How To Use Real Estate To Save On Taxes

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Larry Pendleton Jr has over 10 years of accounting tax and auditing experience as a CPA He serves as a Board Member of the Hunton YMCA in Norfolk and The College of William and Mary s Athletic Educational Foundation He brings over 4 years of real estate experience and has closed on multiple deals consisting of single-family and multi-family properties 00 00 – 05 44 Opening Segment Larry is from started his interest in accounting in his highschool 7 years ago he started his real estate Journey Tax Losses Can Still Be Used To Your Advantage The 100 capital gains rate for losses on investments held for less than one year will decrease to 80 in 2023 Passive investors may not be able to take advantage of losses on 401K investments It is important to be aware of your tax situation and consult with a professional accountant 05 45 – 11 07 Syndications May Not Be The Best Option For High Net Worth Individuals There are tax advantages to investing in real estate as a high net worth individual but there may be limitations on what can be written off Being a CPA can help bring additional value to the seller and to the buyers in a real estate transaction Opportunities to acquire real estate remain available even in hot markets through direct mailings to director owners 11 08 – 16 29 Passive Investing Advice from a CPA Master Larry shares his advice on scaling a personal portfolio and giving bad or good financial advice He also discusses the bonus appreciation fading out and the upcoming audits Larry recommends reaching out to a CPA before making any major financial decisions 16 30- 16 57 Closing Segment Reach out to Larry Pendleton Links Below Final Words Tweetable Quotes Work smarter not harder and it hits harder once you realize that you re taxed more on non-passive activity like having a job or just running a business – Larry Pendleton —————————————————————————– Connect with Larry Pendleton on Facebook Instagram and LinkedIn Phone number 757 535-8592 Connect with me Facebook LinkedIn Like subscribe and leave us a review on Apple Podcasts Spotify Google Podcasts or whatever platform you listen on Thank you for tuning in Email me sam brickeninvestmentgroup com Want to read the full show notes of the episode Check it out below 00 00 00 Larry Pendleton I may not be able to get the losses against my W2 but I m making returns And I m not being taxed on those returns because I have these losses to offset So I don t wanna be all doom and gloom in the situation but there s a positive light to it where like you re still increasing your net worth 00 00 17 Larry Pendleton You re still bringing in income That s not being taxed You re just being taxed on the income That that your whether it s your main business or your W2 00 00 26 Sam Wilson Larry Pendleton is a real estate investor and CPA with a passion for adding value to fellow investors 00 00 43 Sam Wilson Through tax consulting and accounting services He says his mission is to help people achieve financial freedom through real estate investing and tax strategies Larry welcome to the show Thanks Thanks for having me Hey man pleasures mine There are three questions I ask every guest who comes in the show in 90 seconds or less 00 00 58 Sam Wilson Can you tell me where did you start Where are you now And how did you get there 00 01 01 Larry Pendleton started in north Virginia I guess from a CPA perspective I really started in my accounting in high school for my high school crush on on an accounting teacher turned into a CPA certification accounting degree there 00 01 16 Larry Pendleton So I been doing that for over over a decade now didn t work out with the teacher so that s no reason going down that path but started up in real estate roughly seven years ago My partner Terry con was already investing I didn t think I can do it Just limited mindset He basically put a property in my lap 00 01 33 Larry Pendleton Get an FHA loan Still have it today cash flowing 300 a month And like I said been able to take that and expand that to grow my portfolio and grow the tax business to be more real estate focused 00 01 45 Sam Wilson Gotcha That s really interesting Yeah I think you I guess you as the you as the student can have the crush on the teacher it s the other way around that you get in trouble with the law right 00 01 55 Sam Wilson yeah exactly Oh that s hysterical man Thanks for that That s That s a good laugh at a great place to kick this off I guess when it comes to the accounting side of things what are you seeing right now in the in the marketplace as you re talking to different investors and you re talking to different people like what are some things going on right now in the accounting world that we should be aware of 00 02 16 Larry Pendleton One I think most people are aware of is that the a hundred percent bones appreciate that A lot of people have been taking advantage of over the past five years It starts to phase down in 2023 it goes down to 80 60 and so forth Waiting on to see if the IRS is gonna make any changes just amendments of before it completely phases out or would be back at 50 like we were before 2017 00 02 38 Larry Pendleton We re also seeing The IRS pump a lot money I mean the government pump a lot money into the IRS which technically means there s more audits coming as they re trying