Welcome to The Get Real Podcast, your high-octane boost and in the trenches tell-it-like-it-is reality therapy for personal, business and real estate investing success with your hosts, power-preneurs Angela and Ron. It’s time to get real!

Angela: Hey everybody. Welcome to The Get Real Podcast. This is Angela Thomas and I’m here with Ron Phillips. Say Ron.

Ron: Yeah, we’re here.

Angela: Hey, and today we have Warren Taryle with us. Awesome guests. We’re going to talk about some great topics. You don’t want to miss this. Warren is a CPA and the founder of Taryle Accounting. He specializes in working with real estate investors, entrepreneurs and wealth builders. Warren also focuses his practice on helping people grow their investments and businesses by reducing their largest expense, which is of course taxes. And Warren has many notable real estate and wealth building icons such as Ron Phillips. Just kidding. Okay, just kidding, Ron.

Ron: You just lost half the audience. If we didn’t lose them on CPA, we just lost them on that.

Angela: I know. I know, I know, but yeah, no, Ron is one of his clients along with Robert Kiyosaki, Jack Bosh, who I don’t think has been on here yet, but he will be and many others. So welcome Warren. Thanks for being here today.

Warren: Thanks. This is great being here with the icon himself, Ron Phillips.

Ron: Oh my gosh it’s getting deep in here now.

Angela: Here we go. Yeah.

Ron: Warren I think, you know, I just want to tell everybody that just because the word CPA and taxes were used in the opening monologue of this deal that we should not, no one should like hang up on this deal yet, right.

Angela: Yeah give us a second.

Ron: I hit pause. This is going to be really good. Let me tell everybody why, because I met Warren. I met you in a mastermind, Jack Bosh mastermind to be exact. And I, that year was, it was really timely because man, I’ve been paying a lot of taxes, Warren, good Lord, if I mean a lot and just so everybody out there understands, Warren is, he’s the best at what he does. He saved me hundreds of thousands of dollars in taxes, hundreds of thousands. And so everybody should listen up.

Ron: This topic is actually really cool, Warren, because I know that you know this, but the penny a day thing, we’ve talked about this before on the show, but the penny a day where you, it doubles every day, you know, and then you get to the end of the month and then all of a sudden you’ve got over $5 million. Crazy thing is that if you tax that on every game that $5 million during the same exact time period is only worth $48,196 add a tax rate of 30%. And many high paying people who listen to this show are paying way more than that, right Warren?

Warren: Yeah. But you get so much for that tax money you put in. Your felt, you’re very appreciate it. You get the letters and everybody thanks you for supporting them and all that, right?

Ron: Yeah I got a letter her right here, Warren, this one right here. I got this one right here. I don’t think this is a love letter at all.

Angela: You’re reading it wrong, Ron.

Ron: I think I misread it. You get to pay. So Warren, you’re here today to help us figure out how to pay less in taxes. Let me rephrase that. To pay our fair share in taxes, would that be appropriate?

Warren: Exactly. And not beyond your fair share.

Ron: That’s exactly right. That’s exactly right. And the lower the better, in my opinion. It is nearly impossible to acquire a great amounts of wealth when you are taxed every single time you make any money. It is nearly impossible. So do that end, Warren we have talked on the show several times about, um, cost segregation studies and other really, in the real estate world, things that are really sexy. And we’ve talked about this before several times. You and I, so I thought maybe I’d just have you on and let’s see if we can go over what this is, how it works and combine it with any other strategies that you’ve, that you think that we’ve got time to talk about today. And just let’s maybe help some people open their minds as to what can be done in the taxes world.

Angela: And dumb it way down for me, please.

Warren: Oh it has to be for me too.

Angela: Okay, alright. Good.

Warren: So real estate, I mean, there’s a lot of tools we have and with the new tax law we’ve even got more tools in our arsenal to kind of fight tax, but cost segregation and the way the new rules interplay with it, it’s almost too good to be true. And then you have to realize like, oh, where did our president come from, what industry? The real estate industry? So he’s going to pass a tax law, maybe it might benefit his own where he came from.

Ron: No politicians don’t’ do that, Warren.

Warren: But that’s the cool thing, right? The cool thing is the tax code is fair and everybody looks at me like I’m an idiot when I say that. But it’s fair because it treats everybody the same. I mean, it doesn’t treat, you know, it treats everybody who does the same thing the same way, right? Now If I’m making, if I’m making a minimum wage job, I’m not going to be treated exactly the same as well as Donald Trump’s being treated right because we’re not coming from the same place. But if I do the exact same things he does, I get treated the exact same way. So that’s why I say it’s fair to respect her of actions, not a respecter of persons.

