#172 - Pilot Wealth Q&A: Taxes, Trusts, Real Estate, and Passive Income

[00:00:00] [SPEAKER_03] All right, everyone. The final session. What do we think about these two full days? You jam-packed. We said we were gonna be jam-packed. We told you we're gonna be jam-packed. And thank you to Ryan for that last session because, you know, for a podcast called Passive Income Pilots, we sure do talk a whole lot about active and business ownership and active stuff.

[00:00:28] [SPEAKER_03] So thank you for your paces with that. Anyway, I want to welcome to the stage our panelists who at this stage in the conference need no introduction. But Koi, David, Kurt, Adam, and of course Ryan as well. Welcome to the stage.

[00:00:48] [SPEAKER_00] Welcome to Passive Income Pilots, where pilots upgrade their money. This is the definitive source for personal finance and investment tactics for aviators. We interview world-renowned experts and share these lessons with the blind community. So if you're ready for practical knowledge and insights, let's roll.

[00:01:08] [SPEAKER_03] Welcome back to Passive Income Pilots, everyone. Tait Duryea and Ryan Gibson here. How you doing, Ryan? Doing good. Straight final day of the conference. This has been incredible. Can we get one more round of applause to get that? Thank you for making the trip. We've gotten such great feedback from this event. People have said, oh my gosh, doing it in person just brings a totally different dimension into things. So again, thank you all for making the trip. It's been absolutely amazing.

[00:01:35] [SPEAKER_03] So we are on stage for the final session of the two-day Passive Income Pilots Conference in Las Vegas, Nevada. And we have four expert panelists with us, along with myself and Ryan. And I'm just going to go down the list if we could introduce everyone one by one. We have Kurt Harris. Koi, you want to give a little intro to who you are, what you do?

[00:01:54] [SPEAKER_02] Yeah, sure thing. I work for my dad, Kurt Harris, here on the panel. I do divorce and custody law mainly, but I show people how to find assets and how attorneys do that nowadays.

[00:02:03] [SPEAKER_03] And we had an amazing simulator session today where Koi was going through his, sharing on his laptop how an attorney can dig through public records and find your assets. Pretty scary. David and Landyham.

[00:02:18] [SPEAKER_01] Yep. Executive Corporate Analyst with NCA for 16 years and love educating and have a lot of respect for people who want to come out and give away from you. And we have a few days of your time to join us and learn and help scale and build a business.

[00:02:32] [SPEAKER_03] Wonderful. Kurt Harris, I'm a practicing attorney here in Las Vegas, Nevada for the past 32 years. And I specialize in estate planning. Adam Kintigh. Adam Kintay here from also Executive Corporate Analyst with NCH. We've been doing this now for 25 years with NCH, almost 19 years. Anything you need that has to do with taxes, asset protection, estate planning, credit, self-directed retirement accounts. I am not good at much else.

[00:03:01] [SPEAKER_01] But this I got. So.

[00:03:03] [SPEAKER_03] Well, perfect for this stage. And Ryan Gibson, who are you? Hi, I'm Ryan Gibson, co-host of Passive Income Pilots. Hey, Rie. Okay. Well, welcome to the stage, everyone. I have a stack of questions in my hand that everyone has written down very kindly and submitted to us for this quick rapid fire Q&A session. So I'm just going to start rattling these off. Here we go. This is for Ryan. What's your outlook for self-storage and the multifamily sector for the next two to three years?

[00:03:31] [SPEAKER_03] And what would make you stop buying? Yeah, I love this question. So we kind of did stop buying. We have not bought a property where the Kansas City deal is the only new investment that we've had in the last 12 months. And I think the market right now is very tumultuous. It's not a good time necessarily to be buying assets. I think, you know, right now interest rates are rising. I think the world is a little bit uncertain.

[00:03:59] [SPEAKER_03] And I don't think we really know how much time we're going to be into this higher interest rate environment. That being said, some people might say, well, that means that you're going to have a lot of discounted properties coming up. Well, guess what? We're not seeing discounted properties come up. Based on the value of the property that we look at, what we're seeing right now is properties that lack really good fundamentals like population growth and drive-by traffic and saturation.

