Hey, passive investor out there. Are you tired of going to the same old real estate clubs where you’re just hanging out with broke guys who are trying to flip houses and wholesale so there’ll be other little homes for pennies on the dollars? Why don’t you come and hang out with some accredited investors out in Hawaii?
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The topic materials that we’ll talk about: deal flow, vetting deals, knowing who to stay away from, retirements, estate planning, taxes, and just good old fashioned and getting to know people that are on the same journey as you. Most of the attendees will be accredited investors.
Everybody will be fitted by myself. No randos is my style. To learn more, go to simplepassivecashflow.com/2022retreat registration opens for everybody this week. We’ve already sold out 45 of the seats. Total capacity that I’m shooting for as the very max is about 80 people, because we want to keep things very intimate.
This is not going to be death by PowerPoint and a bunch of random speakers. It is going to be more focused on you guys, building relationships with each other, which is why we have a weekend full of serious and not so serious fun plans. Again, check out simplepassivecashflow.com/2022retreat .
And here is the show.
We are going to be tackling the age old question pulling money out of retirement funds. For lower adjusted, gross income folks under $300,000, I think it’s a pretty much no brainer to not really get started with these retirement funds. But this is the situation for a lot of folks that have been following all that financial dogma, putting your money into these pre-tax post-tax type of retirement funds. And for a lot of folks that make a lot of money, it’s just what seems to be like the best plan at the time because it’s like when you put your money into these retirement accounts, it’s like just kicking the can down the road.
Especially in the beginning when you’re younger at your career, you’re making a boatload of money all your friends are putting their money into retirement funds. To me, all you’re doing is essentially just like putting your kicking the cans down the road. Now, we’re going to talk with Emmanuel right here.
Who’s kicked the cans down the road for a decade or two, and it’s not a coming to Jesus moment. Like he’s known this, the situation has come up and I think we’re going to go through a situation. Every situation is a little bit different. We’re going to try and go through a different twist the situation a little bit here.
But there’s no one way of playing that this is a complete art form. This is where you get around other people that are like-minded to strategize this. A CPA lawyer, if they’re smart they stay the hell out of this type of conversation, because it is a gray area. It is an art form to do this and they will never give you strategy unless they are always a hundred percent correct, this is not a multiple choice test.
This is not something they teach you in high school or college, where there is only one answer. There are many answers and in this one we don’t know some of the variables, like what’s going to happen in terms of Congress tax laws. We don’t really know but what’s going to happen in Emanuel’s future.
So this is where we have to make a best educated guess based on what we know now. But Emmanuel wants you to say hello and tell us a little bit about this predicament.
Hey Lane. Thank you so much for taking my questions. My question to you is as follows. And I think a lot of people would have the same question is that, I’ve been feeding this beast self-directed IRA rolling over some old work 401ks and I’ve got about seven to $800,000 of syndications 100% with almost no cash in it. Probably, $20,000 of cash. My question to you is that, do I jailbreak it, meaning I start once the syndications sell you get about most of them.
30 to 40% of your original cash, including all of the cash on cash. So let’s say, $50,000 of cash coming out after the end of each syndication. The question is how do you reinvest that 50,000 in another syndication? Or do you cash it out? Pay the 10% penalty pay the taxes and I used to be in about 35 high-end tax bracket. Syndications have dropped me to about 20 to 25% tax bracket. That’s my question to you Lane.
In case people missed it. You’ve already invested in syndications because you follow the blueprint, invest your cash, illiquidity first and then once you’ve burned through that, you start investing home equity.
You’ve done that a little bit, but you’ve deployed all that and then you’re low on cash and what’s good thing. You don’t want to be sitting around with cash. And then what do you got in like retirement plans? That’s next on the shelf?
I’m 52 years old. My goal is to retire in the next five years. Retirement, meaning not completely hanging my coat and playing on the golf course, but not having to work for a living of f our or five days a week.
