February 26, 2024 • 14 mins
Unearth the golden opportunities that REITs and Limited Partnerships offer with Ken from Capo Advantage Tutoring. First off, Ken dives into Real Estate Investment Trusts (REITs) - an investment option where you're buying shares of a vast real estate portfolio and reaping advantages of diversification, more liquidity, and tax benefits.
Unwrap the mystery around REITs as Ken explains the types - Equity REITs, MREITs, Public Non-listed REITs, and Private REITs, expressing their unique functionalities, advantages, and their exciting nature of allowing regular people to invest in real estate seamlessly.
Moving to the realm of Limited Partnerships, Ken expounds on their structure, tax benefits, and different types which include Real Estate Limited Partnerships, Equipment Leasing, and Oil and Gas. Discover in detail about the risks, rewards, and tax write-offs associated with the three categories of Oil and Gas partnerships - Wildcat, Developmental, and Income.
This comprehensive guide offers a deep understanding of complex investment avenues, from their initial setup to their financial implications, revealing an overlooked yet profitable world of real estate and its associated ventures.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:08):
Hey this is ken and capo advantage tutoring and billy reminded me that i probably
forgot to do a thing about reits so we got to get reits and we're going to throw
in a little limited partnership at the same time this is what a reit is it's
a packaged product it's like a mutual fund full of real estate so it's like
a mutual fund full of real estate basically here's your bottle you can't see it.
It's filled with real estate and you're buying shares of the bottle or the shell,
(00:32):
not specific pieces of property.
So actually that worked because I would probably pick the worst property in
the world that would lose money.
So in this case, I'm buying shares of this REIT that has hundreds and hundreds
of properties in it. So what happens is I'm diversified.
So again, I'm going to say basically a million times because that's just stuck in my my head.
If you buy a REIT, you're going to buy a package of properties.
(00:56):
So what happens is I'm trying not to cough. Other advantages,
it's much more liquid, right? So think about it.
If you buy into a piece of property, say I bought a house down there or a building,
a property, and I was going to rent it out or whatever it was or flip it.
I buy that. Say it didn't work. It could take me years to sell that shit.
But I buy a REIT, it trades on an exchange.
(01:16):
So basically I can just buy buy it. And if I go, you know, an hour later,
go, you know what? I don't want it. Boom, I just sell it.
So again, a REIT is like a mutual fund that holds real estate.
There are some rules about what they have to do to be considered a REIT.
First of all, it has to be a company, right? It has to be a taxable entity that
at least 75% of its assets are in real estate.
(01:37):
At least 75% of their gross income has to be from real property,
mortgages, financing, stuff like that, basically from real real estate.
They have to pay out 90% of its income to dividends every year.
So that's a thing, the mutual funds and REITs, that's one thing they have in
common, that they pass through 90% of their income every year to the investors.
(01:59):
Now, why is that a big deal? Well, if they do that, right, if both mutual funds
and REITs pass through 90% of their income, they only pay tax on the 10% or
whatever they don't distribute. They can do as much as 99.
And the reason that's good is because Because if you have a corporation,
think about this, if you have a corporation and they make a million dollars,
they're going to pay taxes on it, and then they're going to kick out a dividend,
(02:20):
and then you're also going to pay taxes on it, so it's double taxed.
A REIT or a mutual fund, in this case, if they pass through 90% of their income.
That 90% has never been taxed, so you're actually getting more money up front.
Now, let's talk about different types. So what are the different types of REITs?
So there's an equity REIT.
They make most of their money or income from like rental or flipping houses
(02:44):
or some sort of operating income real estate.
An MREIT or a mortgage REIT provides financing for income-producing real estate.
They make the money off the interest.
Then there's public non-listed REITs or public non-tradables.
They are registered with the SEC, but they don't trade.
Okay? So they are registered with the SEC. They don't trade.
(03:05):
And then there's private REITs that are like private placements.