[00:04:27] [SPEAKER_03] And they're still fetching a premium because there's a lot of investors out there, a lot of private equity institutional investors that need to put out capital. And so they're just putting capital out for a much lower yield on investments right now. That's not the kind of deals that we want to do. Or the deals that are coming onto the market are going to take a really long time to recover based on the price that you could buy them for.

[00:04:56] [SPEAKER_03] So we've really slowed down our buying. I don't know how much longer this is going to go. But at the end of the day, I'm not really seeing, you know, deals out there that I'm super interested in buying. And so we've really slowed down our acquisitions. Like literally this year, the one deal we're doing is our Kansas City development deal. The Beaufort deal, the South Carolina deal we did earlier this year, that was a deal that we actually put under contract last year. And we just negotiated the purchase price down a few million bucks and closed this year on it.

[00:05:26] [SPEAKER_03] But the Kansas City deal is literally the only deal that we're actually acquiring in 2026. And so I think the next two to three years are going to be very interesting. I think that because people are building a lot less storage, we see this come in cycles. People are not building as much storage as they're building that they built back in the run up of the 2021, 2022. And so I think what's going to eventually happen is there's going to be a really strong surge in demand.

[00:05:53] [SPEAKER_03] And also, you really want to pay attention to the housing market because the housing market is still stalled out. The housing market has been dead for basically, what, three years? Three years. Yeah. 30-year lows in residential transaction bullying. Yeah. So what that means is, I mean, think about everybody in this room, right? You probably are living in a house right now. And maybe you want to upgrade, but man, that mortgage rate of 3% is like just too attractive.

[00:06:16] [SPEAKER_03] And you would go from maybe a $3,000 or $4,000 mortgage payment to like a $10,000 mortgage payment if you upgraded your actual living situation with a higher interest rate. So what are you doing? You're just staying in place. You're not moving. Well, what does the storage industry sort of rely on? Moving, right? So let's add this up one by one. They're not building as many storages. And there's pent up demand for families that want to move and change their house. Imagine what happens when rates start to come down a little bit. The market starts moving again. Not as much storage is being built.

[00:06:46] [SPEAKER_03] I think the industry is posed for a really big upswing in the future, but we're sort of in this hold period until then. Good answer. Is house hacking a good strategy for a starter home? You're just going to answer that with one word and that's yes. But I'm going to add a tack on to that and I'll ask Kurt, what would be the best way to structure that and hold title to it if you're going to buy a starter home and house hack it?

[00:07:11] [SPEAKER_03] Yeah, and I would think that real estate privacy trust probably would be the best thing because it's just a flip essentially. And that's the quickest way really to do it. You're going to escape some of the fees and the costs of an LLC and you're still going to get the same benefits. And your liability is really limited because you're just in a very small window of time there. So it really seems like a great vehicle to utilize. Excellent.

[00:07:32] [SPEAKER_03] Since the IRS generally treats federal income tax withholdings as paid evenly throughout the year, regardless of when the withholding actually occurs. Is it a viable tax planning strategy to minimize paycheck withholding earlier in the year and use that additional money basically if it's coming into your paycheck because you have smaller withholdings to invest for as long as possible and then increase the holdings later in the year to satisfy my tax obligations while avoiding underpayment penalties.

[00:08:02] [SPEAKER_03] That's an interesting one. Anyone? Yeah, I'll say that the your payroll company, they have rules that they have to follow for the withholdings. So if you are having them withhold less with a theory or idea that you'll have more money to play around with, it might just bite you later on. So I'm not a fan of that, but it's something that you could do.

[00:08:26] [SPEAKER_01] But in light of that to you, as you get towards the end of the year, you want to start doing some checking in the fourth quarter to make sure you're on pace to be at that level. Excellent.

[00:08:34] [SPEAKER_03] I will actually throw a personal tidbit out. I claim 10 exemptions on my W2 tax withholdings, even though I don't have kids. I don't have dependents because that lowers my withholdings. I get more cash in my paycheck. It means I'm an O tax later, but I use tax mitigation strategies every year and I end up getting a refund. So it reduces the interest free loan that I'm giving you the government every year.

[00:09:00] [SPEAKER_03] I like that you do that because a lot of investors, and this will be a pain point that you experience if you haven't invested passively in a limited partnership or like one of these deals. The K1s guys, they don't come late when they come after tax season is due, right? April 15th. You're going to get these K1s in May, June, July. Okay. I'm here to tell you, like, I'm not going to tell you what other people maybe lied to you and say.

