doing, write it off in the year we buy it against maybe some capital gains from something else. And so when you put all these tax things up on a table and you start to look at exiting or refinancing or whatever it might be, just know that there’s all these tools in the tax code tool belt, right? There really are.

Yeah, no, there are. And I mean, if you think about it, it makes sense because, you know, in your business, in real estate, it’s a very capital intensive business. And when investors are looking at whether they should do something, really a lot of times you’re looking at that after tax benefit, right? Like what ends up in your pocket? So like a really high level example of this would be, you know, would you rather be the person, I’m going to make it extreme, but would you rather, you know, be the person that makes $100,000 and has $100,000 in expenses, including taxes go out the door so you end up with zero or would you rather be the one making, you know, $50,000 and maybe only $20,000 goes out the door so you’re left with $30,000, right? You’d rather.

So that’s kind of what after tax is looking at. So if you can take some of these tools and what you’re trying to figure out is how do I minimize that? It’s basically tax is a huge expense. Well, I’ll tell you one time, you know, the property we bought up in Sedona, Orchard Canyon, and we talked about this on the channel for years.

We were in escrow moving forward, had all the money. We were actually coming out of a 1031 to buy that. I think you remember.

And the seller said, oh, I have a massive tax problem. Remember that? Yep. And all of a sudden the deal went sideways because the seller didn’t realize that they had a big tax problem, which they should have thought of and considered in the beginning, but they didn’t.

So all of a sudden we had to figure out a way to reduce the seller’s taxable income, which we did. That’s actually how we got the deal done was we helped the seller. They didn’t realize that there’s some very basic things that you could do.

Now, these are real things that go on. You know, people buy and sell stuff all the time. What they don’t realize is that there are so many tools in that tax code tool belt that that are available.

Oh, yeah, there’s tons. And if you part of the first step is where your income comes from and what income level and then there’s going to be certain tools that you can look to. So if you’re an employee, there’s less tools, but there are tools for you.

If you’re kind of in that, I’d say middle, middle income arena, maybe you’re a professional, maybe you’re a doctor or something else. There’s a whole different set of tools that you can probably use. And then if you’re more an investor, then there’s a whole different set of tools.

So you have to first identify that category and then kind of work backwards from there. But but I would say, you know, one area that is kind of where if you really want to get the most bang for your buck is being in real estate. That’s where a huge percentage of the tax code focuses.

So if you’re really serious about it, figuring out how you can take advantage of those rules. I also realized that whatever’s going on with my real estate asset flows up to me personally. Right.

So I’m looked at as the one that’s taxable, right? No matter what I have going on, businesses, real estate, stocks, Bitcoin, whatever. Right. It all rolls up to me.

So when you have something that has a gain and something has a loss, it can be offset in that same period. Right. Yep.

It’s really cool. Yeah. Well, and part of the reason you get that right is because you’re a real estate professional.

Real quick, that just means you spend at least 750 hours in a real property trade or business. And it’s more than half your time in those real property trades or businesses. So you get much bigger tax benefits when you’re in that category.

You can still get a lot of the real estate benefits. But the big one that Ken talks about all the time is going back to bonus depreciation, just to explain what depreciation is, because this is perhaps the biggest or at least one of the biggest benefits of real estate. And that is that every year when you buy a property, you get to deduct a portion of that cost.

And there’s two reasons that this is so phenomenal. And one is because a lot of times in real estate, you’re not actually using your own money to buy the property, but you can, through depreciation, get deductions by using someone else’s money, so by using leverage. So, for example, even if you only put 20 percent down on a property, you get 100 percent of the depreciation associated with it, not the lender.

So that’s a big one. You’re leveraging your not only your returns, but your tax benefits. The second reason why depreciation is so amazing is because most of the time it’s just a paper loss.

It’s not real. And those are the best kinds of deductions are the ones that don’t actually result in a cash outflow. So depreciation, right? Purchase a property, you’re deducting a percentage of it.

Doesn’t necessarily mean that the value has gone down. The value could stay the same or the value could even increase. But you still receive that deduction.

And I think what’s interesting to understand around depreciation, as an example, is because it’s the government’s way for you to invest in real estate. It’s it’s they want the private sector investing in real estate. That is the reason for it.