So equity and MREITs, which are registered, they're very liquid.
In and out pretty easily. And you can buy them on exchange.
So I'm short, buy on margin, all that stuff. stuff the the non-listed
ones don't trade so there's no liquidity there it's a little harder
to get into and they probably have more strict guidelines
on who can buy whereas a regular read this gives normal people like us the ability
(03:29):
to invest in real estate we can look like grant whatever is grant cardone or
whatever i'd be a millionaire invest in real estate well we can do it in the
form of a read but a recap it's like a mutual fund like a mute it isn't one
but it's It's like a mutual fund.
It's a package product. Invest in real estate.
They have to have at least 75% of their assets in real estate.
75% of the income has to come from real estate, and they have to pass through 90% of their income.
(03:54):
For the most part, if you just see the word REIT, it's tradable.
They trade on exchange, stuff like that.
Now, I hope that helped a little bit. Now, before I get into the DPPs and limited
partnerships, let me be a little embarrassing.
In a world where real estate's a feat, comes an option that's quite neat.
A REIT or a real estate investment trust, a way to invest with fairness and just.
It pulls your money along with others to buy and manage real estate with your brothers.
(04:18):
From malls to flats, even office towers, REITs hold the keys to these real powers.
No need to buy a building whole, just own a share, play your role.
As properties earn, so do you. Though rents and gains, your profits grew.
So here's the charm of a REITs embrace, invest in real estate with ease and
grace. A simple way to join the game with REITs.
Landscapes, not the game. Boy, that was bad, huh?
(04:41):
Make sure thank god i didn't sing that holy crap that'd have
been really embarrassing if you heard me do that little mini stuff now
so a limited partnership now again this is
more for the series seven if you want more stuff there's a shitload of
details on this stuff so a limited partnership is like you're you're forming
your own company like we have limited partners we have general partners so limited
(05:02):
partners are they just just put the cash in and general partners run the company
so if you're going to start your own company and you go you know what i kind
of want money from people,
but I don't want them to have any control, you would do a limited partnership.
You can have as many limited partners as you want and as many GPs as you want,
but the GPs run the company, the limited partnerships, the limited partners don't.
(05:23):
So if you start a limited partnership, let's say, well, an oil and gas one or
an equipment leasing or a real estate limited partnership, oh, sounds like a REIT.
So a real estate limited partnership is very much like a REIT,
but it's not, it's a partnership.
So there's some differences. Now, the main thing about
partnerships are that all of the income passes
through so like a read before the actual company pays
(05:45):
taxes on some of it here limited partnerships and
that's what they call a pass-through entity so when they make money they don't
pay taxes on it the partners do so here's the way i explain it if say i'm the
gp and i have you four partners so i have you four of you plus me because that's
how many people watch my fucking videos so five people total me and you four
sucker viewers now Now, if I make $10,000,
(06:07):
if the partnership pays $10,000, say they make $10,000 after expenses, right?
So now they have $10,000, and by the end of the year, they have to distribute all of it to us.
So I'm going to get $2,000, you two, you two, you two, and you two,
you two, like the band, right? Bloody Sunday.
So now, you're going to get the gain. So you now have $2,000 in your pocket
that you may have to pay taxes on because the partnership didn't.
(06:29):
So what they do is they pass through the gains, all of them,
but they also pass through the losses.
Now, that doesn't mean you owe money, but it's like a write-off,
a piece of paper that says, hey, I know what caught me made $10,000,
but your portion of what it cost us to make that money is $400.
So you take your $2,000, you subtract your loss or your write-off of $400,
(06:51):
and now you only have to pay taxes on $1,600.
Now, there's a couple of rules here. So prior to the 80s, your losses could
exceed what you put in, and it was a great tax write-off. Now it's not as good.
They lowered the tax brackets, took away a lot of the loopholes.
Again, limited partners, general partners. Limited partners drop the cash.