[00:09:27] [SPEAKER_03] You're going to get your K1 late and you're going to have to extend your taxes. It doesn't cost any money to extend your taxes. So you're probably thinking, well, I want to get my tax return done so I can get my refund. Exactly. Minimize that refund. Minimize that refund. Minimize that refund. Because as you do these passive investments and you're starting investing in these different companies and things like that, the K1s are not going to come like clockwork in March. Right? And there's always some reason why. We all strive to get them out in March, to be fair.

[00:09:55] [SPEAKER_03] I'm not saying that we just pick our feet up and give them to you in October. Right? But you should plan to extend your taxes and you should plan to try to minimize your withholdings. Up those exemptions. Exactly. Yeah. Up those. It lowers your tax withholding. And if you're going to... Anyway, we've covered it. I'll say if you have rep status and you're in a position like date, that is awesome. If you don't have rep status, it can bite you. Right.

[00:10:23] [SPEAKER_03] Because then you're going to have to write a check and you might have to pay penalties and interest because you under withheld. So just make sure that you're kind of... If you're going to dial that up and get your withholding weight down, make sure that you're mitigating some tax allowance. I can read this handwriting now. So it asks, are the sponsors paid? Are the speakers paid? And are the sponsors paying to present? And the answer is no.

[00:10:50] [SPEAKER_03] Because I've been at conferences where somebody pays a ton of money to speak and then you get a big gigantic sales pitch and I hate those. And actually none of our sponsors pay to be here. So when Tate and I took the journey to... Took the leap of faith and sunk our neck out here and outlayed the cash for this event and venue. We can't tell you how much we appreciate you coming because we were able to cover our costs. Right. And you know, pilot math, you can probably figure out the revenue.

[00:11:20] [SPEAKER_03] We pretty much spent all that on the hotel. So no, we're... Are you guys getting paid? What's that scene in that movie? You're getting paid? Go ahead, next pair of gloves. All right, Ryan or Tate. This is an interesting one. This is more personal and I'm sorry, we'll get to the panelists. You each have so many other irons in the fire. How much do you actually fly to airlines? Monthly hours, reserve, balance. Ryan, you want to go first? Zero. Yeah. Close to zero.

[00:11:49] [SPEAKER_03] I fly just enough so that I don't have to go to the CIN every three months. I'll put it that way. Ditto on that. And yeah, I downgraded from captain. I was captain for eight years. Love being in the left seat. I love leading as you can probably tell. So being a... I joke that I went from line check airman to chief window licking officer. Haunted plant in the sun. But I get to be very senior in the right seat. I buddy did check air when I get bought off a lot of my trips. So that's what I do. Yep.

[00:12:19] [SPEAKER_03] For someone who wants to receive passive income to replace a captain upgrade. Ooh, that's good. So to replace a captain upgrade, what sort of portfolio would you suggest? I want to get to our panelists here. What are your thoughts? I have no idea what you've been talking about. Okay. Well, for somebody that's considering moving from the first officer seat to a captain seat, maybe getting a $100, $150,000 pay increase, you know, maybe going from $250,000 or $300,000 up into that half million range.

[00:12:48] [SPEAKER_03] They would rather just invest money and try and create that income passively. What sort of portfolio would you suggest? What sort of thing would you invest in to generate that kind of passive income?

[00:12:59] [SPEAKER_01] Not a financial advisor. Not a financial advisor, but I mean, following what you guys have done. I've followed you guys for years. So I mean, I would say that would be the direction to go to slowly start replacing that over time and then take that increase in pay and don't spend it, but invest it. There you go.

[00:13:15] [SPEAKER_03] So can I homestead in Florida a property in a real estate Protestant trust? Yes. Yes. Yes. Would you like to expound on that for any of the listeners that might not be caught up on homestead exemption? Sure. Maybe what is a, in very basic terms, what is a real estate Protestant trust? Just a couple of things.

[00:13:36] [SPEAKER_03] As far as the homestead exemption goes, the homestead, you can file a homestead exemption on any property that is your personal residence. You can only file it on one. The reason why it's so vital or important is that if you ever had to go into bankruptcy, which was a worst case analysis, but that's the worst case outcome, then you would be able to preserve your home in the bankruptcy proceeding. And it is an unlimited exemption in Florida, for instance.