Angela: That makes sense. Cool. That’s true. Yeah.

Ron: Which is why I’m a little dumbfounded as to why people don’t just go figure out what rich people are doing that are paying less taxes and do that. I mean, it seems remarkably simple to me.

Angela: Because it requires work, a lot of work right Ron. I mean, it’s not…

Ron: I guess so.

Warren: And some people don’t want to be rich, let’s face it they don’t want it, they don’t want to make a lot of money. It’s much easier to be able to sit back and complain about stuff and have people feel sorry for you and, you know…

Angela: Be the victim.

Warren: Yeah. Why go through that trouble of actually solving my problems. Anyway, that’s a whole different podcasts.

Ron: Yeah. Because we can get mired in that for hours.

Angela: Okay. So yeah, going back to this, so what is, you said there’s lots of tools, but what is cost segregation?

Warren: Let’s talk about cost segregation. And I understand there’s going to be a lot of other kind of details that go around this, but we’re going to keep it really simple and keep it so that everyone understands it and they want to jump in and do it. And we can always talk about the detailed side at another point, but okay. When you, when we buy residential real estate, there’s something called depreciation. Probably all of you guys understand depreciation. And the great part about depreciation is that it’s a noncash expense. And that’s what allows us to create what we would call paper losses. Nobody wants real losses even if they’re deductible. We don’t want real losses, right? Because even though it might feel like it, none of us pay tax at 100% tax bracket. So losing money is not what we want to talk about.

Warren: But paper losses on the other hand is where it is, that’s the magic in all of this and they said paper losses in real estate comes from depreciation. If you have a residential property under the normal rules, we would depreciate that over 27 and a half years. So how do we do that? Basically we take the purchase price, we have to break out a little bit to something for the land because even the government is not crazy enough to let us right off land, but out of that remaining balance? Just divide it by 27 and a half and that’s how much you get to depreciate over a 12 month period. And that’s interesting, but we can make it better than that because that rule is the rule for real estate, real property, right? We know the difference, right? There’s real property and there’s personal property, right?

Warren: Real property. Real property for residential purposes we depreciate over 27 and a half years. I’m going to jump back and also say for taxes as is the only time I’m going to say this, taxes make things simpler when it comes to, is it residential property or commercial property? In the real estate world there’s a bunch of things and you know, the size of the units and or number of units and all of these things that count. In tax world, it’s residential of people live there. It’s commercial if people don’t live there. So even a 100 unit apartment complex is residential. So residential we depreciate every 27 and a half years commercial is 39 years.

Angela: Okay.

Warren: But when you buy that, let’s say apartment complex or single family home or whatever we’re buying, you’re buying more than just the real estate. You’re also buying personal property and personal property can be depreciated as quickly as five years. That’s a whole lot better in 27 and a half. And personal property is defined as things you can remove without causing damage. So things like kitchen cabinets and countertops and ceiling fans and appliances and shelving and all these kinds of things you can remove without causing damage. So therefore we can depreciate those over just five years. Now I know if you watch HGTV and you watch the rehab shows and the rent, it doesn’t look like you can remove those things without causing damage.

Angela: I couldn’t. I know that, but…

Warren: Well sledge hammers do make better television, but…

Angela: Yeah, for sure. Okay, that’s interesting.

Ron: And we all know that HGTV is the truth.

Angela: It’s super accurate. It’s on TV, so yes. Okay.

Warren: In addition to those things on the inside of a property, there’s also things on the outside of a property and things on the outside are called land improvements. Now I said we can’t depreciate the land, but we can do depreciate the things we do to the land and land improvements are depreciated over 15 years, which is not as good as five, but it’s way better than 27 and a half or 39. So land improvements or things. Just think about anything on the outside, driveways, sidewalks, landscaping, irrigation, walls, fences, swimming pools, all that. Everything we do, the outside is 15 years. So even here, I live in Phoenix, so even here in Phoenix, landscaping is gravel that we throw in the front yard. So we get to depreciate gravel.

Ron: That’s fantastic.

Warren: Now what makes all of this exciting? So that’s the normal walls, right? That’s the way we’ve had those rules in place or forever basically. They’ve been around for a long time. What makes things better as of the beginning of 2018 with the new tax law, is they have something called bonus depreciation. And some of you know, bonus depreciation has been around for awhile. I won’t talk about the way it used to be because they got way better January 1st of 2018. And by way what we’re looking at is, they say anything that has a useful life of 15 years or less, instead of depreciating it over that lifetime, we can elect to write it off 100%.

Ron: Oh my gosh. So…

Angela: Wow.

Ron: And that’s a lot of stuff, right?