You’re lucky to be in an occupation where you’re able to slowly pull back on your hours work. When I was working, it was either 40 hours plus or nothing so you’re lucky in that type of situation. A lot of couples that make the same amounts of money, t hey can’t really do real estate professional status. They can but it doesn’t really benefit them because one person would have to draw back their hours and therefore they would make less money.
And then they drop out of that highest tax bracket, which is a good thing. For them, it’s they just have to work to a certain predetermined point and then just shut off the engines all at one time and it coast off or go down to part time. But for you, you’re the breadwinner and then you’ve got to figure out what that point is to pull back yourself because you’ve got to keep working.
AGI wise, just the paint the picture you’re in the highest tax bracket. So we’ll just put you in the 400 plus. What do you got in pre tax retirement post tax? So pre taxes, the Roth right?
Yeah. So I’ve got no Roth and I would probably say I’ve got half of them. So just to let the listeners know, I’m 100% in real estate. No, no stocks, no bonds, no mutual funds, no ETFs, none of that. I’ve got probably two thirds of money in syndications. I’m investing through an LLC so all of those syndications are basically pre-tax money.
The only post-tax I have is really an investment in a conservation easement this year. It’s gone. It’s just a promise of a K1 that’s gonna give us probably a 4.6 X passive loss for 2021. So my goal is to drop to even a lower tax bracket.
Maybe like yours, maybe a 4% or 5% and then I was thinking then if I’m at that tax bracket, even if I pay a 10% penalty, then it’s really a 15% hit on whatever distribution before the age of 59 and a half, which was, my question, do I wait until 59 and half? Or do I jailbreak, pay my taxes and penalty?
How old are you again?
I’m 52, seven and a half years of continuing to feed the beast or jailbreaking, cashing out now pay the penalty 15 to 25%, depending on next year’s tax bracket. And depending on what the Biden administration does, are they going to raise taxes? Because I’m right at that 4 to 600 AGI.
Sorry again how much post tax IRA money do you have approximately that you have?
I’ve got no post-tax money whatsoever.
Pre taxes Roth. I think it’s pre tax, but the other one, the regular IRA that you have.
The traditional one, the one I have all this syndications in I would say about 800,000.
Just not to get into the whole big picture, you’ve got a bunch of just non IRA money syndication?
Correct. And that’s invested through an LLC. Again, that’s still pre-taxed, but it’s not caught on put in jail. When those syndications sell that cash I don’t have to wait until I’m 59 and a half. I can pay myself so that I can reinvest that money.
For purposes of this video for folks. It’s the lion share. This $800,000 is like the lion’s share here. All right, here’s what I’m thinking. There’s two big variables here, right? Let’s just start at the most aggressive one and the numbers tell you to do this right.
We’ll start at the most aggressive one and if you just keep it there, what will happen? And then we’ll talk about maybe one in the middle and then you and I can go back and forth on which one kind of appeals the most.
Let’s just say you take out this 800 grand now. Your AGI will blow up for sure and this is where I would suggest making this kind of deployment plan, like where you put the years here, you figure out when you’re deploying or when you’re leaking money out of your retirement. So in this case, I would say maybe not the deployment plan, but remove from IRA.
Obviously as soon as you remove it you’re going to put it right into investment anyways so maybe it’s the same. But let’s just say scenario one next year, or this year you just drop 800 grand out. I don’t know if I would suggest that.
There’s so many different options out there, but one common one and just to make this math simple as doing conservation easements. So if you did 800,000 at a five to one multiplier, you dropped 160 in there to get the deductions to offset that. So you don’t go into the red and do it even that higher tax bracket.
That’d be one way to do it. Let’s add on if I’m forgetting anything is like you got to 10% penalty, right? You don’t have to pay 80 grand and then you’ve got your taxes, but we’re mitigating that by doing the CEs here. But the question is if you pay 80 grand to get it out, we’ll be pooped that by the other option, but we need to compare different scenarios.