to reup lot the money that they ve been paying out over the past couple of years So for those investors especially those that qual that s been trying to qualify real estate professional status or have been qualified with the professional status making sure you re tracking your hours 00 03 00 Larry Pendleton And from I m also seeing from working with a lot of syndications and funds for those that are limited partners just being sure that whatever losses or the tax losses that your operator or syndicated is promising or offering like can you really take advantage of that In the current year in a lot of situations we re seeing a lot of people not being able to take advantage of them 00 03 22 Larry Pendleton Wasn t aware of that until they get their K one S and file their taxes And it is like well no one told me I couldn t claim these losses you I thought I could have So it was like just getting informed up front from your operator or from your tax advisor or from a tax advisor that knows real estate and how that may affect your taxes 00 03 40 Larry Pendleton Let s talk 00 03 41 Sam Wilson about that for a second What are the situations in which a passive investor cannot take advantage of a loss on a K one 00 03 48 Larry Pendleton So if you re if you re not if you re if your income is over 150 000 then you re limited to the passive loss limitations under four section 4 69 the TA IRS tax code 00 03 58 Larry Pendleton So that means I mean unless you can qualify for as a real estate professional which means it s the 750 qualifying hours and more your half half your work time in real estate But if you re a doctor or or a business owner that s not really that s not in real estate It s kind of hard to prove that you have 00 04 18 Larry Pendleton The qualifications to to claim those to claim real estate professional status and then show that you material participated with those properties as a limited partner you re not really making any management decisions So that s where you kind get hamstring in certain areas and there s strategies around it 00 04 34 Larry Pendleton If you re doing short term rentals and you have your own properties Somewhat group group all your activities together But if you re just kind of just one syndication here or just you re only doing LP investments you may be limited to how much losses you can claim 00 04 49 Sam Wilson What when you can you break that down 00 04 51 Sam Wilson I guess give me gimme a hypothetical example Let s say you re a doctor and you make a half million bucks a year How much And you get a K one and you say you invested a hundred thousand dollars in the deal and you get an 80 000 right off the first year Again we re just making stuff up here 00 05 05 Sam Wilson Right What percentage of that Could they actually take as a write off if any 00 05 11 Larry Pendleton So in in that scenario in year one of that syndication the answer is if all they have is if they have their W2 and over that 150 000 and then they invest in this deal and they got this 80 000 loss now it s it is important to bring up that even though you can t use it 00 05 29 Larry Pendleton In year one that doesn t mean it disappears right It is suspended and rolled forward inter into future years which means that it s going to offset future gains or passive income and passive gains from many passive activities or other rental properties Syndications that individual may be involved in 00 05 47 Larry Pendleton And also when that property goes full cycle any losses that s been built up along the way then become active and now will help offset the capital gains on the back end So if your goal is to really get into these losses offset in your w two and you re a are a high net worth individual you may be a bit may be outta luck 00 06 06 Larry Pendleton From that stand 00 06 08 Sam Wilson Right And that s something I think And thank you for taking the time to clarify that there because I think that s something that is often touted in commercial real estate especially in syndications is Hey there s tax advantages here But yet I think there s a lot of ambiguity especially as it comes down to the example we just set forth of like Hey what can someone 00 06 26 Sam Wilson Actually take as a write off And it sounded like you said somebody could group that too So short term rentals that did make a bunch of money maybe then they could go ahead and claim the full amount there However works I know everybody s situation s unique but 00 06 38 Larry Pendleton yeah it s also important to bring up where it s like it s a mindset where like you can take the offense of the off the offense into this where okay 00 06 45 Larry Pendleton I may not be able to get the losses against my W2 but I m making returns And I m not being taxed on those returns because I have these losses to offset So I don t wanna be all doom and gloom in the situation but it s like there s a positive light to it where like you re still increasing your net worth 00 07 04 Larry Pendleton You re still bringing in income That s not being taxed You re just being taxed on the income That that your whether it s your main business or your W2 that s the part you have to deal with other strategies to offset that But there s still a bright side of investing in real estate as a LP and be able to make more money 00 07 20 Larry Pendleton That s that s not gonna be has less tax liabilities