Warren: That’s a lot of stuff.

Ron: That’s a lot of stuff. And I’m not sure that, I mean maybe there’s some people on here who are understanding how sexy this is just out of the gate, Warren.

Angela: I doubt it, I’m not.

Ron: Just for the sake of I know that there are a handful out there that probably don’t understand just how sexy what you said is let’s try to put like encompass this into some, some numbers for them and I know this is going to be difficult because all the studies are going to be different. But let’s just generally speak talk about this because you can move all of that stuff that is 15 year depreciable to one year depreciable. That’s massive. That’s, that’s potentially hundreds of thousands of dollars a year one, right?

Warren: Right. And even better than one year depreciable, right. I mean I get what you’re saying, but you know, technically if I close on that thing on December 31st I get that whole deduction for that whole year,

Ron: Right. Yes, yes. And hence the reason I closed on December 30th I think it was 30th I can’t remember if it was 30th or 31st but yes, immediately deductible. So, and then this is why I am not the one who’s talking about this to know enough to be dangerous about cost segregation. But that’s a nuance that makes a huge difference. You know, whether you were going to push your closing in January, you were going to close, you know, in December, that’s like, that makes a massive difference in your tax bill. So this cost aggregations, so really what we’re talking about is an accelerated depreciation schedule, right Warren?

Warren: Exactly.

Ron: The cost segregation piece of this, what does it do? How does that play into the accelerated depreciation?

Warren: So we need to somehow determine, so when you buy that property and let’s say, you know, buying a $500,000 property, and right now we’re just, I’m going to make up numbers and so their not going to be any real, be reliable for anything. But let’s say you buy a property for $500,000 and let’s make it maybe a six unit apartment complex, what the heck. And we’ve just got through saying, well the kitchen appliances and cabinets and all of these things and the parking lot and land, all these things can be depreciated faster than 27 and a half years.

Warren: And so how do I determine out of that $500,000 that I paid for this property, how much goes to all of those individual items and how much goes into the kitchen appliances and how much goes to the sidewalks and the irrigation system and all of these things, right? That’s where we have somebody come in to do a cost segregation study. And it’s important, in my opinion, that you have a third party to do this. The IRS frowns on you doing your own cost segregation.

Angela: Well, that’s weird. I don’t know why they would.

Ron: Why in the world would that be weird?

Warren: It’s not in the law, right though. There’s no law that says you can’t do your own. But when we’re looking at such a big tax advantage let’s not have gray areas. Let’s just go right for having somebody do a cost segregation study. There’s companies out there, they’ll stand behind their study if the IRS questions they’ll come in and they’ll have all their evidence as to why. And so you’re, you’ll be light years ahead of trying to up.

Angela: Much more protected, okay.

Warren: And it’s not that much money, right, in the scheme of things.

Ron: It really isn’t to get hundreds of thousands of dollars potentially of a write off. And in year one it’s peanuts.

Warren: And you know there’s companies out there, some of the companies we work with though, they’ll actually, you give them the address and the amount you paid for it and they will give you a preliminary report that says before I, don’t know how they do it because they couldn’t spend a lot of time because they don’t charge you for this. I’ll go out, just talking to them. They’ll say all right we looked up your area in that building and we think these are the amounts we’ll be able to come up with when we do this. And they’re usually pretty accurate. And then they’ll also tell you the cost and also be able to even sometimes tell you what your tax savings are going to be. So you can see all of that before you even commit to doing it.

Ron: Yeah. It’s hilarious because Angela, I don’t know if you’ve seen one of these, but it’s kind of comical because it’s obviously a sales pitch, Warren. I mean there, this is why you should pay us x because we’re going to save you y and the numbers are the biggest no-brainer on the planet. If you’re a sales person and your job is to go and say, hey, you can pay me $10,000 and I’m going to save you $300,000 off of your taxes.

Angela: No. Yeah no brainer.

Ron: Please don’t. Please don’t, right. That hurts. I don’t want to do that. I don’t want to do that. So anyway, yeah. And they’ll do that and then they, and then they’ll actually provide this study too. It takes a little bit longer to do that because they’re, it’s very involved.

Angela: Does it matter when you have this study done, like do you have to have just acquired the property or when, when can you do this?

Warren: Great, great, great question. It’s best to do it as soon as you can when you acquire the property. Because the study is basically trying to say what the condition, what that property was the day you bought it. Because we have to make that allocation based on bought it. It’s not impossible for them to go back in time. And there are even some IRS rules that let us do this even up to a couple of years later, which I don’t recommend. It makes it a lot more complicated and the value starts to decline quite a bit, but it might still be worth it in some people’s cases to go back in time. But, doing it as soon as you can, as close to the closing as possible is good.

