Legally Reducing Tax Burden Through Real Estate
- WBEquity
- Feb 15, 2020
- 3 min read
Updated: Mar 4, 2020
Recently my wife, Sheena, and I have spent a good amount of time attending industry events related to her work. For those of you who are new to our distribution list, Sheena is an orthopedic surgeon specialized in sports medicine. For the first time I can remember, people at these events are actually beginning to show an interest in my work. Naturally, people are far more interested in my wife’s profession than mine. For the longest time, while I was involved in single family investment, my work was commonly referred to as “that house thing.” People at these types of work events would politely ask “Hey Sean, how is that house thing going?” Then listen with one ear as I desperately attempted to explain my work in a compelling manner. It is funny how dramatically things change when the word “apartment” enters the conversation. Suddenly “that house thing” is a topic of interest since the scale of apartments is impressive. Since the people I talk to usually have financial and personal situations that somewhat mimic ours, one high income W2 professional and one stay at home parent, I am eager to explain some of the tax benefits real estate can offer. The issues that get me on my soap box more than anything these days are accelerated depreciation and qualifying with the IRS as a real estate professional.
We recently completed a cost segregation study on Boulder Ridge to accelerate depreciation. The result of this study generated a little over $1MM is depreciation for the 2018 tax year on a relatively small acquisition. Needless to say, the results of this study are a huge win for the partnership and for me and Sheena. This being my first cost segregation, I never fully realized the huge benefits something like this could bring to the table to reduce a household's tax burden to zero. Taking on this unrealized loss as a real estate professional is a financial lesson I must have slept through in school and is one I feel everyone should be aware of.
I am sitting in the sports book in Las Vegas (Don’t worry, I am not a gambler) as I write this while Sheena attends the annual Orthopedic Association annual meeting. Since this meeting falls in line with tax season, dinner conversation with other Ortho-pods will usually devolve into “I cannot believe how much my tax bill is this year!” Sheena and I just shrug our shoulders and I offer up our road map, but the message falls on deaf ears. The idea of using real estate for proper tax planning is received with the same glazed over look I used to get when discussing “that house thing.” Now that people are seemingly impressed with the magnitude of owning apartments, they seem to miss the bigger message of why we have chosen real estate.
I know everyone reading this is passionate about real estate and its many benefits, so this message is not lost on you. Hopefully the articles below will be of the same interest to you as they are to me.
Real Estate Professional Qualifications
Cost Segregation
New York Times article on Jared Kushner
Disclaimer- The information contained in this email is for general guidance on matters of interest only. This information is not intended as, and should not be taken as, legal or tax advice. Do not act or refrain from acting based upon information provided in this correspondence without first consulting an attorney or tax professional about your particular factual and legal circumstances. Sean Wahrmund is not, and does not claim to be, a legal or tax professional.
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