They're silent partners. Hopefully, GPs run it. They have unlimited risk.
(07:13):
That's another thing. So GPs, when shit goes bad, they have unlimited risk on
them, and they're paid last.
Limited partners can only lose what they put in, which is great.
So again, we got this. So the company makes money.
They pay their expenses. They pay their bills. Then they pass through all of
the money to all of the partners to split up based on their percentage ownership.
Partnership and then they also get write-offs or losses they
(07:35):
call them to reduce what they pay in taxes that's the
advantage of buying a limited partnership the problem is
they're not very active so like on the series seven they'll be called dpps direct
participation programs they're not liquid at all okay so not very liquid hard
to get in and out of and when the rep does it i mean think about it the gp has
to let the lp the limited partnership in the limited partner in so when the
(07:59):
the registrar tells the person, oh, I think you should do a limited partnership.
They can't assume that the GP is going to let them in. So they got to hope it
happens. You put them in, the GP says yes or no. And then the next day you're in the partnership.
And what you will do is you will fill out a subscription agreement.
So when you are joining the limited partnership, you do a subscription agreement
where you're signing up and you know what you're putting in, whatever.
(08:21):
The actual partnership is created with a partnership agreement.
And then they actually actually filed the certificate of partnership with the state.
So again, so the three forms you have to think about. The certificate of limited
partnership is what, there's like the form that just says, hey,
here's our partnership. Ken Finnan is great, Inc.
We've, not LP, I guess it wouldn't be Inc., is filed with the state.
(08:44):
Then we have the partnership agreement, which is lists all the,
that's the list what the partnership does and the general partners and stuff
like that. And then the subscription agreement is how the limited partner joins.
Sorry if this is a little disjointed. I'm just cuffing it as we go.
They're not limited. These are not liquid. So if you're going to put somebody
in a limited partnership, you have to make sure that they could one kind of
(09:06):
benefit from the write-offs and they want the money and they don't need the
money. They have no liquidity needs.
I think that's fair. If you have discretion over somebody's account,
which means as a rep, you can make trades without permission first.
You have to get, this is the one
of the few things you need permission in writing before you put them in.
So if you put somebody in a limited a partnership you have to
(09:27):
make sure that you have permission from them even if you have
a full discretion account where you can do any trade you want for them
for this is still needed because it's a partnership and in
reality since it's a partnership if they run low on money they
can ask for more and if you don't come up with it
they can take away some of your ownership because they have to give it to someone else
so that's why you need to have their
permission so they understand what's going on now let's
(09:50):
talk about this again high level shit i'm just it's a
sunday night and i'm board and billy asked me to do something so i
decided to do it billy dixon you're a bastard now i love
you though he's he's seriously billy is like a really great
he's always helping people out it's amazing he's an amazing guy he's going to
do well in his life now back to this so there's three main types of dpps that
we think about for the test so there's real estate limited partnerships where
(10:15):
they invest in real estate and
again the gains pass through losses pass through stuff like about that.
When we have raw land, so sometimes they invest in raw land,
which you can't do. There's no real tax write-offs for that because it's pure speculation.
But think about it. If we buy a building like a REIT, in a way,
buy a bunch of buildings, the value of the building, because it's man-made stuff,
(10:36):
depreciates. So we can depreciate, okay?
So we can use depreciation as a write-off, which is a great write-off.
Because say you have a building that's worth a million dollars, right?
And say it's going to last for 30 years, that's what the IRS says.
You can write off $30,000 a year, even though you're not losing money. I guess that's 30 or so.
So if you make money on it, you can write off the depreciated value,
(10:59):
can lower your income by the depreciated value each year, which is great.
So remember, man-made shit, you depreciate, you depreciate man-made shit.
So that's what real estate, real estate limited partnerships,
they manage real estate and they pass through the gains and the losses.
They're trying to make money.
Then we have equipment leasing. Have you ever ridden a bus and it goes owned by and then operated by?