Angela: Okay. Cool.

Warren: I’ve even seen one guy one company and they went in for one of our clients and the clients said, well, you know, I’m planning on doing a renovation of all this stuff. And they said, let us go in first and do the allocation. And there’s a couple of things that are really good about that. So let’s say you’re going to go in and you’ve got an apartment, you’re going to be renting these out and there’s maybe four or five of the kitchens that you know within the first three to four months instead of the vacancies turn or whatever, you’re going to demo those kitchens and redo it. If we know the value of that kitchen items separately beforehand, before you tear ’em out, well bonus depreciation or no to depreciation, we’ve now torn all that out.

Warren: So we’ve disposed of it so we can write that off. And then we come back in and add the new stuff and we get our now take the bonus depreciation and write it off all over again. So there’s a really good idea to get them in there beforehand. And this company even said, hey, after you go in and do this, we’ll give you a second report to show what was removed so you can have that as support for writing all that off.

Ron: Let’s get a time out for just a second, okay. Because I didn’t know this Warren and I love it when I learn new stuff, especially when it’s about things that I’m currently doing. So what you’re saying, I just want to make sure I get this. I go buy a million dollar small apartment building. The idea is that I’m going to renovate many if not all of those units. You’re saying I should go get the cost segregation study immediately upon closing, do the cost segregation study and then I should get a second, I don’t know, like catch up study or whatever. Six months or eight months later when I’m done with my renovations of the project and then I can double arbitrage my money. I can write these things off.

Warren: Right. I mean we’re still not, we’re not double dipping right? But because you are spending more money to do the renovation but we’re taking full credit for everything you’ve put into it and everything you’ve taken out of it.

Ron: Well kind of. But the whole idea of me increasing the issue of renovating the property so that I can increase the value of the property through the rents, right? So, so I kind of am double dipping, right?

Warren: Well yeah. I mean if you want to…

Ron: Because I’m spending money but I’m making that money.

Warren: Your going to make it up anyway. Yeah.

Ron: Like leads make it up because the property’s going to be worth way more money when I get done with it.

Warren: Right.

Ron: Interesting.

Angela: That’s really interesting.

Ron: All you rehabbers out there who are buying apartment buildings. I hope you just caught that little nugget because I did for sure.

Angela: Okay. So that was apartment buildings, which kind of leads me to my next question. Like for me, you know, I’m starting, I just have like little single unit rentals, condos, little single-family homes, like someone that’s just starting out. Is it worth it or can you even do this on the all those little cheap single-family properties or is this more for bigger stuff?

Warren: It’s in the olden days, last year.

Angela: Last year.

Warren: So you’re old enough to remember that. I would say yeah, it’s really for the bigger properties. But with bonus depreciation, it changes the calculus tremendously. Now and I’m sorry, but I don’t have like the hey, if spending less than $40,000 on a property don’t do it. I don’t have that number.

Angela: The exact number, yeah.

Warren: Because there’s also going to depend very much on the property. But like I said these guys that the cost seg guys will still, for a small property, they will still give you that preliminary report. And so it’s worth looking at it, talking to your tax person going, hey, is it worth it? What does this mean to me in dollars? I know we’ve had someone, you know, we just talked, we just had this conversation with about some smaller houses and yeah, it made sense, marginally made sense, but you know…

Ron: It kind of depends on what the study costs, right? I mean, if you’re going to pay $10,000 and you bought $100,000 house, that doesn’t pencil out.

Angela: That just doesn’t make sense

Ron: Right. But if you can get a study for a few hundred bucks, Warren, that makes sense all day long, right doesn’t it?

Warren: On a new smaller house and smaller properties aren’t that expensive? I mean, probably under a thousand dollars.

Angela: Yeah, I mean I’ve seen the price that we’re offering, so it’s, yeah, I know you can get it pretty, pretty, pretty low on those.

Warren: Now, it’s important. I should throw the caviat in. Because I imagine most of you guys out here listening understand these rules but I should throw it in there anyway, right? You want to check with your accountant, your tax person to make sure you’re able to deduct these real estate losses in the first place, right? So our rules about passive losses, and remember real estate is going to be considered passive. So we want to make sure you’re going to be able to take advantage of these things.

Ron: So tell us Warren, how a person would be able to, so let’s save the real estate professional thing for a minute. Let’s just say that you’re not in the real estate business. You’re one of our clients or you know, you’re just out there buying some rental properties, but you’re like, I don’t know, you’re a dentist or you’re a physician or you own a small business and you’re just buying with your extra money. You’re just buying some rental properties. So how would a person in that scenario be able to take passive losses above and beyond what the property produces?