So this is the option where you’re going to just take it out right away. This is the option I think most people would do where they would keep it in there until the 59 and a half. At that point, you probably have to do the conservation easement or whatever you’re going to do to mitigate the tax in it but the problem is we don’t know if that fricking thing is going to be there.
Yeah, exactly. We don’t even know, like you mentioned it in one of the videos. You don’t know if they even going to allow us to do syndications in the future.
You know that’s a moot point and then the decision is easy. Whatever cash comes back from selling the syndications and all of that 800,000 is probably going to roll into cash in the next two years. And if we have a grandfather exit then that’s a moot point, then you’ll have to catch up.
Let’s just be like really optimistic and just assume the government’s not going to do anything, call the government, but you’re entirely right. I think that point alone, if I were to play this, I would try and get it out quicker than later in that fashion. But just to play devil’s advocate, let’s just say you left it in there.
I think if you’re in your thirties, I think it’s a no brainer, right? Like you got 20, 30 years to 15 and a half, but you’re pretty dang close. You’re still young man up there, you know that you’re close to the fifty nine and a half and most people like you look crazy and I do this.
I used to do this too. You drive around for like an hour or two to save a little money, or some people don’t drive around for four hours, two hours to go save a $25 wire fee silly. But in the same line of thought, like people, they don’t want to pay the $80,000, 10% penalty. But if you paid the $80,000 penalty, which I call the ticket to the real debts, now let’s just say that this investment grows.
What do you think that you get in if you left it in here in the IRA?
Just to make the math easy. Let’s say I keep doing syndications, right? So am I including the cash on cash? And then when everything sells out, what are we thinking? 180 to a 100% return after three to five years, right? That’s probably average.
Or it’s called a 15% per year. You’re already using your retirement fund to be in private placements, but I’m just outlining this example for the average guy. Who’s probably just going to put it into some mutual funds at 8 to 10%. Let’s give him the benefit of the doubt. Whereas the syndication investor, if you unlocked it, maybe you get 15% to be conservative. The Delta is 5% so that person would be forgoing 5% of 800 grand every year.
What does that opportunity costs? Yeah, that’s 5% of 800 and not even in compound interest, right? To me, that break even point is in year two by just pulling the plug on it now. Now that’s all the way there I think that this seems to be the better way of doing it, but then here in lies, the problem is you have pretty good deal flow.
You know where to put your money, but the point 800 GS in one year. It’s a pretty big feat, right? So maybe more practice, practical game plan would be to leak it out slower like 400 grand this year, next year, and then the other path, the year up pass.
That’s probably what’s going to happen, right? Because 800,000 let’s say just to make the math easy, let’s say this. Eight syndications at a hundred thousand each. I don’t think syndication on they’re going to sell more than three, maybe four year. So that’s going to return to cash and I probably 300 at the most $400,000 in cash coming back to a year.
So the 800 per annual, i t’s not like I can hit a sell button and all of a sudden all of my positions turn into cash. I have to wait for the syndicators to sell the assets.
This will be naturally be spaced out for you anyway.
Exactly. It will be a jailbreak over probably two to three years, maybe five, it depends. Some syndicators might want to keep the asset longer.
So let’s say, your dog eats a biscuit when is it going to come out the other end? You put in 800 in different periods. The dog ate the biscuit awhile in the past. You know how many biscuits he ate, when do you think it’s going to come out here? But how much do you think in 2022?
I think in 2022, we’re going to see quite a bit, so I don’t know. Let me just make some numbers here. Does that sound about right? What you think will come out the other end since I like that.
What number did you come up with?
I think next year we’re going to see a lot of this stuff come back. Are you thinking 300, 300 next year, then 200 to 200.
Why don’t you do it life easiest for the math, just do 200 times four 800.
So the question is that, do you leak out the 200 pay the penalty plus, whatever my tax bracket is. Now then, 10% of 200 is 20,000, plus, whatever the tax bracket is. So that’s the cost of basically breaking in a jail.
