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

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

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

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

Episode Transcript

Speaker 1 (00:00):
Boom.
If you start generating a lotof profits from your
S-corporation and now you startentertaining an idea of
investing in real estate andthis is your first time and
you're thinking about the taxbenefits.
I'm going to break out exactlyfor you what you need to know
before investing in real estateand how real estate investing
could really help you save moneyon taxes, taking big

(00:23):
depreciation deductions againstyour S-corporation or really LLC
or any business profits.
Ready, let's get going.

Speaker 2 (00:31):
Welcome to the Tax Reduction Podcast for
money-making entrepreneurs withBoris Mushaev.
Boris has helped entrepreneursacross the United States
collectively save millions ofdollars in taxes with the power
of tax planning and advisory.
The only way you, the businessowner, can save money on taxes
is by using proactive taxstrategies, and this podcast is

(00:57):
all about saving you money ontaxes.
Boris will share with youin-depth and easy to understand
tax reduction strategies thatyou can implement in your
business within 30 days or less.
Let's jump into today's episode.

Speaker 1 (01:10):
Now I really want to talk about what are the benefits
of investing in real estate?
So you're obviously aprofitable business owner and
you've got profits coming in.
You've got accumulating cash.
You've got to start taking outmore distributions.
What can you do with that moneyto be able to save money on
taxes?
And you're thinking about realestate.
So let's talk about thosebenefits.
Now, one of the benefits, oneof the few benefits we're going
to talk about, one of the fewbenefits Investing in real
estate is that it producespositive cash flow.

(01:32):
People want to have a passiveincome, they want to have a
positive cash flow.
At the same time, it produceswhat's called a paper loss,
meaning to say it's loss onpaper, but money is coming into
your bank account.
And we can talk about moreabout those details when I cover
a very detailed example on thisside.
Now, so what happens when youinvest in real estate?

(01:53):
Like we said, it producespositive cash flow.
You have that passive incomecoming into your bank account.
At the same time, it produces apaper loss and that is due to
depreciation, a really nice bigdepreciation, which we're also
going to talk about in a coupleof examples here.
I'll make it very clear for youas a business owner, to
understand what you need to doto invest in real estate for tax
purposes and how that can helpyou.

(02:14):
Another benefit that businessowners invest in real estate is
appreciation right.
They want the return on theirinvestment not only in terms of
tax deductions, but also anappreciation of value.
Real estates could appreciateby 5% or even 10% in some areas
on an annual basis.
Not only do you get a deduction, you get to write off expenses,
you get depreciation, but alsoappreciation.

(02:35):
Another biggest thing is 1031exchange.
If you don't know what 1031exchange is, let me quickly tell
you.
So IRS has this beautiful taxlaw that says hey, if you want
to sell a rental real estate, aproperty, an investment property
that you have and you're goingto have gains on it, well, guess
what?
You don't have to pay taxes onthose gains if you do what's

(02:55):
called a 1031 exchange.
1031 exchange basically is alike-kind exchange If you're
going to exchange your propertyfor the same type of property in
a transaction.
So business owners find it veryattractive.
You know they've bought thebusiness, excuse me.
They bought the rental realestate.
They produced positive cashflow.

(03:16):
They took some losses.
It has appreciated in value.
Now they want to sell it andhave gains.
Well, guess what?
They can defer those gains bypurchasing a like-kind asset, a
like-kind investment property.
And bam, that's another hugebenefit of it, and we're going
to talk about all of that inmore detail here.
Then there's something that'scalled a step-up basis.
Now, when a business owner,when the time comes right and

(03:37):
the business owner passes awayand leaves to their children the
rental properties that theyhave, the assets that he has,
well, guess what?
They were able to take positivecash flow, take the loss,
appreciation and value, did the1031 exchanges.
And now when their childreninherit the property, they get

(03:58):
what's called a step-up basis.
Let's say, you, as a businessowner, bought a property for
$500,000, you depreciated it allout and now you didn't sell it,
you give it to your children.
They inherited the propertyafter the business owner's death
.
What happens is that and thisproperty, let's say, is valued
at a million dollars at the timeof death.
Well, children get a step-upbasis, that fair market value,

(04:20):
and if they turn around and sellit, there is no taxation there.
So really just a lot ofbenefits of doing it.
So, if you're investing, ifyou're thinking of investing
your profits into real estate.
This is a huge opportunity foryou, the business owner, and
you've got to start working witha tax advisor to plan for each
one of these things.
Start working with a taxadvisor to plan for each one of

(04:41):
these things and you can reallysave big and grow your wealth.
Another thing is tax deductionBenefits.
For example, you know youbought a property in Florida.
You love to travel to Florida.
Now all of your travel becomestax deductible because you're
going to visit your property.
You're going to do some work onthe property.
Depreciation is the biggest one.
It's the depreciation thathelps you produce paper loss.
So a lot of benefits ofinvesting in the real estate.