Warren: So passive losses and first of all, maybe let’s define passive losses. Passive losses are basically your money working for you. You’re spending you’re not working full time in this, you’re not putting any time in. And even though rental real estate seems like you are by definition you’re not. And so passive losses according to the general rule, can only be used to offset other passive income. There are some exceptions so that we’re not going to talk about the exceptions here because, let’s look at these guys in the person you just described, Ron wouldn’t fit any of those exceptions anyway. So then passive losses do me no good whatsoever. Well that’s not exactly true. First of all, let’s say you had a small property, let’s say a cashflow $5,000 a year. So you had positive cashflow, $5,000 a year you put in the bank, but that’s also say you had $8,000 worth of depreciation for some reason.

Warren: So for tax purposes, you have a $3,000 loss, even though you put $5,000 in the bank. Now, because of these passive rules, I might not be able to use that $3,000 right away so it rolls forward. But we’ll talk about that in a second. Let’s not overlook what you just did though. You just put $5,000 in the bank that you paid zero tax on. So let’s not forget that. Now that $3,000 rolls forward to the next year and the next year can you use these losses this year? No. It keeps rolling forward indefinitely until you dispose of the property. So when you dispose of the property in a taxable event, so not a 1031 exchange, but you dispose of the property the year you dispose of the property, all the passive losses that have been carrying forward for free up that year and you get to deduct on that year against your w two or your business or any other kind of income. So it’s not a matter of if, it’s a matter of when.

Ron: Okay, very cool.

Warren: But let’s also go back and say, you know, you don’t, you can use those, that $3,000 cost of loss against any other kind of passive income. It doesn’t have to be even real estate. And so some doctors out there, this is what we’ve been finding on some doctors returns is, a lot of doctors are partners in surgery centers for example, and their accountants sometimes treat that K1 they’re getting from the surgery center as earned income. We argue that it’s passive income and a lot of cases because unless you’re there working in the surgery itself as working for the surgery center, then you’re not actively participating in it. You’re not actively working in it, right. And doctors say, well, I do surgeries there. Well you do surgeries there, but you’re more of a customer of the surgery center by doing your, you know, you’re renting or your patients….

Angela: I love that. That’s cool.

Warren: So let’s not just immediately jump out and say, Hey, I have, I can’t use this stuff. Let’s look into it. Also, maybe you structure your investing differently. If, you know you can get a hundred thousand dollar write off from real estate losses, maybe we do some other passive investing that we know is going to generate $100,000 of income. Now again, we’ve created $100,000 of tax free income.

Ron: Tax free income. So, and how would you do that? So, you know, in my mind I’m thinking, okay, well, let’s say a guy has a stock portfolio and he’s got several dividend paying producing stocks and they’re producing, I don’t know, $10,000 a year in income from, and that’s passive income, right? Any kind of a dividend from his stock?

Warren: No, unfortunately. So back in the…

Ron: Does it free anything up, Warren?

Warren: Back in the Reagan administration, we used to have one kind of tax. All income was taxed the same. And then we had tax simplification coming under the Reagan administration. I love Reagan, but we had tax simplification and tax simplification said we have to take one type of income and simplify it into three different kinds of income. And that’s where we got earned income, passive income and there’s a middle one called portfolio income, right?

Angela: Oh, the middle one.

Warren: The portfolio income to us who are trying to build wealth and create a legacy, portfolio income sounds a whole lot like passive income. Portfolio income is really from paper assets, so it’s stocks and bonds, interest in dividends, that sort of stuff. And that sounds passive to us, but that would only leave two types of income. And remember they’re trying to simplify it. So we had to three kinds. And so those have to sit in their own world, but you can still go out and invest so you’re not going to be hitting, you know, your normal Charles Schwab investment type things. You’re going to go want to work with a financial planner who has more diversity and you know, look to invest in limited partnerships.

Ron: Yeah, that’s what I was getting ready to say. Maybe some limited partnerships or would it, how does lending treat it, Warren?

Warren: A lending is treated as income, unless you create an actual business and as you can kind of become a bank almost and then we can convert it over.

Ron: Okay. All right. So what you’re saying is there’s a chance?

Warren: There is a chance and it doesn’t have to be this year, right? So if you get those $100,000 thousand dollar loss this year and you say, man, I can’t find a good investment. I don’t want to just throw my money into something and not pay off. It’s okay. Earn $100,000 income next year. That $100,000, you couldn’t take this year rolls forward the next year and then we get it and you still get the tax free income next year. So it’s definitely worth it. And there’s a lot of funds and there’s a lot of private money things that are out there that generate passive income, you know, don’t…

Angela: Yeah. Now we’re racking our brains trying to divvy up the three. Yeah. I’m like wait, hang on.