(11:20):
Well, the owned by is the equipment leasing corporation, and the operating by
is when leasing it from them.
So equipment leasing, they're taking the income from people leasing their buses
and tractors and stuff like that.
And any repairs they do, if they have to do the repairs, it's a write-off or a loss.
The last one, the one that you'll most likely be tested on is oil and gas.
So oil and gas is like, say I'm Hess. I start my own partnership.
(11:43):
I bring in a a bunch of investors and they start drilling for oil or whatever it is.
So there's three types of oil and gas ones that we think about.
This is another one, but I've never seen a test set.
The first one is wildcat and baby wildcatting. That's exploratory.
You're drilling where there is not oil, high risk, high reward. Okay.
That's high risk, high reward. That's good. Then we have developmental where
(12:05):
we're either buying one that's already found oil or we're drilling where we
know there's oil, little less risk, little less reward.
Then the last one, income, where they actually take a working oil and they just sell it.
Now, remember, this is the greatest write-off in the world. So if you have 100 barrels of oil.
And you sell a barrel, you can't sell that barrel again. So you get to deplete
(12:25):
it. It's called depletion allowance. And with oil and gas, they use percentages.
And you will never have to do the math on this, on any of this shit.
So if you have 100 barrels of oil and you sell two barrels, that's 2%.
So you get to deplete it. Oh, so wait a second. So wait.
Mad made shit is depreciate. You depreciate mad made shit and you deplete God made shit.
Oil, gas, coal, shit like that. All All those things, anything produced by got lumber, you deplete.
(12:54):
Now, one thing, say we do crops as part of our limited partnership,
you can't deplete crops because they come back.
But lumber may take 30 or 40 years to grow so that you can deplete that.
Let's just recap before I head out of here. Limited partnerships on this test are called DPPs.
They're not for the faint hearted. They're for more people who don't need liquidity,
more sophisticated investors.
The big thing is that the gains, all the gains and losses are passed through the investors.
(13:19):
All of them, the gains and losses, the actual entity doesn't pay taxes.
They're not liquid. You have to make sure the person can handle the loss.
Limited partnerships have limited risk. They can only lose what they invest.
And general partners can lose more. One thing I'm going to add to this.
You know how normally with a capital loss, you can offset all capital gains
(13:41):
and use $3,000 against your ordinary income?
With a limited partnership, the losses can only be used against passive gains.
Passive losses can only offset passive gains. There you go. Have a good night.
Music.
Hey this is ken and capo advantage tutoring and billy reminded me that i probably
forgot to do a thing about reits so we got to get reits and we're going to throw
in a little limited partnership at the same time this is what a reit is it's
a packaged product it's like a mutual fund full of real estate so it's like
a mutual fund full of real estate basically here's your bottle you can't see it.
It's filled with real estate and you're buying shares of the bottle or the shell,
(00:32):
not specific pieces of property.
So actually that worked because I would probably pick the worst property in
the world that would lose money.
So in this case, I'm buying shares of this REIT that has hundreds and hundreds
of properties in it. So what happens is I'm diversified.
So again, I'm going to say basically a million times because that's just stuck in my my head.
If you buy a REIT, you're going to buy a package of properties.
(00:56):
So what happens is I'm trying not to cough. Other advantages,
it's much more liquid, right? So think about it.
If you buy into a piece of property, say I bought a house down there or a building,
a property, and I was going to rent it out or whatever it was or flip it.
I buy that. Say it didn't work. It could take me years to sell that shit.
But I buy a REIT, it trades on an exchange.
(01:16):
So basically I can just buy buy it. And if I go, you know, an hour later,
go, you know what? I don't want it. Boom, I just sell it.
So again, a REIT is like a mutual fund that holds real estate.
There are some rules about what they have to do to be considered a REIT.
First of all, it has to be a company, right? It has to be a taxable entity that
at least 75% of its assets are in real estate.