Like what the tail end of this thing pushing through, and maybe coming out 2025, 2026 you’re getting really close to the point where you get the free jail card or you save the 10% anyway.
Also what listeners needs to know is that once that money is jail broken then you can use the passive losses to offset your passive gains, which tribes your AGI even further. Which right now cannot do, because it’s pre-tax money, but now I’ll be using post-tax money for it, that makes sense.
It gives you more options and levers to play now. Another kicker, this one isn’t as a huge game changer as our private placements even allowed in IRAs is the conservation easement around after the year 2022. I’ll remind people again, right? Emanuel doesn’t have mutual funds and crap like that in his IRA. He’s all private placements and syndications.
But do you think if you were doing the mutual funds and all that stuff. I think it’s a no brainer. Get jail break that stuff and give it up now. But Emmanuel created a little bit of a pickle for me. I don’t know which way to go. I’m kinda like just, let’s just split the difference here, right?
Like maybe you naturally let it flush out and then you take it out slowly as it comes out and that’s the last hurrah. Some would say you’re already to the end, the terminal point already. You might as well just stay on the bus so the whole way. You definitely don’t want it all to go at the same time, whether it’s 2028/ 2029/ 2030 because it makes your AGI go up. So we need to leak it out slowly so we don’t get into that predicament, which every other person in frickin America is going to that and you don’t want to be that guy.
No. And I agree with you Lane totally leaking it out, actually makes sense especially because my tax bracket is a little bit lower. If I was still in the, whatever 35, 42%, whatever the Biden administration wants to do, then it’s really painful because you’re taking a 40% on tax bracket and then another 10% of penalty.
So then you are, not exactly, but you are technically 50%. Where if you drop tax bracket, like I said earlier, 5%, 10%, and then you add the 10%, then you will be in a hole at about 15, 20%. But like you said, it’s going to hurt in the first two years break even and then after that, I think it’s all gravy, right?
I know your situation personally so like here’s another, like just let’s zoom out a little bit. You’ve already mentioned that you want to like work less, right? This is a good thing because as you start to leak this out y our AGI is going to be quiet. Let’s just say you go down to part-time 20 hours a week, two days, two long days a week, right? So you’re making salary cut in half, basically. Your AGI goes down to 250 and you go on this plan of leaking out 200 every year.
Starting this year. You’re not allowed to work more than three shifts because it’s a tax den and then that way you don’t have to do as much fricking conservation easements, which is already a risk too. Eyes wide open work with the right people but it is a bit of a risk there too.
I think it’s a good risk. I think that this also brings in lifestyle too. I think this might be that we’re suddenly, take your AG up to 400, 500, just get a little bit of land conservation easements to bring you down back to 300 land or two hundreds and just do this naturally as the deals cash out and you’ve jailbreaked it out. Maybe around fully by 2026. What normal people would have been, they would have been screwed come to age 60 cause now like all this money and they would have to take it all out anyway. Sure. They don’t have to pay a 10% penalty, but the 10% penalty is nothing in the whole grand scheme of things.
They’re doing exactly what the government wants. Now, they’re handcuffed. They’re taking their $800,000 at age 60 at the highest tax bracket. Sure. You’re not going to be working at that point already. I think you still want to work past your 60, right?
Oh, totally. Richie’s not to work 12 hour shifts, times five or four. I don’t want to clock in 60, 50 hours a week. I wanna clock in 20.
Most guys, they would say I’m quitting in your 2025. Therefore let’s just break all this out 2026/ 27 or just wait till 2028.
But just the lifestyle, you’re more smoothing this all out. So this to me makes more sense.
Yeah. And just doing one conservation easement while I’m jailbreaking this make sense and I wasn’t going to do more than one per year, maybe 50,000. 50 times four as a 4X, we’re doing 200,000 passive loss. That’s more than an offsetting the actual taxable income so that would keep things low and then like you suggested leak it out 200 grand a year. At year four, you’re completely done and you would’ve broken even at year 2.