[00:14:03] [SPEAKER_03] So whatever the value of the home is, $18 million or whatever it is on West Palm Beach or whatever the case is, that entire home is yours for forever and can never be taken away in bankruptcy and you can discharge all of your debts. Now, your states may vary on what that exemption is, but Florida in particular does that. And Texas as well.

[00:14:26] [SPEAKER_03] And if you do have your home in a real estate privacy trust, what they want to do is that you can still get the exemption, but you have to be the sole beneficiary of that trust. There can't be another party involved. It's a spouse situation because the IRS will only give the exemption to you and to your spouse. They won't extend that to your children and you can't pass the exemption on.

[00:14:56] [SPEAKER_03] And so you can put it into a real estate privacy trust, but it can only be your personal residence and it can only be for the two of a spouse or an individual and a spouse, whatever the case is. But it can extend beyond that. But you do get those protections, which can be very valuable given the amount of your of the estate, I guess. I'm just sorry. I was just joking. We have a client that has an homestead exemption there in Florida and is doing very well with it because it's a very valuable home.

[00:15:27] [SPEAKER_03] And he's had some problems in the law. And it's been hugely beneficial to hold that in having a homestead and to hold that into a trust. Wonderful. And that's if the property is more than half an acre in Florida.

[00:15:45] [SPEAKER_01] I don't think Florida, it doesn't care. If it's more than a quarter acre, it's more than a quarter acre in a unincorporated area. That's where you get it effective.

[00:15:59] [SPEAKER_03] This is why you want professionals in your court, right? Because it obviously comes down to personal situation, right? How big is the property in acreage? What state is it in, et cetera? I have a property that has been rented out for over 10 years. Is it still worthwhile to do a cost segregation study?

[00:16:16] [SPEAKER_01] It depends. I mean, that's the likely answer. We don't know much about the property, how much have they put into it. I mean, Airbnbs are great for a cost segregation. Commercials are great if it's just a single family long term rental. Unless they're getting a really good deal on the cost segregation, it just may not make sense.

[00:16:35] [SPEAKER_03] I would say no. Remember your cost basis in that property was 10 years ago. And you've got this low cost basis. You decide to start Airbnb-ing it. Well, the bonus depreciation, the cost sake is going back and you're getting a very small and probably a very, very small amount of money. I don't know that it's worth it. Excellent response. Ryan, this one's for you.

[00:16:59] [SPEAKER_03] How would you adjust the 10-30-30-30 framework if you're not interested in owning any active real estate? Well, the 30% bucket where you're in the hard assets, right? That's kind of where you're going to hold your real estate. I would do something like a debt fund or credit fund that has a redemption window. That's how I would adjust it. Things like that, that earn an outsized amount of interest that you can have control over bringing that money back in 60 to 90 days.

[00:17:24] [SPEAKER_03] Actually, rotating into revocable living trusts after watching the public records search and COI, it appears that it would be smart to not have our name in our revocable living trust name. There seem to be some mixed messages this week on that, even with a simple trust such as a primary residence checking, etc. What are your thoughts on naming your revocable living trust?

[00:17:49] [SPEAKER_02] Yeah, so like I said in my presentation, I personally don't have an issue with your primary residence and you're under the bankruptcy exemption. Because if it all goes to crap, you get a judgment against you, you declare bankruptcy, you could save the house anyways. Where I take issues, particularly if you have rental properties, if this is going to be a rental property, please don't name the trust after yourself. Because it will pull when I search your name on county record, I will find the name of your trust. And then I'll know you have multiple properties to potentially a tax judgment to.

[00:18:15] [SPEAKER_02] And so my personal philosophy, if it's your primary residence and you're under the bankruptcy exemption, whatever that state may be, you're in the state of Nevada, it's $550,000. Go ahead, name it the Harris Family Legacy Trust. I don't mind. If you're going for like full anonymity, you don't want anybody to see what's on public record, you could try the real estate privacy trust. On my search bill, my legal database, generally I can find the primary residence whether it's in the name of your trust or not. And so the primary almost always pulls. And so it's my personal philosophy.

[00:18:44] [SPEAKER_02] Rental property, don't you dare put your name on it. Primary residence, that's a little bit of a grayer area. Absolutely put it into a revocable living trust whether you choose to name that some anonymous name on the primary residence. I'm less touchy about.