(05:03):
And this is your first timeinvesting.
You definitely need to speak toa tax advisor as well, because
investing in real estate is notjust about, hey, I'm going to
make money on my investment whenI sell it.
But if you plan it and craft itcarefully, you could really rip
a lot of benefits from it andnot give away money in taxes for

(05:23):
this great, amazing investment.
Now we're going to talk abouthow does real estate really help
you produce that loss as well,to help you take advantage of
the tax benefits, and we'regoing to talk about an example
right here, right after thisbreak.

Speaker 2 (05:38):
If you have a tax preparer and you do not have a
tax advisor, the only way youcan save money on taxes is by
using proactive tax planningstrategies that only a tax
advisor can give you.
Bora's put together a free PDFfor you, the business owner
Seven tax write-offs everyS-corporation business owner
must know.
In this PDF you can find seventax strategies that you can

(06:01):
start using in your business toinstantly start saving money on
taxes.
Click on the link in thedescription below for a free
download.

Speaker 1 (06:08):
Let's get back to it Now.
Tax loss, rental, real estatein general, long-term rentals
help you produce losses.
Now, the biggest tax deductionis an asset in the business,
like a lot of people.
A lot of business owners ask melook, boris, I'm making like
millions of dollars, or myprofits are hundreds of

(06:29):
thousands of dollars and I'mreally giving a lot to the IRS.
How come people like DonaldTrump are paying very little in
taxes?
Or how do I?
I've seen a lot on the internetthat you can pay $0 or very
little in taxes.
How is that being done?
Well, here's the thing.
The biggest write-off I tellthe business owners, the biggest

(06:49):
write-off that you can have inyour personal life right, not
just in a business is realestate.
Real estate is a big investment, right, it's an asset that can
be written off.
If you plan for it properly, ifyou plan on turning those
passive losses into ordinarylosses, you can write it off all
against your business income.
That is what I tell peopleeither your business income or

(07:11):
your other sources of ordinaryincome.
The biggest tax deduction thatyou can get in your business is
buying an asset, right, it couldbe.
Of course, we're talking aboutan asset that you need not that
you want for a tax deduction.
So, before we get into rentalreal estate and how real estate
produces loss via depreciation,I think it's really, really
important that we understand howdepreciation in general works,

(07:34):
and I'm not going to spend toomuch time on it, but I'm going
to make it very, very clear andunderstandable.
Let's take, for example you'vegot a business, right, I don't
know.
You've got a gym, whatever.
That may be okay.
You need to buy an equipmentand it costs $80,000.
You don't want to pay $80,000cash, nor do you want to pay
anything down payment, and yourvendor is offering 100% finance.

(07:55):
Hey, finance it, pay it offover the course of five years.
Well, the IRS rules allow youto take a depreciation on this
equipment even though you put $0down.
Even if you finance the wholething, the entire $80,000
becomes a write-off.
It could be a write-off overthe five or seven years,

(08:15):
depending how you treat thatasset.
Or you can take a section 179.
It's like a hundred percentwrite-off, even if you put zero
dollars down.
That's the beauty ofdepreciation, that is the beauty
of buying an asset.
Or you can do a bonusdepreciation, which in 2024,
based on the current tax lawsright, it's at 60%.
But the point that I'm tryingto make is that buying an asset

(08:36):
could be really beneficial.
A lot of business ownersproperly plan with their
advisors before year-end they'relike, hey, we're actually going
to need this type of equipmentin our business for next year,
but we need a big deduction, butwe do not have a cash to pay
for it.
Before year-end they financesome of the equipment, put it
into use before year-end andguess what?

(08:56):
Zero dollars down, 100%deduction, beautiful write-off.
That is an asset.
Now, if you talk about realestate, investing in real estate
, well, guess what you're buying.
When you buy real estate,whether it's a residential or
commercial, you're buying anasset and an asset is a tax
write-off.
Now, of course, for real estate, for residential, the

(09:16):
depreciation life is 27 and ahalf years.
The commercial property is 39years, but you can do all other
things in it.
So you can also do accelerateddepreciation, because
depreciation is a huge deductionwhen you buy real estate.
Now again, you don't have tobuy real estate with an S
corporation.
Okay, you can buy real estatepersonally.