Conservation easements to me are driving 65 miles an hour in Hawaii, where the speed limit’s 50 and it’s probably like for you guys driving 85 miles an hour. It’s illegal technically, but not unsafe, in my opinion.
You mentioned that it’s like a shot of lipitor just get that shot. Just shut up and do it and we’ll talk later about syndication.
That said now that we’re like getting down to the nitty-gritty here, I’d like to know your thoughts. Could you probably know this a lot better than I do? I don’t do conservation easements. I just use bonus depreciation and my AGI is already low. What are your thoughts on getting this conservation easements all as soon as possible, right before things change? Cause you can bank the losses, right?
That’s right. So I just did one a few months ago. So it’s basically going to be for 2021 tax year 51,000 at the 4.6 X, and of course I still have passive losses from the syndications that are not in jail. That’s another 1.5 and I think I would be able to get to that 10%, maybe even below that in a tax bracket. So jail breaking next year would be great.
You liked the idea of getting it all now as opposed to something like this, like spacing it out or what do you think?
I’m thinking, again, just to make calculations easy, two or three syndication selling out of a year, 200 grand, jailbreaking that taking the hit on taxes and penalty, and then just be completely out, in this model in four years, maybe five years at the most.
The new cash don’t invest that in another syndication because obviously that’s going to just keep kicking that can down the road, that was my feeling and the purpose of my call to you today is to figure it out. But realistically, it’s not like I can jailbreak 800 tomorrow, it’ll have to be leaked out.
Let me just play devil’s advocate for you, right? The best time to invest those when you began yesterday. Yeah, exactly. The money’s already invested, so for you, it’s no different what I’m talking to are the people who have the 800 grand in their silly mutual funds, you’re making subpar returns.
For you, the best time to have these passive losses and these levers was yesterday. But then again, you already have a boat load of dry powder of that passive losses to use at your disposal. So maybe it’s not that too big of a thing. But it’s hard to quantify, right? Like one would think that it’s better maybe jail break the money now and get it into deals now, instead of spacing it out into the future.
But I guess they’re already in a deals, right? Yeah they are, like you said, conservation easement is on the risk meter. It’s definitely higher than let’s say syndications. So the key is, as I leak out that cash 200 a year, put that back in and to let’s say two, three syndications.
Take the passive losses apply that to future taxes and then I don’t have to do any more conservation easements and decreases my, risk is that what you were alluding to a little bit Lane?
Yeah, it seems I get the same way, like the conservation easement, the best way that best time to do it was yesterday before they close the door. Yeah, I think for many reasons, I like this general plan. Again, if somebody was not like Emmanuel in private placements with this IRAs already, I would probably urge them to do something more aggressive like this. And I agree with you. Now that I know, if my money was in stocks and mutual funds probably I will jail break that as soon as possible.
Again, leak it out. I dunno. Like you said, if let’s say if it was all in an ETF or stocks or whatever, then you press the sell button. And I think what, within three days everything’s in cash, but, taking an $800,000 cash out would be, it would just the adjusted gross income. I think even if you sell it, even if somebody is on stocks and bonds and ETFs, maybe still leak it out, either way.
Let’s talk about this. I’d like to get your input, cause there’s a lot of your coworkers who haven’t figured this stuff out. This scenario right here is a guy with 800 grand in his traditional stocks, bonds mutual funds. He finds alternative investing. Here’s how I would do it. And I’m going to also add in this, I don’t want them to invest a hundred grand right away especially as you’re a new guy, you know what the heck you’re doing, but this is where infinite banking comes in.
