We’ve got our first question here. Other ways you can defer capital gains from real estate, besides 10 31 exchange as an opportunity fund. I’m not a few 10 of either of these opportunity funds or this. You can Google all about it. But the thing about the opportunity fund is you’re investing in crappy areas.
Why the heck would you want to invest in crappy areas that the government has deemed an opportunity fund where they want to help funnel money? Because the area sucks. That’s just not the way I want to invest. I want to invest in good, solid stable area, whether there might be a problem with the management of the property or the management is distress, not any particular issue with the property and especially not an issue with the area, which is what the opportunity zone is all about.
For some times you can find an opportunity zone with a Starbucks in it. That’s an outlier of the map. Not a big fan of those. And then 10 30, 1 exchanges. Again, I don’t know why anybody really does. 10 31 exchanges that 31 exchanges. you got this timeline, you got to have 45 days identify all your properties.
You’re buying like lukewarm crappy deals then. Yeah, you can go into whatever you want, but if not, you’re a distress buyer and when we’re selling our parts, We love when we have a 10 31 buyer, because we know that they’re distressed and they’re typically unsophisticated, most 10 31 exchange. People just have a lot of money and they don’t really understand how taxes work.
How do you defer capital gains or how I do it? I go into a lot of syndication deals that do cost segregations. Not all of them. But if you go into those in a moment like, oh, I do, you’re gonna kick up these. You’re gonna pick up several hundred thousand dollars of passive activity losses, and you’re going to be able to hold them and Curt, and they’re going to be suspended, passive losses to a, you use them to offset ordinary income.
I probably should stop and say that I’m not a CPA . But look, I don’t pay too much taxes. You can go to simple, passive, casual.com/tab. And I put up my tax returns there and you can check out how much taxes I’ve been paying these last several years. And in 2019 advantage drove up my adjusted gross income down to 25 grand.
And part of it. By driving by creating more passive income instead of ordinary income. So I can use my passive losses to offset that if you have, the hard part is transitioning from the traditional way of investing on the only 401ks mutual funds with traditional way of real estate investing and into the more passive tax advantage way that we like to teach your folks.
And so the transition is the hard part, and that’s really where the family office, a Honda mastermind comes into play. That’s where we source the best practices to do that. But in a nutshell, what you’re trying to do is you’re trying to build up enough passive activity losses. So you, when you do sell your property and you can offset that, pull down your suspended, passive losses, offset those gains, right?
In that one transaction case. In point, I did this back in 2017. When I sold off, I believe seven off my rent. And it had a $200,000 capital gain day, which would have sucked, right? That’s a capital gain and also had to pay back the depreciation capture on that because I had owned those properties for several years, depreciating the properties over that time.
But I had been going into syndication deals prior and I had built up $700,000 of passive activity losses, which are used to offset it. If you look at again, go back to that websites that will pass the cash.com/tab. You can actually see where there’s a little emoji that says thumbs down to 10 31 exchanges.
Exactly because of this being able to use passive to be losses in this fashion. And the reason I don’t like 10 30, 1 exchanges, you’re just. Seller. Everybody knows you’re a sucker because of do one of these things and you’re going to get abused. And a lot of times you’re going to be abused on the buying end.
When you’re exchanging the property, everybody knows you need to buy, and now you’re going to pay the government Volvo the taxes. So you’re usually going to pay 10% over market price. If you don’t think you are, you’re probably the senescent isn’t aware. And then sophisticated investors. They don’t want to put all their eggs in one basket.
And this is what’s very typical. When you see these people running around with large capital gains in a hundred thousand dollars to a couple million dollars, a capital gain, likely they have a huge chunk of their net worth. I’m a big advocate that you don’t want to have any more than five or 10% of your net worth of any one deal because.
And it’s good to be diversify another, you want to spread your eights all over all around and not be to leverage things right there. Thanks, Bruce.