Real Estate Investing Advice & Tax Deductible Expenses

Jason Hartman uses this FlashBack Friday episode to talk about the pros and cons of real estate investing. He goes into how to create a plan for wealth. He ends the show talking about real estate and tax deductions. 


Announcer 0:00

Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason is hand picked to help you today in the present, and propel you into the future. Enjoy.


Announcer 0:16

Welcome to creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multi millionaire who not only talks the talk but walks the walk. He’s been a successful investor for 20 years and currently owns properties and 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 0:59

Hey, welcome to the rating well show This is your host Jason Hartman Episode Number 430 to 432. Thank you for joining me today. Today I want to talk about a few things. One of them that is important is commandment number 10. If you are a regular listener, you know darn well the 10 commandments of successful real estate investing. And you may actually know all 20 commandments, yes, there were, there’s an agenda. There’s an additional 10 commandments. And you know what we’re going to add 10 more. So there will be 30 total See, God may have only given Moses 10 commandments, but in the life of a real estate investor, we really need more than 10. So we’re gonna go from 20 to 30 soon. But number 10 is very important, you know, because when we look at investing, and we look at the types of expenses we have in our lives, I think it was Benjamin Franklin who said there are two paths To wealth, and he said something like, we either diminish our wants, or augment our means. Okay, so that what that means, although I probably spotted that quote, so pardon me for doing it. But what that basically means is it means look, we’ve either got to figure out ways to increase our income, and hopefully we’re going to do that, you know, substantially and that could be in the form of increased rents or refi till you die, game plan and just increase our income it could be from our job or career our business of course to or diminish our wants. The path to wealth Benjamin Franklin was correct. It’s it’s both things we need to do both things simultaneously. And I want to caution you because you know, I’ve certainly made this mistake throughout my life and I’m sure I will continue to make it too. And we don’t want to live I don’t think the Thomas Stanley lights Which is the The Millionaire Next Door concept which you know, by the way is a good book. And I think there are some good lessons there. You know, we don’t want to live the Dave Ramsey life either. Okay. And I think there are some good lessons there. So don’t get me wrong. The life of being extremely frugal is just no fun. Okay? And it also sets up our subconscious mind for this idea of scarcity. We’ve got to make sure that we we balance these two kind of opposing forces in our life. We don’t want to be a cheapskate. Nobody likes a cheapskate, right. It’s not good for our own wealth development psychology, when we’re overly frugal or to use the sort of direct word cheap, because that really limits our possibilities. It limits our thinking. And it sets up our subconscious mind to think hey, the world is scarce. I’ve got to conserve resources. I’ve got a hoard the more profound way to live And the more successful way to live is to live as though the world is an abundant place. And I just love the zig ziglar quote, which really kind of speaks to this, that I heard many, many years ago at age 17. And Zig said, you can have anything in life you want, if you just help enough other people get what they want. And that’s the abundance mentality, look, understanding that the world is an abundant place. It is literally full of opportunity. There are unlimited opportunities and resources out there. It’s not a male floozie in existence in which we live. I mean, look at all of the companies, okay, look at all of the huge business enterprises that were created out of nothing. You know, we didn’t even imagine these businesses back in 1989 that anyone really imagined the power of the internet. Well, we probably didn’t even know what the internet was back then even though it technically did exist as a military system wasn’t really released to the public, if you will, until what 1994 is the information superhighway and it’s just transformed the world in so many ways. So there are so many opportunities and so many companies that grew out of that out of nowhere and so many incredibly innovative ideas that the world is abundant. I mean, it would be just very, very hard to argue to the contrary. Okay. And, you know, we talk a lot on the show about these incredible technological innovations, what that means to us as real estate investors, and how important it is for us to keep our eyes on this stuff and understand it. But now let’s talk about not the abundant side. let’s address commandment number 10 a little bit as it relates to the single largest expense in any of our lives. What is that? single largest expense, well, you know what it is? It’s taxation. Okay? It is taxation. That is the largest expense we have. And as I say, in my creating wealth seminar, which we will be conducting in just a few weeks in Birmingham, Alabama, and the next day, of course, we’ll be looking at bulletproof properties, these minimalist management type properties, that will be an awesome opportunity. So please come to that. But as I say, in that seminar in the in that full day workshop, I talked about how the single largest expense in any of our lives in any person’s life, it’s tax taxes, that’s our largest expense, and it always blows my mind how people will shop around for a new gadget or a new product. They will spend hours and hours researching things online or they will go from store to store they will Wait for the sale day to come up at Nordstrom, you know, or whatever. And listen, I like getting a deal just as much as the next person. Okay? And it’s funny how our psychology is set up that way through so many years of