as W2 income 00 07 26 Sam Wilson Right Yeah absolutely Absolutely What s it like being a in a CPA and also an investor in real estate I mean do you feel like that brings you or gives you any unique advantage in your CPA side of the business 00 07 40 Larry Pendleton Yes cause it helps me find be to bring more value to the seller where it is if I can understand their pain points where there s a deal in cums Georgia where the person didn t know what their capital gain hit was going to be 00 07 56 Larry Pendleton and they either didn t have an advisor or their advisor didn t know But so part of my role on that particular team was to go through and like Hey here s your option I gave them three options If you sell At the price that we re asking if you sell or finance it to us here s your classifications 00 08 13 Larry Pendleton And if you just do a lease option with us here s your taxations And the fact that he ended up selling at the full value cause he realized okay if that s my taxable gain he just want to get out real estate which is fine We really wanted the the least option Sure Something we could have to bring in less money to the table but it worked out we still got the price and like he see we see a lot of offers but he wasn t the highest offer either 00 08 36 Larry Pendleton So so something like that was it s like okay I haven t he respect to bring additional value To to the the least to the sellers and to the each even to the buyers for the teens even I m on the GP myself or just consulting from that standpoint Cause I m sitting I m not as I tell my clients I m not on one side of the table and you re on the other side 00 08 54 Larry Pendleton Like we re both on the same side of the table because if the deal looks good like I may wanna jump in myself 00 09 00 Sam Wilson Right That s really that s an interesting strategy I hadn t thought about was especially I mean we re in an asset class right now in the RV resort space That is almost exclusively mom and pop 00 09 12 Sam Wilson and it is it s one of those things where you know that opportunity for seller financing oftentimes exists because they don t know what they re gonna do with the money But I think that you give em 5 million and they re gonna go okay now where do we put it But it also unique and unique spot to be in 00 09 25 Sam Wilson And in that you could almost offer A consulting call with an outside person such as yourself and say Hey look let me pay for pay Pay Larry a thousand bucks to have a phone call with you And then this will help you kind of lay down somebody I m making up numbers here You might be 10 000 00 09 38 Sam Wilson I don t know but whatever it is have a phone call with a qualified CPA If you don t have one cuz this may help you decide what your next Root is based on what the tax ramifications are So I hadn t really thought about that before especially as we re dealing with and I don t wanna use this word but less sophisticated sellers maybe than what you would in some other asset classes 00 09 58 Larry Pendleton Yeah Especially I mean a lot of people in the especially in the multifamily space or there s a lot of emphasis on the 10 to 80 units cuz that s typically just those match your his funds like those similar words like it s your mom and pops and they ve been Running this thing on their own for 20 30 years and they just tired and they want to get out 00 10 17 Larry Pendleton Right But there s a fear of like what s the other side of receiving a huge lump sum off of this nest egg that you built over the years is what you built but There s a the IRS is kind of waiting on the side see what you do next the 00 10 30 Sam Wilson tax man Come that s for sure 00 10 32 Sam Wilson That is for sure Tell me on the acquisition side how are you finding opportunity right now 00 10 37 Larry Pendleton A lot of as I mentioned like I ve worked with a lot of different investment groups and so what I ve seen is always a lot of Meers Especially when it s a hot market it s tough to go through brokers on any asset class 00 10 49 Larry Pendleton So there s a lot of just mailers trying to get to director owners as much as possible As cliches it sounds driving for dollars is still a thing and still and just happen to drive past something It was like hope put in reverse to get this address written down whether it s a house or it s a vacant light or empty building 00 11 07 Larry Pendleton So so yeah there s a lot of different ways And how people are sourcing these deals And I have unique respective being able to see the multiple ways of people doing it 00 11 16 Sam Wilson man that s awesome When you look back on either your CPA career or your investing career has has there been bad advice that you received along the way and or good advice that you feel like people should hear 00 11 28 Larry Pendleton bad advice Almost the aspect of it s weird because I tell people I m rather a unique position where I ve been like CPA masters and it is like I feel like I ve been climbing this corporate ladder It s like this is up against the wrong building So if I had the opportunity to start this whole like Start back at 18 all over again 00 11 49 Larry Pendleton Like I probably just would ve just jumped straight into real estate And it may not be a CPA as of now I m not saying that it s bad advice It s just I ve conflicted by it because it s been a huge part of my success but now I