Ron: Well that’s good thought. Because that means a lot of that means a lot of our clients, a lot of people who are listening to this show right now can use a cost segregation study where I think a lot of them have been told very plainly by their accountants that that’s no good and that they shouldn’t even try to use it. And you’re saying, well wait just a second. If you’re a high income earner we probably can use it in one way or another and you may be already doing certain things that would qualify anyway.

Warren: Right. We just need to look at what you’re doing. It might even require us maybe dissecting your business into a couple of different parts. Maybe if you, and I’m not going to give you an example off the top of my head because I can’t, but let’s say, you know, we’ve got a guy that runs a company doing a bunch of different stuff. Maybe there’s a piece of that company that can be siphoned off to another company that he might become passive in the operations of that one part.

Ron: Right. Which works all the time for physicians and, and dentists and people who, I mean, because I hear about all of them and the different things that they do where they have, you know, part ownership in another facility where they don’t even go, right. I mean that obviously that could work.

Warren: And there’s liability protection reasons for doing it to kind of not keeping everything in one basket. So, you know, we have to look at you when we’re doing a tax strategy, whether it’s involving real estate and cost segregation or not, we have to look at you holistically. It’s not just that business or not. Just as category of investments. You have to look at everything you’re doing and put it together and see how these pieces come together and maybe be willing to trade pieces out. Hey, I’ve got all this, I’ve got this Charles Schwab account I’d been doing for years and years and years. Maybe I need to take a little piece of it out and invest in something that’s going to not only give me a decent return, but give me a better tax situation.

Ron: I think that’s where a lot of people miss out. I did for years, Warren, I mean you knew when I came to see you, I was, I was about done with business. I mean like I think the year before I came…

Angela: Blow it up, yep.

Ron: Yeah. Angela knows I paid the same amount in taxes as I took home that year. And you know, people out there who don’t understand business, they say, how in the world could that possibly happen? Well, you know, I had money that was still left in the account at the end of the year and I needed it to operate my business. And so, you know, I already had like, you know, I was at whatever 39 and a half percent tax bracket on that money. So 40% of all the money I had in the bank was taxed even though I didn’t get my grubby little hands on it. So by the end of the day…

Angela: Not funny.

Ron: I literally was writing a check for the exact amount of money that I took out of the company personally took out of the company that year. In other words, I net made no money being in business for a solid year and…

Warren: Oh yeah, easily. By the time you get 39.9%, you know, you’re 40% there yet state taxes, you’ve got the payroll taxes, you’re paying for people on your staff, you’ve got, you know, you’re usually well over 50% before you even, you know breath.

Ron: Yeah, it’s absurd. And then I go back to what I stated at the beginning of this, and ths is the insidious piece of this, right, is that people don’t realize what taxes are actually doing to their wealth building. They write, the check already comes out of their check and they don’t even notice it. And they don’t realize the power that it has on their wealth. And you know, that penny a day is really stark contrast. I mean, we’re talking about almost $50,000 versus $5 million in the exact same period of time with the exact same thing happening. I mean, literally it’s the exact same thing. The only difference is that the gain is taxed on every day, right? This is…

Warren: Well, and let’s look at the spiral. The other spiral, the positive, the upward spiral. So let’s say you’ve got some money put aside and we’re able to do investment in one and investment one generates a certain amount of tax savings for us. So if we just take that tax savings, it’s kind of playing with the house’s money, if you would. And take that reinvested into the next thing that’s going to give us tax savings. So now I’ve got a double investment going into tax savings in that. So I get even more tax savings and then I take that money and invested in another tax savings in that’s triple. And you know, we keep spiraling upward producing, you know, you’re getting a bunch of income, you don’t need to work and maybe getting food stamps

Ron: Nice. Because you’re so broke, right. I love being broke by the way. I am broke. I love being broke it’s the greatest thing in the world to be broke. And I appreciate Warren, you helped me remain broke.

Warren: Sorry I broke you.

Angela: That is a talent. Yeah.

Speaker 3: It is fantastic. It’s fantastic. Everyone should try it. Well go ahead, Angela.

Angela: I was just going to say, going back to this cost segregation thing, I was just wondering like, you know, people out there listening to this and for me like how do we know if our CPA knows about this? Like is this something that all CPA’s, I mean they’re not all the same, right? Is there any way for us to know if our CPA, you know, is going to be able to help us with cost segregation or a way to, well, you know. I don’t know what I’m getting at here.