evolution. Our psychology is set up to be scarcity minded. Okay? But, you know, there is validity to Benjamin Franklin’s idea. So when we look at commandment number 10, and we look at the single largest expense, and we talk about income property investing in real estate investing, we realize that we can really by learning how taxation works. And by investing in the right things, we can save an incredible amount of money, we can reduce in incredible wealth destroyer we can reduce the impact of it on our lives. And when you look at the incredible magic of compounding interest Okay, it’s really the same thing. I mean, think about it, taxes are the single largest expense in anyone’s life. So if we can reduce our tax burden, we can do this legally. We can do it by basically doing in engaging in the behaviors that the government is incentivizing us into. The government wants us to provide rental housing. That’s why they they write the tax code the way they do, and they incentivize us to provide rental housing to people, okay. And this is why the long term investor will always outperform the short term investor. I’ve long said that over my very long career, in the real estate business, the people that buy and flip, you know, they buy property, they fix it up, they flip it, they have spending money, but the people who buy and hold have real wealth, real long term wealth, and one of the reasons for that, and it’s not a small one, by the way, is that they can really reduce their tax burden. And think about the impact the incredible impact of this. If you can take something that probably eats up somewhere between 35 and 55%, maybe 65% of your wealth in some form of tax, okay? Because remember, there’s a lot more taxes out there than just income tax. Okay? You know, every gallon of gas you buy has an incredible tax burden attached to it. Every product you buy has sales tax attached to it. It certainly could be argued that all of these government fees, whether they be car registration, or the you know, dog license, those all our taxes, okay? There have been studies that are a loaf of bread and hopefully you don’t eat bread because it’s not good for you. Okay, cut down the carbs. Okay. a loaf of bread. I remember reading a study years ago about how a loaf of bread Was taxed 200 times by the time it gets to the store, and you know, Google stuff like that, because things are taxed at all different levels of the manufacturing production and supply chain process, right. So when it comes to income property investing, think about it. Now, of course, you know, you know if you’ve been following my show, that you know that the most incredible tax benefit of all is what’s known as depreciation. And why is it so incredible? Because it is a non cash right off. It is a phantom deduction. It is a phantom tax write off. In other words, with the beauty and incredible power of the depreciation tax deduction on real estate. You can have your property double in value, you can have positive cash flow, everything can be going great from the way a normal person would look at And investment, you’re making money. It’s all good. But the way the IRS looks at it, thankfully, they might look at it as though you’re losing money because of depreciation. So you’re still getting incredible tax benefit, even though you’re doing great, right? It’s just an amazing way this works. And this works because when people look at a property, they usually think of it as one thing. But they really have to divide it up into its two major component parts. One is the land that the property sits on, okay, so you own that piece of land. And the other is the structure sitting on that land. The structure is sometimes called the improvement, okay? And that improvement sitting on the land, it might be in the form of a house. It might be in the form of an apartment building, or any other type of structure. You know, we’re not very into commercial properties here. We like housing, because housing is the only thing That’s another commandment, by the way, invest in things that have universal need. And housing has universal need, you know, they can’t outsource housing, as long as the population is increasing, which it is rather dramatically in the United States, or at least in the areas we like to recommend investing in, you know, this is not true of have very blighted areas. And so as long as that’s happening, you have a greater demand for housing. So the structure sitting on the land, the IRS says, Hey, someday it’ll fall to the ground. So instead of taking that deduction all at once, we’re going to let you depreciate it. And when it comes to a house, the depreciation schedule is going to be how long? Well, you know, you probably know, okay, 27.5 years, so you get to divide that cost over 27 and a half years. Now, many of you listening are thinking, Jason, you know, stop talking about this because you’re really bumming me out. Why would I be bumming you out? Well, the reason is that if you make money if you make good money at your job or in your business, you’re not necessarily eligible for this tax deduction. But there are some tricks of the trade that might make you eligible. But even if you’re not, okay, even if you’re not eligible for this, even if you don’t have the opportunity to take the real estate professional tax deduction, which we’ve talked about in prior episodes in great detail, there’s a lot to it. Okay? doesn’t mean you have to be in the real estate business like I am necessarily in the in the way you think of me in the business or the way you think of your local realtor in the business or something like that. It just means that you spend a decent amount of time engaged in the process of real estate investing. It’s a long topic. I’m not going to go into it here. Okay, but we have definitely talked about it on prior episodes many times. And if you go to Jason Hartman calm and use that little search bar on our website, You can learn more about that. And you can find those episodes, those transcripts, the audio files, and various blog posts that we’ve done about it on the website.

