On the show today we have… Top 5 Tax Planning Tips for Investors with Natalie Kolodij!
Listen on: Apple Podcasts | Stitcher | Spotify
Show Links:
– Natalie’s website
– Kolodij Tax Facebook
– Natalie’s last podcast SIC90
– Tarl and Grace Yarber are doing August 6th – 8th for the PNW Big Badass Real Estate Wealth Expo. Best one I’ve ever been to!
Show notes for Top 5 Tax Planning Tips for Investors with Natalie Kolodij!
The Vantastic Life is…
– is in Enumclaw WA!
Checkout the Get Better Project, and you can get 30 days free by clicking here!
Julie
We would like to welcome Natalie back onto the show, and you need to know Natalie!
I loved vacationing out in the Carolina’s last year.
I’ve heard that people are making the exodus out of the city to smaller areas.
Natalie
Yeah, that’s exactly what I did, and why I decided to start with Charlotte.
Julie
Awesome! We’ll have to hangout when I’m back out in that direction and you should let us know if you’re in Seattle.
What is the name of your dog?
Natalie
Her name is Minny Moo 🙂 because she looks like a minny cow.
Julie
You have to checkout our last podcast with Natalie on SIC90.
Let’s get started, are you doing anything with BiggerPockets?
Natalie
Yes, I’m a moderator on there, and I’m contributing to their blog.
Julie
We are going to talk about top tax planning strategies. Let’s start with house hacking.
Natalie
Yeah, the problem is that this get used interchangeably. People will rent out a bedroom, or they will buy a multi family and live in one of the units. Tax-wise this could be a little different.
Julie
Can I add a third… that is living in a house while you fix it up. And you can talk about how that would change for taxes.
Natalie
If you do a live in flip like that… if you own it for 2 of the last 5 years… you don’t have to pay taxes on it.
Julie
One of my best clients does that.
Natalie
That is a great strategy!
If you rent rooms in your own homes… it doesn’t interfere with your 121 exclusions at all.
If you buy a multi plex… when you move out… only 25% of that gain wouldn’t be taxable. Only your unit would qualify for the tax free sale.
Or you could do a 1031 exchange with the other units that you have.
Julie
Wow, I’ve never heard anyone say that before. I didn’t realize that you could exchange 3/4 units in a 4 plex.
Natalie
Yeah, you might consider doing a house hack in a single family because you can get a better tax advantage that way.
Julie
I’ve been talking with my girls about doing that. Man, they are going to have it way better than I did.
Natalie
If you’re renting units in your house you can only depreciate the units that you’re renting. And you can deduct 50% for shared spaces. ‘
Julie
Do you have a checklist or guide that we can share?
Natalie
Yes. I will have that in the next couple of weeks. It will show you how to setup your house hack for taxes.
Any assets with a life of less than 20 years can do a bonus depreciation, and you can deduct them all at once. You just need to separate them out.
The first is your appliances.
Carpeting is another.
Kitchen cabinets.
Counter tops.
Julie
Let me ask you… let’s say that you have your primary, then you move out and keep that as the rental.
Can you start deduction of these things.
Natalie
Track everything even as it’s your primary so you have an idea of getting it into “rental shape”.
Julie
Anything if it’s a condo?
Natalie
It shouldn’t change it too much.
It’s only if you’re doing a small multi family… if you put a roof on it… you only get to write off 3/4 of it.
Julie
So if you’re living in 1 out of 4 units and you put a roof on… then you move out 2 years later… you can still give your CPA that roof info?
Natalie
Yeah, you would add that to your cost that made it a livable rental unit.
Julie
Can you go back an amend these things if people missed out?
Natalie
It depends on what’s wrong. If it’s been wrong for 2 or more years, there’s a form you can fill out. Talk to your tax professional. It might require an amendment or a form.
I will tell people if it’s worth it or not. Sometimes you have to if it’s going to be wrong on all of your upcoming tax returns.
Julie
I’ll point out that if your’e own CPA isn’t asking you these questions then you should be switching to someone that understands these things.
These are all such awesome tips.