Warren: First ask and so here’s, here’s the difference between kind of a lot of CPA’s and what we do. So we work with people planning throughout the year to see where they’re going to end up. We don’t wait until the end of the year you send us the tax stuff and we say, okay, here’s the results.

Angela: I think that’s like the CPA I have. Yeah. Okay.

Warren: But you know, I used to always say, you know, if you, if you ask the right questions to a CPA or any tax professional, really you’ll get the right answers. And yeah, not even, that’s not so true anymore, but it still requires you to ask the question. So you know that’s something you need to look at. If your situation is, you know, you’re just paying tax because that’s what you’re told to do. Do you have a strategy? You guys have strategies for wealth. You have strategies for your business. You have strategies for relationships. You have strategies for everything. How about a strategy for tax? I mean it is possible to strategize. You don’t just have to just pay, you know, you can plan and pay less. And so are you doing a strategy or are you just paying? Is your CPA a tax preparer or are they a strategist?

Angela: Ouch. No, I’m just kidding.

Ron: The difference there guys is massive. The year that I made the switch from what Warren just describe where and you’re right. I mean, I think it was kind of you to say that if you ask the right questions of nearly anyone that’s in the business, you’re going to get the right answer. But that is absolutely not the case because I asked the right questions and I was told, yeah, this is what happens when you make a lot of money. And I remember the shocked look on my face. I looked at him and I said, well, how is anyone in business then? Because this doesn’t make any sense. I said, next year I’m going to pay taxes out of the money that I’m making therefore I’m going to be my snowball that you were talking about Warren.

Ron: The snowball continues to go because I don’t have the money to pay 50% because I have to operate my business out of that money, right? So now I’m creating a larger tax because I’m taking money out of the company to pay the taxes for last year and I’m tax on that money. And when I asked the question and that was the answer I got, I was like, oh my gosh, okay, well I’ve got to find somebody who understands this because obviously a whole lot of other people are not playing the game the same way because otherwise there would be no businesses in America.

Ron: And so the difference is, is stark and I think, to you do all the people out there listening, I think when you asked your accountant simple questions like that and the answer get back is not what you want to hear it’s time to go look for somebody else that is a professional. I would recommend Warren and his company Taryle Counting every day and twice on Sunday, although I think you’re closed on Sunday. So for, during tax season, I think you work every day 24 hours a day, isn’t it?

Warren: Yeah. And twice on Sunday.

Ron: And twice on Sunday.

Angela: Twice on Suday, you got it right.

Ron: That’s right. So, okay. Well man we’d love to have you back, Warren, because I think there’s a whole lot of things that we could talk about as far as strategy goes with business owners. So for your, if you’re willing to come back, we’d love to have you back with.

Warren: I would love to just remember, you know, your results may vary, right?

Angela: You’re results may vary.

Ron: You’re results may vary. We’re not giving any tax advice.

Angela: I know we got to wrap up guys. I’m sorry I keep going back to this, but I have one more question on the cost segregation thing. So what happens when you go to sell that property that you had the cost segregation on you depreciated early and all that? What happens when you sell it anything?

Warren: Where did, where did you get her? She asks all the good hard questions.

Ron: I know. And you know, she thought I was going to be a real quick answer too. It’s not.

Angela: It’s not? Okay. I’m sorry. Give me like Reader’s Digest answer.

Ron: No, you can’t take the question back. You’ve already asked.

Warren: It’s in the universe so what are we going to do? So the quick answer is As you take depreciation, whether we’ve taken bonus depreciation, accelerated, any kind of depreciation, we’re lowering our basis in that property. So when you sell it, we’re going to be increasing our game. By doing a cost segregation study. Yes, we’re getting a savings today and at some point we are probably going to have to pay the tax on it at some point. But time value of money says, I’d rather have the deduction now…

Angela: And use it.

Warren: And use it and worry about that in the future. And there’s a few ways we can worry about that in the future. We at 1031 exchanges, we can go and simply buy more property that’s going to create another loss with the money we sold. There’s a lot of options out there.

Angela: Okay.

Ron: I’m right in the middle of doing this right now…

Warren: Like we talked about from the beginning.

Ron: I’m right in the middle of doing this right now and I called Warren and asked him the same exact question and he, you know, he’s giving me a ton of different strategies that I can use to be able to not have a massive tax bill. And I think that’s the other misnomer out there on this particular tax strategy is that will you, you got to pay it anyway. So why would you even do that? Because you’re just going to get hit with this massive tax, right.

Angela: Right. I’ve heard people say that. So I was curious.

Ron: Which is partially true, but it’s not all the way true as Warren just said.