This at least allows you to fund this. So what I would do maybe remove 3, 400. We’ll take it out in two years. I’m interested in how you would do this iBC. So like when you create an IBC, you got to sign up for a six year window plus or minus a year. If you set it up like a 70/30, 90/10 split, you’re going to hit your necessarily deposits into this thing in the first year and a half easily. So I think people get freaked. I would get freaked out initially when I was like I need a sign up for something I can hit because we’re good boys and girls, we need to hit our quotas. But it’s not the case. As long as you fund your first year, you’re good.
You don’t have to really worry about it, but still, I would still try to abate the plan as much as possible to size it the right way. So what I would be doing would be maybe. I’d be putting 200 a year for six years. Because the 400 grand that’s already all right here. So that’s accounting for. This, if you don’t fund it, who cares, but I’m sure the money is going to be rolling in, or this person has likely making money to put into funnel through here. But this way, at least this stuff is baking.
While it’s just sitting there, maybe I would even have them play the game or they fund us two times in a six month period, depending where your birth date is you can o verfunded in the beginning to jumpstart this. But something like this and then I would deploy 200 every year for handful of years and, you could get a conservation easement like this, or you can not do a conservation easement if you freaked out about it. How would you do it?
That’s exactly how I would do it. Of course, you’re not leaking out 400,000 tax-free so you’re losing, you’re getting hit by, let’s say 20%, so you’re still losing, what is it like 80,000 a year.
That’s why that guy’s doing this, the conservation easements in the first year.
Exactly. So you have 200, I would probably say, so do the IBC, then you borrow against it. Then you deploy your dry powder at about, I’m thinking four syndications per year at 50 each.
So you can spread, even if you stay with the same syndication you could just, spread your risk four syndications per year. And then after four years, you’ve got four times four, you’ve got 16 syndications. You’re golden then.
Yeah. Maybe at once you get a few years down the road or maybe a year plus or met them, you doubled up.
Yeah. You get to the point where you can’t track those dividends and those key ones get really annoying. So I probably would say maybe get a dozen syndications and then double up, like you said. Instead of doing 50, do a hundred because now you’re more comfortable about, the PPMS, the syndicators and so on. And then you’ve got probably the same returns, but with less hassle. Less dividends to track,less K1s to pass on to your accountant.
Yeah. And this is where people can go on download the K1 tracker. Go to simple passive cashflow.com and then search for K1 and then try to pull it up. Now, show people what the heck it is.
I had 16 K1s for this year.
It’s not pulling up, but you can see it here. It’s just a spreadsheet. I’m your CPA is going to do all this stuff for you, but I tell everybody to just tabulate yourself. So you kinda know what the numbers should be plus or minus 10, 20%. Ultimately, you’re going to have to go to your CPA and say, oh, Hey, what’d you put? I thought it was gonna be around $80,000 in losses. Can you just show me on the form where you tabulated it that. Oh, you forgot about it. Oh, shoot, man. It was like, when we used to do like the engineering stuff, like I was always a project manager.
I don’t know how to do all this, like the technical stuff. So same thing here. I don’t know how to do all the forms, so that’s a CPA’s job, but I’m smart enough to know how to get the wrong answer, to know what it should be to play stump the chump come fact checking time. Part of that’s my construction background. We don’t do it to publicly humiliate them, cause that’s their job.
Yeah. It’s crazy because one missed K1 is like the hundred thousand dollars, $150,000 of like passive losses.
Which is even at the most tax rate, that’s 20 Gs right there that’s probably what more than that, like that guy saves every year that CPA. That’s a good idea to track it that way.
And part of that is to learn right. The first few years, I’m still learning what is being included, what is not being included sometimes. What are the check boxes on the thing?
It just helps me follow that chunk of money around. And I said I thought it was going to be like $180,000 of losses. How much did you use? How much did you keep suspended? I’m just following the large sums of allocations. Yeah, you’re exactly right. It’s very common, right? These guys, they just forget one but it’s a big feed, like 20 grand.
Yeah, that’s huge. 20,000 is $20,000. That’s, whatever, half a syndication at 50.