[00:18:55] [SPEAKER_03] Now, most attorneys that draft trust will recommend that you name it after yourself. I'm not sure why they do that exactly. My philosophy and kind of our firm philosophy is while you're there, while you're drafting the trust, why not put in another name? Why put it in your name? What's the difference? You know, it just doesn't make any sense to me why you would want to put your name out there on public record. Although financially you're still protected and you're still asset detected and that's okay. What's the difference? Call it whatever you want to call it. Call it the broken spur trust.

[00:19:24] [SPEAKER_03] Why put your name out there when it doesn't have to be out there? Sure, you know, it's obvious that everybody has a residence somewhere, but, you know, we may not find it that way. So I always say, hey, don't call it after yourself. Call it whatever you want to call it. But, you know, why give me a breadcrumb trail back to you? Let me know another. And then I have your home address too, possibly, but you don't want to put out there. Sorry. Follow up questions, Ryan, on trust before I move on. What about naming it a trust that it's not?

[00:19:52] [SPEAKER_03] Like calling it a revocable trust or, you know, unrevocable trust, like... Route of dynasty or legacy or something like that that makes it sound like it's irrevocable even though it's actually revocable. Yeah, there's some of that. There could be a benefit to that, honestly. But some of it also is I don't want to encourage somebody to think that I have more assets than what I really do have. So sometimes you hear the dynasty or whatever and you think, oh, it must be really valuable when in fact it may not be.

[00:20:19] [SPEAKER_03] And so, you know, then this Snoopy Dogg trust might seem a little more hokey, but that might be less appealing to the eye. You know, the asset protection trust to me is like, oh, they must have assets to protect. And so it seems to draw me in. I know that I'm a very narrow-minded, thin-skinned person. It's like, oh, you know, and so what's in a name there? And if it were, if it did look like an irrevocable, you know, of course, we don't like that, you know, because we know we can't pierce that.

[00:20:49] [SPEAKER_03] And so if it just said irrevocable on it, even though it was a revocable, I think that would be a kind of cool idea.

[00:20:58] [SPEAKER_02] I've really thought about it. I like that. I like a lot. If I can tap in. What I will say, though, is coming across other attorneys generally don't see a lot of field crossover. And so if you run into a family law attorney, they won't know the difference between a revocable and an irrevocable trust. You know, I came out of law school with a guy and I had to sit down with him a couple of years ago, and he asked me to explain what a trust was to him. And I was like, hey, man, you're further out than I am. You don't know what this is?

[00:21:27] [SPEAKER_02] Well, I never took a class in law school and I don't do it. So if I mean, I love the idea to you name an irrevocable trust, but to a savvy attorney, yeah, that might scare me away. But to a run of the mill plaintiff's attorney, it might not. Fair enough.

[00:21:40] [SPEAKER_03] We have a paid off rental, so they own it free and clear. It's nearing the twenty seven and a half year depreciation schedule. Do you recommend doing a 1031 to continue with that? I assume the other option would be to just keep it or to sell it and pay capital gains.

[00:21:58] [SPEAKER_01] So, anyone? I would leverage it. I mean, 1031, yeah, you can do that. Keep kicking it down the road. But if it's paid off, leverage it. Go buy through more properties.

[00:22:09] [SPEAKER_03] Yeah, go out and get an 80% loan to value or 70% loan to value or even less. And you can pull out that equity. You can either do that through a line of credit or you can do that through a full on mortgage refinance. And that cash hits your bank account. I talked about that on my Rich Pilot, Poor Pilot presentation. You know, in my example, we re-leverage property for $2 million. $2 million of cash hits your bank account. You owe zero taxes on that because they're loan processing. I would add two things to it. One, how much time are you spending on that property?

[00:22:39] [SPEAKER_03] Do you like the location? Do you like the asset? What's your return on time? What's your return on life, right? On that asset. If it's just like this thing that you never even go to and just runs itself, why get rid of it? Number two, remember, yeah, you can go leverage it and pull the money out and all that stuff. But also, you can get that passive. You can get passive deductions against your rental property income through doing like a passive investment with me or Tate or another operator. Right?

