This episode is part 2 of my conversation with the “black belt” in real estate taxation, Michael Plaks. If you weren’t able to follow this episode, please go back and listen to part 1.
Let’s jump right into Michael’s story and how he saves real estate investors from excessive taxation.
[00:01 - 05:29] Become a ‘Real estate Professional.’
- We both have full-time jobs. Can we commodify real estate professionals if one of us obtains a realtor license?
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- How do we become a real estate professional?
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- It is not ‘becoming,’ but a qualification
- Michael talks about Federally licensed Enrolled Agent (EA)
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- Designation and representation before the IRA
- Defended clients in multiple orders were real estate professional status was challenged by the IRS
- A real estate professional has to pass a certain test
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- They have to spend more time in real estate than anything else to get money
[05:30 - 17:14] Rental Property Tax Deduction
- I have rental properties, I buy new appliances. Can I deduct the full cost of appliances right away?
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- The answer is Yes, you can deduct it.
- Three different ways to do it
- What if you have a rental property, and you had it for three years and never claimed depreciation. Can I fix this mistake by filing an amended tax return for the last three years?
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- The answer is No
- You can fix the mistake but not with an amended tax return
- Completely different form and procedure
- Highly recommend hiring a professional
- Can I deduct 100% of the property taxes on my rental property if they are higher than the new tax law limit of 10,000?
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- Started in 2018; we have new tax reform
- As an investor, you are not limited at all
- It is only limited for residences, not for investors
- The answer is yes; you can deduct 100%
- I take my rental property; I get a mortgage for a rental property to buy a boat. Can I deduct the interest?
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- The answer is No
- Your interest is deductible based on what you use the loan for
- It will only be deductible if you use to buy a new rental property, but not for personal reasons
- What if I turn my old house into a rental for two years, then I move back to live in this house myself for two more years, do I have to pay taxes when I sell it?
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- Yes, you do
- If you move back into the house, then you still have to pay for tax when you sell it
- If you don’t live there three years before you sell it, you can sell it tax-free
[17:15 - 25:54] Business first, Taxes Second
- Never sell or buy anything for tax reasons
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- Taxes should never control your decisions
- Don’t forget the bigger picture; the bigger picture is live your lifestyle the way you want it, and make money in your business
- Michael talks about his website
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- Michael talks about REITax Corp
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- Specialize in all included service
- Help you improve your real estate business
- Help you in taxes, bookkeeping, IRS problem
- Business advisory, etc
- If someone has decided to buy a duplex or a quad and they are going to house hack it, how is the tax on that treated, are they will be able to deduct for all the units?
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- House hacking is not an investment, but a lifestyle for a starter house
- You can split your taxes and bills
- But you can not remove