Yeah. It’s hard to see here, but like the dark part is like last year’s one and then this one is this year’s one. Even if you get that big bonus depreciation lost your first year, the rest still trickles in every year.
Yes, it does. But that’s why for the listeners, that’s why you want to do, four or five syndications a year, because you always want to get that big one year or first year bump bonus depreciation. Now whether the IRS is going to allow us to do the bonus on their cost segregation that’s yet to be seen. But at least for 2021, it would be still. Yeah, as my understanding, and I’m not, neither of us are CPAs or lawyers just a couple of guys who learned some things from various people, and still rely on our professional providers, but bonus depreciation is phasing out 20% every year.
I think starting into your after 2020, which to me. I see your guys’ K1s. You guys will never use the passive losses really. I think still by the year 2024, it should still be great benefit. Yeah, but maybe after 2025, it’s kinda not as good.
They still won’t get rid of the actual cost segregations so we’re still fine. That regular depreciation will typically offset your cashflow in most deals or you’re going to run dry is when the deals cash out. But when the deals cash out anyway, you’re going to have to pay the depreciation recapture any of that.
Yeah. That is not the end of the world, because when that’s indication sells, you’ll be two years later, you should have another eight, maybe 10 syndications to offset those gains. So like you said, those losses are just going to be kicked down the road and your tax bracket should remain pretty low by then.
In this case, we’ll call it PALs passive activity losses cause they’re a pal. If you put in 200 grand, you might see a hundred, 150,000 of losses the first year, then you get another 150,000 and then 150,000, the 50,000. But then, so you’re walking around with maybe 500,000 of passive activity losses by the year 2025. So let’s just say one of these deals cash out and you have minus 150,000 and you still have a surplus. But then you take that investment, you can put in something else, and then you end up with even more eight passivelosses to begin with and this is where you keep the good time.
Yeah. And then in your model, you’re just looking at whatever we’re jailbreaking, which is what I call old cash, the new cash, which you should be investing. If you’re still young, then the new cash is on top of. No 200 and that will generate even more. So that’s when your net worth becomes exponential.
That’s right. But for your example, passive activity losses are passive. They cannot offset your ordinary high adjusted, gross income from your day job. You’re not doing a real estate professional status. That could be another thing you do, that’s another option.
Yeah, when I draw let’s see halftime. If I do retire in five years, spouse, but do it for you. That’s right. No, not married. Yeah. Part of the team, they got to pull their own weight now. Have you thought about that or? And that’s that’s probably another call that we could do together or maybe through the FOOM group, we can look at that see if I could qualify or if Ashley can qualify.
Cause you’re probably walking around with a half a million. Maybe you’ve been dealing with passive activity losses at this point. Right now there’s a barrier that we can’t use that to offset your ordinary income every year and that’s why you’re stuck doing these kind of up in the air conservation easements, but if you were to do the real estate professional status, various ways of doing it you got to jump through some hoops.
Now you don’t have to deal with this low risk and you can use these passive activity losses but then that’s another discussion for another day by is it worth it for you to burn this stuff up? You’ve got a lot, so you could like. My CPA, what he does and I fought him on this initially be burned by passive activity losses up.
So my AGI was like nothing so I didn’t pay taxes and I was like, Hey man, like at some point in 2023, 24, 25, all these things are going to come back at me. I’m not the pay, my depreciation recapture and all that capital gains and you’re giving up like dry powder man. Yup. But then his reasoning was like you’re right. But I think where you’re at, and I think where a lot of other people are at arguably, you’d rather have money today to invest. And you’re going to make a hell of a lot money in the first now the next few years than you are paying incremently 10 to 20% less tax taxes on that gains in the future, and that’s where we don’t know, right? This is part of the art, which how you want.
That’s been super helpful Lane. Thank you so much for your time. How would you do it if you were, let’s just say magically, boom, you are a real estate professional. You got your spouse to do it for you. Would you burn up your passive activity losses to pay no tax today? Or how would you?