(01:37):
At least 75% of their gross income has to be from real property,
mortgages, financing, stuff like that, basically from real real estate.
They have to pay out 90% of its income to dividends every year.
So that's a thing, the mutual funds and REITs, that's one thing they have in
common, that they pass through 90% of their income every year to the investors.
(01:59):
Now, why is that a big deal? Well, if they do that, right, if both mutual funds
and REITs pass through 90% of their income, they only pay tax on the 10% or
whatever they don't distribute. They can do as much as 99.
And the reason that's good is because Because if you have a corporation,
think about this, if you have a corporation and they make a million dollars,
they're going to pay taxes on it, and then they're going to kick out a dividend,
(02:20):
and then you're also going to pay taxes on it, so it's double taxed.
A REIT or a mutual fund, in this case, if they pass through 90% of their income.
That 90% has never been taxed, so you're actually getting more money up front.
Now, let's talk about different types. So what are the different types of REITs?
So there's an equity REIT.
They make most of their money or income from like rental or flipping houses
(02:44):
or some sort of operating income real estate.
An MREIT or a mortgage REIT provides financing for income-producing real estate.
They make the money off the interest.
Then there's public non-listed REITs or public non-tradables.
They are registered with the SEC, but they don't trade.
Okay? So they are registered with the SEC. They don't trade.
(03:05):
And then there's private REITs that are like private placements.
So equity and MREITs, which are registered, they're very liquid.
In and out pretty easily. And you can buy them on exchange.
So I'm short, buy on margin, all that stuff. stuff the the non-listed
ones don't trade so there's no liquidity there it's a little harder
to get into and they probably have more strict guidelines
on who can buy whereas a regular read this gives normal people like us the ability
(03:29):
to invest in real estate we can look like grant whatever is grant cardone or
whatever i'd be a millionaire invest in real estate well we can do it in the
form of a read but a recap it's like a mutual fund like a mute it isn't one
but it's It's like a mutual fund.
It's a package product. Invest in real estate.
They have to have at least 75% of their assets in real estate.
75% of the income has to come from real estate, and they have to pass through 90% of their income.
(03:54):
For the most part, if you just see the word REIT, it's tradable.
They trade on exchange, stuff like that.
Now, I hope that helped a little bit. Now, before I get into the DPPs and limited
partnerships, let me be a little embarrassing.
In a world where real estate's a feat, comes an option that's quite neat.
A REIT or a real estate investment trust, a way to invest with fairness and just.
It pulls your money along with others to buy and manage real estate with your brothers.
(04:18):
From malls to flats, even office towers, REITs hold the keys to these real powers.
No need to buy a building whole, just own a share, play your role.
As properties earn, so do you. Though rents and gains, your profits grew.
So here's the charm of a REITs embrace, invest in real estate with ease and
grace. A simple way to join the game with REITs.
Landscapes, not the game. Boy, that was bad, huh?
(04:41):
Make sure thank god i didn't sing that holy crap that'd have
been really embarrassing if you heard me do that little mini stuff now
so a limited partnership now again this is
more for the series seven if you want more stuff there's a shitload of
details on this stuff so a limited partnership is like you're you're forming
your own company like we have limited partners we have general partners so limited
(05:02):
partners are they just just put the cash in and general partners run the company
so if you're going to start your own company and you go you know what i kind
of want money from people,
but I don't want them to have any control, you would do a limited partnership.
You can have as many limited partners as you want and as many GPs as you want,
but the GPs run the company, the limited partnerships, the limited partners don't.
(05:23):
So if you start a limited partnership, let's say, well, an oil and gas one or
an equipment leasing or a real estate limited partnership, oh, sounds like a REIT.
So a real estate limited partnership is very much like a REIT,
but it's not, it's a partnership.