And I think that’s kind of the point of the code. Right. Oh, yeah.

There are things in the code that actually direct people to things because you get benefit for them. And depreciation is one of those things. So when you start to see like bonus depreciation, I read that this was originally intended for farmers when they were buying farm equipment, let’s say, at the end of the year.

Right. Because farm can be feast or famine. You know, you can have high fluctuations in cash flow and good years and bad years and all those kinds of things.

But by them buying new vehicles or buying new combines or whatever it might be, they can finance them, even if it’s 100 percent in the year and get a write off against any kind of income that they might have had and be able to keep it. So that’s just bonus depreciation. But it also rolls over to other things in the real estate world.

So does cost segregations, you know, to help you do the I guess we can speed up depreciation. There’s all these kinds of things that you can do that. I never dreamed were available when I first started.

Right. Right. Yeah.

You’re looking at how much money is coming in the bank account. Right. Yeah.

No, it’s really interesting because I think we all start off just working our butts off and we’re trying to, you know, be financially free and we’re trying to keep what we can. We don’t realize that legally there are lots of ways to to to save on tax, you know, to go a little further into the real estate world. Just a couple other items that, you know, you should definitely pay attention to.

One, you know, almost anyone can take advantage of this. So you don’t have to be a real estate professional is the home sale exclusion. So if you live in your principal residence and you own it and you’ve lived there for at least two out of the last five years and you sell it, you can exclude your gain.

If you’re married, filing joint up to half a million dollars. If you’re a single taxpayer, you can exclude up to two hundred fifty thousand dollars. A lot of people miss that.

And I’ve literally seen people sell their house within a year and 10 months of owning it and had that game. But they didn’t hit that two years. And had they known it, they only had to own it and live there for two more months.

They probably would have waited because just think about a married couple excluding five hundred thousand. If you’re in a high tax rate, that’s one hundred grand in taxes right there. Yeah, it’s a it’s a really, really good point.

I know people that actually use this tax loophole or I guess tax tool as a business. In other words, what they do is they live in a house and then they’re always building another house. So they’re like living in one house for two years and one day while they’re building another house.

And then they move into that house and then they sell the house that they just moved out of. And so they’re always living in these new houses. And and they’re also building their equity from from year to year to year.

And a lot of these people are in in the renovation business or in the new home construction business or whatever. But the point is, is they stay there two years and maybe it’s three, but it doesn’t matter because it just has to be two out of the next five. Right.

Yep. And then they they go into the next one, however and whatever time that is. And then they do it again.

But they are very, very conscious of that rule. And so all the money that they make, let’s say by renovating something or building something, is now sheltered with that with that one tax tool. Yeah.

And it’s it’s really neat because you can kind of step up, you know, if you start with a half a million dollar house, it becomes worth a million, you know, then you step up. Now you’re buying a million dollar house. Right.

And so I’ve seen people literally do that, especially, you know, in California where prices were just increasing. It’s not uncommon for people to get hundreds of thousands of dollars in buying something, fixing it up and moving to the next one, you know, especially a new construction even. So, you know, you’re talking about a lot of money and just a two year period to like, right.

Imagine if it’s 200 grand, it’s 100 grand a year. Right. So when you know, I know.

And it’s funny because you’ve told me before that there’s some people that sell on that one year and 10 months. And if they just would have waited two months. Right.

Because you can actually do it as a seller. You could say, I can’t close until this date and you can actually direct that. And that’s actually part of this tax planning.

And some of these tools that you have that are available to you guys that you may or may not know. And by the way, I didn’t know any of this when I started. I’ll do a quick plug, you know, a quick side note here.

This is a reason why it’s so critical to have a relationship with your CPA. Don’t just think of them as I’m going to have them do my taxes. I’ll give them my receipts at the end of the year.

They’ll give me a return back, figure out what I owe. Think of it more as a relationship that they’re your partner in some way. And so this was a perfect example.

I was actually sitting with a client that was talking about we’re just having coffee. He’s talking about his life, what’s going on with his family. And he starts talking about, oh, we’re looking at houses and we’re going to move in.