Yes, I think so.
That’s the YOLO lifestyle, right?
Yeah. Money, save his money earned, if you can save now I say save now, take the hit now then you’re less at the Beck and call of the government, right? Because once you have those traditional IRAs, they still have you on the hook where that money is in the bank personally, then it’s free. The profits are still taxable but the ability to invest or the vehicles to invest that increases your ability to get there.
But that’s another wrinkle in here, right? When bonus appreciation army does fate starts the sunset. Let’s just call it after your 2025. You’re not going to be getting 150,000 of losses. You might be getting like less than half of that so it’s looking like this. If you aren’t in those professional status strategy, it makes sense to get it all done now and pull the plug as opposed to that strategy we were talking about earlier, right? I think this is what you’re ultimately going to do but if you think that they’re not going to renew that bonus appreciation on which I don’t think they are, I think it’ll come back in our lifetime at some point.
And you and I will be jumping for joy and getting in there when the opportunity comes up. I think they’re going to take a break from it for a little bit. So with that thought I would argue, Hey Emmanuel, maybe just get it out aggressively now. The only reason is to get the passive losses, grab it while you can because after a while it phases out, and this is if you’re doing with professional status strategy.
Yeah I personally can do it myself, but my wife can, as of let’s say, she probably could qualify in 2022. And if I do retire and drop my hours in five years, then by the time, things are phased out, then I could just do real estate professional status and that guy would just keep gravy going.
I would push you more, I would say go after rep status, yeah as opposed to this. I think this is your baseline. But if you’re going after real estate professional status, get it out sooner than you think, maybe in one or two years so that you can take advantage of the maximum amount of losses.
So use it to learn income now, or at least keep it because if you wait more than a few years, this thing is going to go way down. I would think about again, like many different paths to go down based on your assumption of what are the tactics. And you have to guess in a way. I’m going with the hypothesis that I don’t think bonus depreciation is going to get extended.
Therefore, get it while the getting’s good and combo with real estate professional status and therefore that’s why we back. We backwards engineer that. Yeah. Get it out now.
Yeah. That makes sense. For me, it really depends on syndicators, selling those assets and basically converting that to cash and then cashing it out.
But you’re stuck. Here’s why I like that strategy. I guess it doesn’t apply to you cause you’re already stuck in there, but for people with a clean slate, like one big thing. I don’t know. Conservation easements plays a part in it, but what if it doesn’t next year?
Or in three months they put the kaput on that type of stuff. This is the plan, but, or like a wild cat in football. We’re going to give it to the running back so you can run it and do the conservation easement but you can also throw it if the conservation easements gets cut off. By doing this, you’re able to have this A,B plan. Once you start to take out the money.
Ultimately, staying flexible and keep in touch with what the tax laws are going to be for the following year and just adjust yourself to that.
I’m more confident that they’re not going to renew the bonus depreciation a hundred percent past 2024, 2025 than I am.
I think that there’s a better chance that conservation easements are still going to be around in some form.
No, that’s what I’ve been hearing too, but again, the depreciation is going to be phased out. They won’t like completely go away but the cost segregation will stay. The constant easements, I think, they’ll stay but I think the IRS is going to be scrutinizing. So getting up, 8 to 10X return losses, I think those deals are going to go away.
The more conservative underwriting’s at about 4 to 5X. I think those are probably more viable and probably safer for everybody. So I have to agree with you on that one.
Yeah. I agree too. I think it might go down to 3 or 4X, which is still on average. It’s still plenty.
Just a couple of guys making some educated guesses. If you guys take this as legal advice or tax advice, don’t do that. You’ve been idiot to do that. Everyone’s situation is different and this is why you got to build a community around yourself.
Any last parting thoughts, hopefully that gives you some clarity.
I’m good man. Thanks for the help and bouncing ideas. I’m gonna think about it and probably do one of those options, man. Thank you so much.