(09:37):
You don't have to buy it withan S corporation.
You can buy it personally andyou plan properly, you can take
those losses.
Now that we understand howdepreciation works in general
and how it can be applied toreal estate, let's talk about a
real estate investing examplefor your first time, real estate
investment right after thisbreak.

Speaker 2 (09:55):
If all your accountant does is taxes, you
may be overpaying in taxes bythousands of dollars every year.
Every week, Boris releases atax strategy on his podcast so
that you, the business owner,can pay less in taxes every
single year.
Be sure to subscribe to ourpodcast to be notified when a
new tax strategy is released.
If you're ready to work with atax advisor on your tax strategy

(10:16):
and planning, be sure toschedule your call by heading
over to wwwtaxplanningcallcom.

Speaker 1 (10:27):
Again, that's wwwtaxplanningcallcom.
Again, that'swwwtaxplanningcallcom.
Perfect, welcome back.
Thank you so much Again.
Let's continue with the realestate investing over here.
Now I have a really niceexample over here.
Let's say you want to buy yourfirst real estate property, okay
, and the purchase price is$500,000.
You put 20% down payment andyou basically were out of pocket
$100,000.
Remember the asset, the realestate, costs $500,000, but you

(10:51):
are out of pocket $100,000because that is the down payment
you gave and we determined thatthe net value of a building
after the land is $425,000.
Now, because the land is notdepreciated, it's not something
that can be depreciated.
So the IRS says if you buy abuilding, just you know what is
the value of the land and onlythe building can be depreciated.

(11:11):
So in this example let's usethat land is $75,000 and the
building is $425,000.
Now, when you start filing yourtaxes, the depreciation that
you can take is on a fourhundred and twenty five thousand
dollars.
Ok, and not one hundredthousand dollars.
You might say, oh, boris, but Ionly paid a hundred thousand

(11:33):
dollars for the real estate.
Yes, but you purchased it forfive hundred thousand.
Ok, just like an example overhere, this could provide a huge
benefit for you Now, it's not$100,000, it's $500,000 purchase
price and $425,000 is a netvalue.
So that means that you can takea depreciation on the entire
$425,000.

(11:55):
And generally, in rental realestate, generally speaking,
depreciation produces, or helpsyou produce, a loss.
The higher is the cost of thevalue of the building, the
higher is that depreciationdeduction.
Now, when you're filing yourtaxes, right, you're putting in
all of your expenses and you'realso putting depreciation
expense, but it's not a cashexpense that you had, it's a

(12:16):
paper expense, so to speak, andthat's why it helps you produce
a paper loss while you are cashflow positive.
Okay, now you can acceleratethe depreciation using cost
segregation.
And another thing to consideris that rental real estate
losses, generally speaking, inmost cases are considered
passive losses.

(12:37):
Right, if you're net, if you'rehaving net income, it's passive
income and you have losses,those are passive losses.
Now, those passive losses maynot be deducted against your
S-corporation or LLC or businessprofits.
So you may think well, boris,then why would I want to invest
in real estate?
Well, first of all, there's,first of all, many benefits.
There are definitely taxbenefits and even if you do have

(12:59):
a business, you may still beable to deduct those losses
against the business profits bystructuring yourself correctly
and I definitely speak, excuseme.
I definitely recommend speakingto your tax advisor about it,
because you can write offpassive losses against your
business income.
If you qualify, your spousequalifies what's called a real
estate professional, this is agreat example.

(13:21):
And if you this is your firsttime investing in real estate,
don't go running into investingwithout speaking to your tax
advisor.
I always tell my clients look,I'm not a financial advisor.
I cannot teach you how toinvest in real estate, but if
anything touches the word tax,I'd like to know.
So you've got to speak to yourtax advisor.
If anything that you're doingis related to your taxes either

(13:42):
going to help you, benefit youor worsen your tax situation
you've got to speak to your taxadvisor, because the tax advisor
will give you a plan and aguidance hey, don't do this, but
do that.
A tax preparer, a bookkeeper oran accountant that you speak
once a year will not do that.
What you need is to meet withyour tax advisor regularly and
tax advisor can also help youand guide you when it comes for

(14:05):
you investing your S corporation, your LLC, your business
profits into your first rentalreal estate purchase.
Thank you so much.
Till the next time.

Speaker 2 (14:13):
That's it for today's episode.
Be sure to check out thedescription below for some free
tax reduction resources thatBoris put together for you.
If you're ready to work with atax advisor on your tax planning
, be sure to schedule your callby heading over to
wwwtaxplanningcallcom.
That's wwwtaxplanningcallcom.
And be sure to subscribe to ourpodcast to be notified when the

(14:35):
next strategy is released.