And I was like, wait a second, didn’t you, you know, move into your house? You’re in now only a year and a half ago. And he’s like, yeah, I was like, well, so and I told him about the exclusion. And my point is that unless you’re having there are things that you are doing that you think are personal and don’t apply to the tax world a large percentage of the time.

That’s not true. A lot of the things you are doing on a day to day basis can help either reduce or increase your taxes. This is not somebody that you’re using to fill out your tax returns.

This is, you know, I used to do that. I used to take all my stuff, all my receipts and bring it over to somebody and have a one hour meeting and then I would pay a check or whatever. And then I started to realize that there are people that that do your tax returns.

And then there are people that are tax advisors and they’re very different people. Exactly. And I was so frustrated.

I remember when I went to Eric, he said, let me take a look at all your past returns. And he went back and you did amendments on some of the stuff because we missed things in my prior relationship. So having that tax advisor is really, really important.

And you don’t realize what you might be leaving on the table because you can’t see it. Right, exactly. That’s actually the issue.

And then when I made the jump finally to what I would call professional services, that’s when I started realizing, oh, there’s a bigger playbook here that I had no clue about. Yeah, exactly. So I think I think part of it’s just keeping an eye on where you’re at, talking to, learning for yourself, talking to other CPAs and kind of stepping up as your business or your real estate or whatever it is, stepping up so that you’re not ignoring one piece of the business because the tax side.

I mean, if you think about it, you’ve got income taxes, there are sales taxes, property taxes. I mean, you can easily be paying half of your income to taxes. So this is not it’s just like every other expense.

You need to manage it. Tax savings is not just for the wealthy. I think there’s this illusion that only the wealthy has access to this information.

It’s just not true. Right. And for me, it was just 100 percent education.

Like once I realized, I’m like, OK, so it doesn’t matter where you are. It’s there. The information’s out there.

There are definitely ways to reduce your taxes down to zero. In my case, in a lot of years, I’ve had net operating losses. So I actually have more losses than I do tax that I’ve actually been able to carry forward from year to year.

Right. Yeah. Yeah.

Crazy to think about. Think about that. Think about that.

I’ve had more losses in a year than reported income. It’s crazy. And that’s the depreciation.

But correct. You know, and then we roll that forward and I use it to offset the following year. It’s unbelievable to me.

Yeah. And, you know, another reason you’re allowed to do that, right, is because you’re a business owner, which is kind of another you’ve got real estate is, you know, that’s the end all be all. But another really great strategy is simply owning your business, whether it’s converting from being a W-2 wage earner to maybe being a 1099 contractor can open up different avenues.

But then there’s also ways, like I was saying about depreciation, the best deductions are the ones that don’t actually cause you to have a true cash outflow, but are still legal deductions. So when you talk about a business, there’s, you know, lifestyle type deductions. And I’m not talking about taking advantage and buying a Ferrari and deducting it, even though you don’t use it.

That’s not what I’m talking about. What I’m talking about are things like, for example, as a CPA, I have to do continuing education. Well, the continuing education I like to do happens to be one that takes place in Las Vegas.

And I also like doing gambling. I like playing poker in Vegas. So have CPE on a Friday and Thursday, Friday, and then I can deduct my flight out there.

I can deduct my hotel. And then the IRS even says if you straddle a weekend. So if I have another CP or some other business, we have an office in Las Vegas now, too.

So if I meet a client on Monday, well, I had to stay there over the weekend. It didn’t make sense for me to pay extra to fly back on Friday night and then fly back Monday morning. So I stayed the weekend.

So that means that my flight back is still deductible. I basically get a trip that I had fun, but I was also working, but it now became deductible versus if I was just, say, an employee and I wanted to do a vacation, I’m paying for that vacation all out of pocket. But this way you can legally subsidize basically your your travel.

And there’s all kinds of examples of doing this. Right. You got to be careful here, right? Because the IRS is not stupid.

They do know that people are trying to have workarounds and stuff. But that’s kind of the point of the advice is, you know, these are things that you can legally do. And there’s so many more.

And that’s why I’m saying you don’t have to be wealthy to have this figured out. If you want to see an exclusive behind the scenes look at one of my properties, I just walked through this deal with my partner, Ross. We went over some tips for buying and managing real estate.

You can watch this video now.