Warren: So my response to those people would be, I’ll tell you what, and I’ll do this as a favor for them, because they obviously thinks it’s better to pay now and not have to later. So I will offer, I know all your listeners out there, anybody who wants to write me a check for $100,000 today, and in 10 years from now, I will pay you not only that $100,000 I’ll cover $100,000 worth of your taxes, but I’ll throw in an extra $10,000 because I’m a nice guy.

Angela: Oh, that’s so sweet. What a nice deal.

Ron: That’s great.

Angela: So if people want to take you up on that, we’ll get them…

Ron: How can people get ahold of you, Warren for that awesome deal?

Angela: Yeah. How do they reach you?

Ron: Slash any kind of tax planning services that you have, how is somebody you don’t mean depending on what they want to take advantage of. Warren is offering…

Angela: A hundred thousand dollars that you, they can pay you or…

Ron: For your tax and your passive losses.

Warren: Right. So yeah, so you can check out our website, TACPAS.com TaryleAccountingCPAS.com. Facebook page is kind of fun. We’ve tried to have fun with the Facebook page.

Ron: It is great. Warren’s videos are hilarious. I know you wouldn’t believe that, but he’s a CPA that has a sense of humor, which is unique in the world anyway. So if you’re going to, you know, look for an accountant that, that usually never happens.

Angela: That’s a huge selling point right there.

Ron: Right. No only is he good, but he actually crack a joke.

Angela: I love it.

Warren: Well the tax code is pretty much a joke, so.

Angela: That’s true. All right. Yeah so make sure you guys check more in out. And thanks so much for being here, Warren. We loved having you. And like Ron said, we’d love to have you on again, it went by so fast, which is weird because we were talking about taxes and stuff. But we loved having you. Thanks so much for being here.

Warren: Anytime guys.

Angela: Thanks. And any of you listening, you can always go subscribe to our show, check out, GetRealEstateSuccess.com and let us know what you think or any questions you have.

Ron: Don’t keep it a secret.

Angela: Yeah, feel free to share our show like us. Give us a rating and we look forward to you guys listening next time. Thanks, bye guys.


This has been The Get Real Podcast. To subscribe and for more information, including a list of all episodes, go to GetRealEstateSuccess.com

Guest Warren Taryle is a CPA who works with investors, entrepreneurs and other wealth-builders and focuses on helping his clients reduce their taxes. The words “CPA” and “taxes” aren’t exactly sexy, but Warren is exceptionally good at his work, and you will definitely pick up valuable knowledge to help you succeed in business. 

The new tax laws are advantageous on the real estate side. Cash segregation works beautifully with the new regulations… it’s a match made in heaven. After all, President Trump is in the real estate business! 

Cash segregation, which has to do with depreciation, creates losses on paper; for residential property, which includes apartment complexes, depreciation is 27.5 years. 

When you own residential property, you also own the personal property that goes with it; that’s includes anything that can be removed from the property without causing damage—like cabinets, countertops, ceiling fans, appliances, etc. Personal property’s depreciation calculation is 5 years. 

Land improvements around the property depreciate over 15 years. This includes driveways, fences, irrigation and such. There’s also bonus depreciation which greatly improved with the 2018 tax revisions. 

Cost segregation determines how much of a real estate purchase price went to appliances, cabinets, land improvements, etc. It’s best to have the cost segregation study done right after acquiring a property—even if you know you’re going to redo the kitchen(s) or bathroom(s), have it evaluated before starting the remodel. 

After the remodel, have the cost segregation company come back for another study, and you’ll have another 1-year bonus depreciation write-off. Of course, check with your tax accountant to be sure you are able to take advantage of this based on the rules around passive losses. 

Cost segregation is valuable primarily to owners of multi-unit buildings and very high-end homes. You have to determine if the price of the cost segregation study is worth the potential tax deduction. 

If you consider yourself a wealth builder, you need a CPA that’s also a tax planner, guiding you throughout the year so you know where this or that step takes you vis a vis taxes. 

When you sell the building that generated all the bonus deductions, there will be some payback. The depreciation lowers your cost basis in the building, which raises the gain you’ll be taxed on. 

But that’s another day. When the time comes, you may be able to use one of several tax-advantaged methods for structuring that sale. Listen and learn more good info to take to your own CPA. Remember, we are not giving tax advice here. Talk to your own tax and legal advisors.

What’s inside:

  • The 2018 tax code revisions, plus cost segregation fall into the plus column for real estate investors.
  • Investors can enjoy an accelerated depreciation timetable for much of a multi-unit property purchase.
  • Cost segregation is the key to realizing these tax savings.
  • Ask more of your CPA than tax preparation… be sure you also receive tax planning assistance.

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