Jason Hartman 14:10

That’s only one of the incredible tax benefits of income property. Let me talk to you about a couple of others real quickly. The other one is the ability to trade the asset throughout your life without paying taxes. This folks is huge. It’s giant. And guess what? Everybody is eligible. So say for example, you are foolish enough, as I have been at times in my life, so I’m right there with you. But I’m not going to make the mistake again. Say Say for example, you are foolish and silly enough to be investing in the stock market, the modern version of organized crime, you bought some stock, you actually were one of the lucky ones went up in value and of course, The insiders made a lot more money on that stock than you did, but say they actually left. Thankfully, a little bit of profit, they left it over for you. And if they did that, and you have a capital gain, okay? Now, by the way, I do need to make a disclaimer, and that’s the obvious disclaimer I always make. I am not a tax professional. So, take my ideas, take the things we talked about on the show, and go to your tax professional and ask them for clarification and its applicability to you personally. Okay, so I’m just giving you a concept here, but it gives you some discussion for your tax advisor. And the same is true with legal things. I’m not a lawyer. I’m not a legal expert, but I do have some experience with some of this stuff. And I certainly want to share my experience with you our listeners, so you can do a 1031 tax deferred exchange. You can trade fee real estate, all your life and never Hey tax, you can’t do this with stocks. You can’t do this with a business. When I sold my company to Coldwell Banker several years ago, I went around and I talked to experts. I remember I went and talked to, you know, some people that have called themselves. Exit planners, exit planners, okay. Have you ever heard that one? Well, they’re out there. There’s a whole little cottage industry of exit planners that help you exit a business and do it in a tax efficient way. And I went to these guys, and I spent some money with home and I spent hours with him and looking around and trying to figure this out. I thought, you know, I’m going to get a big check here. And I don’t want to pay a big tax bill, what do I do? You know, what do I do? And basically, they said, there’s nothing you can do. And fortunately, what happened after this is well, I don’t want to say fortunately but it came out of a tragedy. And a lot of investors, including many of you listening, many of our clients took advantage of this opportunity. It was known as the go zone. Okay. And the go zone was a tax incentive to rebuild the areas on the Gulf Coast that were affected by Katrina. And what was the hurricane after that, I believe it was called Rita. The gozen was a huge tax benefit. that’s ultimately what saved me a bunch of money on my taxes from selling that business. There was nothing I could do to plan in the business world. I kept saying to these, these tax advisors, I say, Can I just buy another company? You know, can I buy another business? How about if I start another business? You know, can I defer the gain from the sale of this one and roll it into a new one? No, you pay the game, and then you have your tax debased dollars. Okay, the dollars that you have left over your after tax dollars in which to do something else. Well, that wasn’t a very good it all. So I didn’t have the compounding effect the compounding was working against me had it not been for the real estate saving me. Okay, and then what happens and again, this is just my understanding of how the whole thing works. So check with your tax advisor, then what happens throughout our life, we come to this event that most of us want to put off, and that is death, right? So they say when you know you’re stressing out about something, stop worrying about it, stop stressing out about it, because no matter what, you’ll never get out alive.