[00:23:06] [SPEAKER_03] So like the K1 generated, right, losses can go to other passive losses. So you don't need to get rid of that property. No, we're not at, we're not fighting for you to keep the property. I get what you're probably trying to do, like get something else, some depreciation left on the schedule. But, you know, if the property is kind of running itself, then why mess with it? And from a protection standpoint, Koi shows you the search. We can see how much deaths there if you at least get an ELOC on it for protection purpose, whether you use it or not. That's something that he doesn't like to see. Absolutely. That's called equity stripping.

[00:23:36] [SPEAKER_03] So if you own a property free and clear, Koi can see that, right? An attorney can see that you own this property free and clear. You have a lot of equity in that. That's a target. You equity strip it, you put a big old mortgage on it and take, you know, now you've only got a 20% equity in the property. The bank owns the rest. You know, they can't go after the bank, right? They can only go after your equity. And I like your suggestion with the HELOC because you can, it's like a checkbook at that point. Then you can, you have the HELOC, it's there, it's recorded due to trust on the property.

[00:24:04] [SPEAKER_03] So they see the equity stripped and then, but the use of that HELOC isn't recorded against the title. All right. That's just between you and the bank. If you're going into a problem, you just pull the money out and we're done. Right. And if you don't have a property lined up to use that money with, then you just don't pull the HELOC and you don't burn the interest. I have two years left in the military as a reservist. 2026 rules allow in-plan TSP conversions from traditional to ROT. Would it be wise to convert now if I'm planning to use a future SDIRA?

[00:24:34] [SPEAKER_03] I think the idea of converting it, look at your tax bracket.

[00:24:39] [SPEAKER_01] Where are you now? Two years from now, need out. Are you going to be getting retirement or what other source of income? What will the tax bracket be then? And if it's a new thing, we can do that in-service conversion.

[00:24:50] [SPEAKER_03] Question is, if we do that in-service conversion right now, then you're gonna pay X number of dollars in taxes. Can we do the in-service conversion or can we make the conversion afterward inside the TSP? I'm not sure about that remaining in the TSP. But note, if you take a TSP that has both Roth and traditional and you roll it into a self-directed account, I can roll a Roth IRA into a Roth solo 401k if I have a business.

[00:25:18] [SPEAKER_03] But I cannot, once it goes from a Roth 401k to a Roth IRA, it is stuck. I can't roll it somewhere else. It is stuck as a Roth IRA. So let's keep that in mind as part of your planning. If we're gonna move it, let's look at the options that are out there. Because once it goes to a Roth IRA, there's no option beyond that. So keep that in mind. Someone asked for the oil and gas bond. Have you ever heard any horror stories of investors becoming involved in litigation during their first year as GP status? Because you're a GP.

[00:25:49] [SPEAKER_03] And if there's some environmental issue with a well, do investors get drug into it? No, there are massive insurance policies. Technically, if we own 5% of a well, again, Coy, you're an attorney. Who are they gonna go after? Are they gonna go after Devon Energy or are they gonna go after the Waypoint Energy Fund? Give me the insurance. I'll take the easy money. There we go. And give you the insurance. And then also, Devon is a multi-billion dollar company, right?

[00:26:16] [SPEAKER_03] So there's a chance that we would get a bill for if there was a settlement. We own 5%. It's like, okay, well, now we... And it goes above the insurance limits. We might see that. But I'll speak to lawsuits. We had an incident at a property where something happened on a property. Some customer did something. And I'll leave the details out of it. But frivolous lawsuit. Park bench attorney comes to us, makes a claim against the... Names us in the lawsuit.

[00:26:46] [SPEAKER_03] Names the LLC and the owner of the property. And the insurance kicks in and starts litigating for us, right? They bring in their attorneys and their insurance consulting. And really, the insurance company settles. It's really frustrating because it's such a frivolous case. But basically, it goes away because the insurance company steps in and says, we want this to go away. We don't want to pay for your litigation charges. So they just settle. It's really, really sad part of our society. But that's the reality is that insurance is going to...

[00:27:15] [SPEAKER_03] That literally happened to me in the last six months or so. Yeah. Trying to name 250 airline pilots that are GPs inside of a fund when debit. I mean, it's like... No, sure. Not in reality. What's the best way to exploit having rep status? How could you use it to take advantage of passive losses from K-1s? So essentially, if you're investing in a syndication, I'm going to restate the question. So let's say I have rep status.