So there's some differences. Now, the main thing about
partnerships are that all of the income passes
through so like a read before the actual company pays
(05:45):
taxes on some of it here limited partnerships and
that's what they call a pass-through entity so when they make money they don't
pay taxes on it the partners do so here's the way i explain it if say i'm the
gp and i have you four partners so i have you four of you plus me because that's
how many people watch my fucking videos so five people total me and you four
sucker viewers now Now, if I make $10,000,
(06:07):
if the partnership pays $10,000, say they make $10,000 after expenses, right?
So now they have $10,000, and by the end of the year, they have to distribute all of it to us.
So I'm going to get $2,000, you two, you two, you two, and you two,
you two, like the band, right? Bloody Sunday.
So now, you're going to get the gain. So you now have $2,000 in your pocket
that you may have to pay taxes on because the partnership didn't.
(06:29):
So what they do is they pass through the gains, all of them,
but they also pass through the losses.
Now, that doesn't mean you owe money, but it's like a write-off,
a piece of paper that says, hey, I know what caught me made $10,000,
but your portion of what it cost us to make that money is $400.
So you take your $2,000, you subtract your loss or your write-off of $400,
(06:51):
and now you only have to pay taxes on $1,600.
Now, there's a couple of rules here. So prior to the 80s, your losses could
exceed what you put in, and it was a great tax write-off. Now it's not as good.
They lowered the tax brackets, took away a lot of the loopholes.
Again, limited partners, general partners. Limited partners drop the cash.
They're silent partners. Hopefully, GPs run it. They have unlimited risk.
(07:13):
That's another thing. So GPs, when shit goes bad, they have unlimited risk on
them, and they're paid last.
Limited partners can only lose what they put in, which is great.
So again, we got this. So the company makes money.
They pay their expenses. They pay their bills. Then they pass through all of
the money to all of the partners to split up based on their percentage ownership.
Partnership and then they also get write-offs or losses they
(07:35):
call them to reduce what they pay in taxes that's the
advantage of buying a limited partnership the problem is
they're not very active so like on the series seven they'll be called dpps direct
participation programs they're not liquid at all okay so not very liquid hard
to get in and out of and when the rep does it i mean think about it the gp has
to let the lp the limited partnership in the limited partner in so when the
(07:59):
the registrar tells the person, oh, I think you should do a limited partnership.
They can't assume that the GP is going to let them in. So they got to hope it
happens. You put them in, the GP says yes or no. And then the next day you're in the partnership.
And what you will do is you will fill out a subscription agreement.
So when you are joining the limited partnership, you do a subscription agreement
where you're signing up and you know what you're putting in, whatever.
(08:21):
The actual partnership is created with a partnership agreement.
And then they actually actually filed the certificate of partnership with the state.
So again, so the three forms you have to think about. The certificate of limited
partnership is what, there's like the form that just says, hey,
here's our partnership. Ken Finnan is great, Inc.
We've, not LP, I guess it wouldn't be Inc., is filed with the state.
(08:44):
Then we have the partnership agreement, which is lists all the,
that's the list what the partnership does and the general partners and stuff
like that. And then the subscription agreement is how the limited partner joins.
Sorry if this is a little disjointed. I'm just cuffing it as we go.
They're not limited. These are not liquid. So if you're going to put somebody
in a limited partnership, you have to make sure that they could one kind of
(09:06):
benefit from the write-offs and they want the money and they don't need the
money. They have no liquidity needs.
I think that's fair. If you have discretion over somebody's account,
which means as a rep, you can make trades without permission first.
You have to get, this is the one
of the few things you need permission in writing before you put them in.