Natalie
You are legally able to employee your own children, and file an IRA for them, and pay them almost 18k tax free. What you’re doing is shifting money within your own household.
You could do this for school payments.
There’s not a set age. You have to checkout your state for labor laws.
But you have to pay them a reasonable amount, and they have to actually do the work.
You just want to make sure you’re being reasonable about it.
Once they get older you can pay them more. You can just say from day 1 you’re going to max it out.
This is a great strategy!
Julie
Do you have to be any kind of entity?
Natalie
You can be a sole proprietor or single member LLC. You can get an EIN and get it to work.
Talk to your CPA about it to make sure you’re doing it the right way.
Julie
If you took advantage of all of these things, does it put a spotlight on you for an audit?
Natalie
Not really.
Make sure you’re working with someone that is up to date with all of these things, and knows what they are looking for.
You’re tax person shouldn’t take a position on something that isn’t defendable.
Julie
How about planning for rental losses.
Natalie
This is very important. Your rentals have passive losses, but the IRA has a small exclusion. If you make 150k or less, you can use them.
Listen in to the podcast for the specifics.
If you’re income is above 150k your losses get stuck. You don’t lose them but you might not get a direct benefit each year.
For these losses, you still want to maximize them because you’ll get to use them at some point. When you sell a rental if it’s had all of the losses they become available in the year you sell it to offset your sale gain.
Julie
People need to think about that. How do we roll in the 1031 into that?
Natalie
That’s what I tell people, you need to think about a few years down the road. You could plan to have a tax free sale every few years. You can plan it out.
Keep an eye on those rental loses and see how much you have saved up with each property.
Julie
Let’s also remind everyone that we want to keep in mind that you need to protect your ability to borrow. Making sure we are still financially.
Natalie
Yeah, absolutely! There are things that you should add back. Your lender should add things back in.
It really has to be planned a few years out.
Julie
I think this is getting talked about more. The biggest players, the last thing they do is the tax planning.
We love Natalie because she spells it out in a way that is not complicated.
Anything else for rental loss?
Natalie
Part of the cares act, you can carry your net operating losses backwards, but it’s important to note that a lot of the articles weren’t clear. Passive losses are the same as net operating losses. Those are a business loss.
If you’re not a real estate professional there’s a chance that this won’t apply to you.
Julie
Is it possible for other professionals to apply?
Natalie
You need to spend 750 hours a year in real estate and not more hours in another profession.
Another tidbit is, if you’re married, only one of you has to qualify. Then you can deduct all of your rental losses.
Julie
So, if you love your day job you must also love your spouse?
Natalie
Hahaha!!! Yes, absolutely!
Your everyday expenses… if all you have is a W2 there’s not a lot you can do. But once you start investing in real estate you can start writing off a portion of these things. Internet, phone, mileage, REiA membership. A lot of times people don’t think about these things. Always ask your tax person.
Julie
There you go, join Seattle Investors Club, listen to all of our podcasts, and write it off :-).
Anything else?
Natalie
Things are crazy right now with the Cares Act, so be cautious and run things by your accountant.
Julie
And I’ll add on top, the forbearance stuff that people are talking about right now.
Stay up to date with the Seattle Investors Club Facebook group… we talk about this all the time.
Natalie
A lot of the info that comes out right away is just not from the best sources. The best sources are reading and analyzing before they talk about it.
Julie
Even on King 5 News they blasted out a bunch of forbearance stuff that was so irresponsible.
We will have Natalie back on again and again!
What’s the best place for people to follow you? You post all of these great tidbits.
Natalie
KolodijTax on Facebook is the best place. I take key points and plant little tidbits.
We work with clients internationally!
Julie
Good stuff guys!
Also listen to podcast #90 for some serious nuggets, including how to test if your accountant is doing things right.
Every Thursday at 11:30am PST you are welcome to join us on our loose mastermind and peer to peer group. We have all kind of real estate professionals. Go to https://meetup.com/Seattleinvestorsclub and you’ll get all set if you subscribe.
Also join our email and Facebook.
Lately, Tarl and Grace Yarber are doing August 6th – 8th for the PNW Big Badass Real Estate Wealth Expo. Best one I’ve ever been to!
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