[00:27:41] [SPEAKER_03] I do 750 hours of real estate related activities every year. I'm doing active material participation, my own rentals. And I also invest, let's say, $100,000 in a syndication deal and I get a K-1 with a loss. How can I utilize that best? And is there... I think that it crux the question in here is, can that K-1 be active loss? If you're checking that box and you got the rep status, it all depends on other sources of income.

[00:28:11] [SPEAKER_03] If you have other sources of income, great. Because that's going to roll over and significantly reduce your tax liability. So the question is the greatest way to... Just to maximize it. So essentially, if someone has rep status and they're investing passively in, let's say, one of Ryan's deals and they get a K-1 with a negative number, how can they best utilize that? Is that still passive because they don't materially participate in self-storage? Or does that unlock? Because I've actually heard conflicting answers to this question. It's year by year.

[00:28:40] [SPEAKER_03] If you qualify in that year, you get to take it. It'll carry forward, but the test is every year. Right. So essentially, you're saying that... And again, I've heard conflicting opinions on this from CPAs, tax attorneys, etc. That's, you know, some tax attorneys will say, because you're not materially participating with your rep status in specifically mobile home parks, self-storage, etc. You're doing, you know, four plexes.

[00:29:08] [SPEAKER_03] That self-storage K-1 loss is not going to go against your Delta Airlines income. You're saying that... It would as long as we qualify. Right. You're saying it would as long as you qualify as a real estate professional that year, and it doesn't matter that you're not materially participating in that specific asset class. Well, how the question becomes, how do we... We're making our grouping election. That's we're checked in the box.

[00:29:33] [SPEAKER_03] It would be going out of the way to say, excluding that property. So I think your CPA has a good argument that even though that one you might not, quote unquote, materially participate because of your rep status, you could take that against your income, take those losses. And like you said, it's one way or the other. I guess you'll need to talk to your CPA or your tax professional and figure out what they're going to do. Fantastic.

[00:30:03] [SPEAKER_03] So I have a tag on question to that, the two people have actually asked me on breaks. And that is that, let's say you invest passively in a syndication deal, real estate, get that negative K-1 loss. Let's say you have no passive income, right? And so you can't use it. It just carries forward. You don't lose it. It's just going to sit on your tax returns. It's going to carry forward what's called a suspended loss year to year to year. You get to the end of the deal. The deal goes full cycle. It sells for a gain.

[00:30:30] [SPEAKER_03] You still have that loss that has been carried forward. It's my understanding that at that point, it converts to an active loss and can chase down ordinary income, even though you do not have real estate professional status. Do you agree or disagree? I cannot answer on that one. I truly have to go research that to find out. Sounds good. I'm not sure. We'll put the answer in the show notes. Hopefully. Does it matter which state a trust is established?

[00:30:58] [SPEAKER_03] You know, we talked about this a little bit yesterday. It really doesn't matter because where is going to be controlled is where you pass away. Right. And so it's the domicile that's seen on a date of death. Those four D's we talked about yesterday afternoon. So that's what's going to dictate the jurisdiction where the trust is in would be covered under. The hope is, though, that there is no probate that's ever going to be involved in it. And so it really wouldn't matter. It's a private document, a private contract between myself and my beneficiaries.

[00:31:28] [SPEAKER_03] My trustee effectuates it and it shouldn't matter at all. As far as differences between the language of trust from state to state, there really isn't any difference on that. Excellent. We got time for one more question. Is there a time component to depreciation recapture? For example, holding a long term rental for two years versus 10 years. Is there any difference in the depreciation recapture that you pay when you sell that asset? Say no. It's it doesn't matter. Right. But yeah, it doesn't matter on that.

[00:31:58] [SPEAKER_03] But I will say we had a guy last week. He was doing his own taxes and he has several properties. He has never taken depreciation. Uh huh.

[00:32:06] [SPEAKER_01] Thinking that if he didn't claim it, then he wouldn't have to worry about the depreciation recapture.

[00:32:10] [SPEAKER_03] Wrong. Even if you don't take it. When that property sells, they're going to tax you as though you depreciated the property. Ouch. So that is a good. Yeah.

[00:32:20] [SPEAKER_01] You get a recapture depreciation you didn't take and pay 25% tax.

[00:32:25] [SPEAKER_03] It's ouch. Yeah. And that's why we have the podcast, everyone. So with that, thank you for coming.