So if you put somebody in a limited a partnership you have to
(09:27):
make sure that you have permission from them even if you have
a full discretion account where you can do any trade you want for them
for this is still needed because it's a partnership and in
reality since it's a partnership if they run low on money they
can ask for more and if you don't come up with it
they can take away some of your ownership because they have to give it to someone else
so that's why you need to have their
permission so they understand what's going on now let's
(09:50):
talk about this again high level shit i'm just it's a
sunday night and i'm board and billy asked me to do something so i
decided to do it billy dixon you're a bastard now i love
you though he's he's seriously billy is like a really great
he's always helping people out it's amazing he's an amazing guy he's going to
do well in his life now back to this so there's three main types of dpps that
we think about for the test so there's real estate limited partnerships where
(10:15):
they invest in real estate and
again the gains pass through losses pass through stuff like about that.
When we have raw land, so sometimes they invest in raw land,
which you can't do. There's no real tax write-offs for that because it's pure speculation.
But think about it. If we buy a building like a REIT, in a way,
buy a bunch of buildings, the value of the building, because it's man-made stuff,
(10:36):
depreciates. So we can depreciate, okay?
So we can use depreciation as a write-off, which is a great write-off.
Because say you have a building that's worth a million dollars, right?
And say it's going to last for 30 years, that's what the IRS says.
You can write off $30,000 a year, even though you're not losing money. I guess that's 30 or so.
So if you make money on it, you can write off the depreciated value,
(10:59):
can lower your income by the depreciated value each year, which is great.
So remember, man-made shit, you depreciate, you depreciate man-made shit.
So that's what real estate, real estate limited partnerships,
they manage real estate and they pass through the gains and the losses.
They're trying to make money.
Then we have equipment leasing. Have you ever ridden a bus and it goes owned by and then operated by?
(11:20):
Well, the owned by is the equipment leasing corporation, and the operating by
is when leasing it from them.
So equipment leasing, they're taking the income from people leasing their buses
and tractors and stuff like that.
And any repairs they do, if they have to do the repairs, it's a write-off or a loss.
The last one, the one that you'll most likely be tested on is oil and gas.
So oil and gas is like, say I'm Hess. I start my own partnership.
(11:43):
I bring in a a bunch of investors and they start drilling for oil or whatever it is.
So there's three types of oil and gas ones that we think about.
This is another one, but I've never seen a test set.
The first one is wildcat and baby wildcatting. That's exploratory.
You're drilling where there is not oil, high risk, high reward. Okay.
That's high risk, high reward. That's good. Then we have developmental where
(12:05):
we're either buying one that's already found oil or we're drilling where we
know there's oil, little less risk, little less reward.
Then the last one, income, where they actually take a working oil and they just sell it.
Now, remember, this is the greatest write-off in the world. So if you have 100 barrels of oil.
And you sell a barrel, you can't sell that barrel again. So you get to deplete
(12:25):
it. It's called depletion allowance. And with oil and gas, they use percentages.
And you will never have to do the math on this, on any of this shit.
So if you have 100 barrels of oil and you sell two barrels, that's 2%.
So you get to deplete it. Oh, so wait a second. So wait.
Mad made shit is depreciate. You depreciate mad made shit and you deplete God made shit.
Oil, gas, coal, shit like that. All All those things, anything produced by got lumber, you deplete.
(12:54):
Now, one thing, say we do crops as part of our limited partnership,
you can't deplete crops because they come back.
But lumber may take 30 or 40 years to grow so that you can deplete that.
Let's just recap before I head out of here. Limited partnerships on this test are called DPPs.
They're not for the faint hearted. They're for more people who don't need liquidity,
more sophisticated investors.
The big thing is that the gains, all the gains and losses are passed through the investors.
(13:19):
All of them, the gains and losses, the actual entity doesn't pay taxes.
They're not liquid. You have to make sure the person can handle the loss.
Limited partnerships have limited risk. They can only lose what they invest.
And general partners can lose more. One thing I'm going to add to this.
You know how normally with a capital loss, you can offset all capital gains
(13:41):
and use $3,000 against your ordinary income?
With a limited partnership, the losses can only be used against passive gains.
Passive losses can only offset passive gains. There you go. Have a good night.
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