m starting to at least embrace the grind throughout the years of doing it to get to this point 00 12 07 Larry Pendleton but the best advice overall a from a tax from a business investing standpoint is I guess the cliche of Work work smarter not harder like hits harder Once you realize that you tax more on on non passive activity like having a job or or or just running a business 00 12 27 Larry Pendleton So it s like okay the quicker you can get into passive being a passive investor like the like the better like cause I m I m more and more especially with TV two young boys like I m just Like concerned about like how much time I m really getting to them as I m as of many other people building our empires in two separate fields 00 12 46 Sam Wilson right 00 12 47 Sam Wilson Yeah That s that s absolutely right And that s funny man People ask me that question all the time They re like Hey where do you wanna be In 10 years I m like well in 10 years I ll be 50 In 10 years I wanna be a passive investor only I hate to say that but it s like that s where I want to go Like I want to have I wanna do all the things that I m doing now for my passive investors and my deals 00 13 06 Sam Wilson Like I just and I wanna do invest passively but I m not strictly passive investments I ve still gotta generate revenue in order to put more money into passive investments So it s it s it s one before the other but part of it 00 13 17 Larry Pendleton also is is is And you it s not so much as bad advice as just what you notice 00 13 22 Larry Pendleton People just kind of trying to do all this on their own they may not have said that but like if you re operating as such like and people observe you like you re you re giving bad advice where like like like this this is a team sport like life in general is a is a team sport Like you re not gonna be able to do any of this and scale and be able to do What you want in life if you re if you re just trying to put your head down and grind through everything on your own 00 13 49 Larry Pendleton So like to be able to be of value to someone to partner with someone or a group of people to do something bigger That s that s that s kind of how I see where like for me speak for myself at least like that s that s that s a brighter brighter future From that stand Right Yeah 00 14 06 Sam Wilson That s that s absolutely right 00 14 07 Sam Wilson And I guess that that brings me one of my last questions which is you said that you ve partnered with a lot of different people and a lot of different teams and it sounds like a diverse geography as well And that s kind of how you ve scaled your personal portfolio Is that right 00 14 18 Larry Pendleton Yeah So jumped around from single family rentals to short term rentals done some flips burned and crashed on some flips and like say now it s just okay How to scale it and there s okay Get into the larger multi-family commercial properties Where like I said if I can get 1 of a thousand deals like I ll I ll do my 1 at the best of my capabilities and I ll move on from there 00 14 43 Larry Pendleton Cause I know that s gonna take too much of my time 00 14 45 Sam Wilson Right right man I love it I love it You ve given us some great things to think about here Larry talking about the bonus appreciation and how that s fading out Thinking about more audits coming down the coming down the pipe that s never something that any of any of us want to hear but like you said I know they ve pumped a ton of money into that into that side of the IRS 00 15 02 Sam Wilson So be looking for that The tax losses thing I think was really really interesting just in the sense that we oftentimes hear about all the ways you can use you know you can use passive losses and things like that But I think that the key there in this whole conversation was reach out to your CPA before you count your tickets for their hatch cuz that You may or may not be able to take advantage of that if you are a strictly passive investor and then you ve just given us some other cool things or you key advice and key mistakes you ve made along the way 00 15 27 Sam Wilson And and things that you d say Hey this is the way you do it differently And also the way that you would do it for the good advice you received So yeah I love it Appreciate it Thank you for coming on today and sharing so much with us If our listeners wanna get in touch with you or learn more about you what is the best way to do that 00 15 39 Larry Pendleton Yes I appreciate Sam So I m available in all social networks It s typically Larry Penington CPA I m pretty sure my my link app would be in the show descriptions That s basically my digital business card Right right there My phone number 757 535-8592 Shoot a text Like I try to respond within 48 72 hours of texts and voicemails and emails as as well 00 16 04 Larry Pendleton But Facebook Instagram LinkedIn haven t tackled Twitter a little behind the times regarding that So but I m three three out of four I m now TikTok either 00 16 17 Sam Wilson I hear you I hear you Yeah those are platforms that I think for some of us have been harder to find the time to to invest into but certainly appreciate it 00 16 24 Sam Wilson Larry thank you for coming on the show today and yes of course we will link all of that there in the show notes So thank you again I do appreciate it Appreciate you Sam Click here to visit this podcast episode