Jason Hartman 18:36

I am that is that is true for all of us. Okay. So what happens is, you exchange your real estate all your life, and you’re doing that in pre tax dollars. So you never pay tax on the game. You do your 1031 tax deferred exchanges, and it comes to that moment of death and then you pass on Your real estate portfolio to your heirs and it’s inherited. And then under current law, this is my understanding of it, check with your advisor, the basis steps up to market value at the time of death, and then they can sell those properties and they don’t have a recognized game. I mean, there are see there are three giant tax benefits here. And and they are huge over the course of years over the course of decades. These are in credible wealth builders. They are incredible when you look at the compounding effect of being able to invest in control real estate with pre tax dollars. It is nothing short of phenomenal. It is far and away the most tax favored asset in America, bar none. Now there is a fourth thing that I should tell you about. And this is a smaller thing, but it is valuable. Okay? If you want to save on life’s largest expense, do any of you like to travel? Well, if you like to travel, and you like to go places and you like to experience new things, well, you can travel to your properties. And, you know, most of our clients don’t do this. Okay? In fact, a relatively small number of our clients actually do this. But I did encourage you to do it. Okay. I and you know, the ones that do and they go out and look at these areas, and they look at the their real estate portfolio around the country, they’re usually pretty darn impressed. Okay, with with the opportunity that we’re trying to create for them. And so you can go and you can get some nice tax deductions on this real estate travel. Okay. And that is a great thing. So you know, if you like these gourmet restaurants, you like to travel and have nice experiences and stay in nice hotels. Well, some of this stuff is deductible. So that’s a nice little perk. What if you like to go to my seminars and my conferences and my property tours? You know, we’ve got our Birmingham tour coming up. We’ve got meet the Masters event coming up in January, that we’re about to announce the details for you can go to all of this stuff. I mean, well, folks, we have some groupies. And I know some of you are listening and I appreciate you being groupies. You know, they come to a lot of our stuff. Okay, I know, you know, this is not a this is not a band. I’m not a rock star. Unfortunately, that was really, you know, when I was a kid what I wanted to be doesn’t every kid want to be a rock star? Either that or a fireman, right? I don’t know why exactly. But so you know, you can follow me around. You can go to all my events and you can get some nice tax deductions for that. And you know, the idea is Is that you weave in your real estate investing business with fun and enjoyment and life experiences. So you get an education, and you get a tax benefit. So when you pay for this stuff, it doesn’t cost as much as it might seem on the surface. Because Uncle Sam, the government is paying for part of it for you, because the government wants you to be an educated investor. Right. So there are some potential tax benefits there as well. Why do you think they have conferences, events, on cruise ships, and in beautiful resort locations? Well, it’s for this reason Exactly. So keep that in mind. That’s a great opportunity to now as usual, I’ve gone very long I really want to get to America’s missing wealth. I really want to get to a wall street journal article, I got to talk to you about the Fed rate hike and whether that’s going to happen or not what we’re going to see an interest rates. What else do I want to talk to you about? Well, I do want to talk to you about upcoming episodes, because we’ve got some great ones here. But I got to get to a little video that was shot a couple of months ago when I was in Birmingham, Alabama, where our property tour is coming up and I think you’ll really enjoy this little 10 minute video, the soundtrack of it. upcoming episodes, though, we got some good stuff. Really good stuff coming up. So last episode, we had CONSUELO MACK from WEALTHTRACK PBS. I am sure you enjoyed that interview. I thought she did a great job. Next episode, I think we’re going to do Dan Ammerman, he’s back to talk about financial repression. And then we’ve got Ellen brown coming up, and she’s back to talk about public banking. You know, she’s written some really, really interesting books, and I think you’ll enjoy those and then Patrick Cox’s coming up to talk about transformational technology. He heads up that division. for modern economics, you know, john Malden, he’s been on the show a couple of times. And in john Bolton’s great work which was, which is very interesting. Okay, check us out at Jason Hartman calm where you can get detailed performance on all of our properties.

Announcer 24:15

I’ve never really thought of Jason as subversive, but I just found out that’s what Wall Street considers him to be. Really now How is that possible at all?

Announcer 24:24

Simple. Wall Street believes that real estate investors are dangerous to their schemes? Because the dirty truth about income property is that it actually works in real life.

Announcer 24:35

I know I mean, how many people do you know not including insiders who created wealth with stocks, bonds and mutual funds? those options are for people who only want to pretend they’re getting ahead.

Announcer 24:46

Stocks and other non direct traded assets are a losing game for most people. The typical scenario is you make a little you lose a little and spin your wheels for decades.

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That’s because the corporate crooks running stock and bond investing game will always see to it that they win. This means unless you’re one of them, you will not win.

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And unluckily for wall street. Jason has a unique ability to make the everyday person understand investing the way it should be. He shows them a world where anything less than than a 26% annual return is disappointing.

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Yep. And that’s why Jason offers a one book set on creating wealth that comes with 20 digital download audios. He shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us.

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We can pick local markets, untouched by the economic downturn, exploit packaged commodities investing and achieve exceptional returns safely and securely.

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I like how he teaches you how to protect the equity in your home before it disappears and how to outsource your debt obligations to the government.

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And this set of advanced strategies for wealth creation is being offered for Only $197

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to get your creating wealth encyclopedia book one complete with over 20 hours of audio go to Jason hartman.com forward slash

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store. If you want to be able to sit back and collect checks every month, just like a banker Jason’s creating wealth encyclopedia series is for you.

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This show is produced by the Hartman media company All rights reserved for distribution or publication rights and media interviews, please visit www dot Hartman media.com or email media at Hartman media.com. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax legal real estate or business professional for individualized advice. opinions of guests are their own. And the host is acting on behalf of Platinum properties, investor network, Inc. exclusively.

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