This episode is part 3 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 and part 2.
Let’s jump right into Michael’s story and how he saves real estate investors from excessive taxation.
[00:01 - 05:29] Real Estate Professional Documents
- How do I document what I’m doing so that I could be considered a real estate professional?
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- Your tax professional is not going to ask you to prove anything as long as it makes sense.
- IRSA may ask you to prove it
- Keep track of these four items for every expense: ‘where, how much, to whom, and why.’
- If you have multiple properties, you will have to keep track of the no. 5, ‘for what property.’
- Don’t put it on QuickBooks; it is a too complicated system and not ready for Real Estate Investors.
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- You could customize QuickBooks but still will a little bit complicated.
- Unless you have professional help to customize, stay away from it
- If you don’t want to have a professional system, use expense tracking apps, they are more simple.
[09:27 - 17:14] Bonus Depreciation question
- Last year I had Bonus depreciation, but neither one of us is a real estate professional, so we could only deduct it on the passive income receipt. Is it have to be the properties associated with deduction, or can it be used on some of our other rentals?
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- Bonus depreciation is a form of depreciation and one of the methods to deduct appliances when you buy rental properties.
- The answer to this case is; the husband can not qualify to deduct because of his W2 job, but the wife could because this year, she has spent more time in real estate than other jobs.
- It could only be unlocked when you spend more time in real estate within the year than any other job.
[17:15 - 25:54] Income vs Tax
- Michael shares a study case that he presented in his class
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- Tell stories of some clients and ask the students about their opinions
- The amount of tax that someone is paying reflects the amount of money that they’re making
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- Better off willing to pay 45% of the income to tax, then not making any money at all
- Start reaching out for professionals to avoid costly mistakes
Tweetable Quotes:
“Unless you have professional help to customize, stay away from Quickbooks” - Michael Plaks.
“Better off willing to pay 45% of the income to tax, than not making any money at all .” - Michael Plaks
Resources Mentioned:
You can connect with Michael on Facebook, Youtube, and Linkedin. You can also check out his website at https://www.michaelplaks.com/
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