How to Be a Real Estate Professional & Save on Taxes with Gina Roth
• (4:30) How do you recommend selling your primary residence and ensure you don’t pay taxes?
– You have to live in it as your primary residence for two out of the trailing five years
– Once you complete this, it is free capital gains Married: $500,000 exclusion
– Single: $250,000 exclusion
– These can include any improvements to the property
• (7:15) Requirements to be a Real Estate Professional for tax purposes
– You must spend 750 hours/year doing some sort of real estate duties (brokerage sales counts towards this)
– Documentation of hours is a necessity
• (17:15) Real Estate & Taxes
– Passive income from real estate can often be offset with income from your main source of income
– Depreciation is your superhero in real estate!
– You can make your money from your main source of income, all of that income gets taxed as ordinary, and the real estate can be used as depreciation to offset some of that main source of income
• (21:00) Gina’s Advice
– If someone has the ability & willingness to keep their first starter home, it can be a great tool to use as rental income in the future
– It can be a huge wealth builder, great for diversification, & helps with cash flow in retirement because you won’t have to touch your nest egg
• (26:30) Multiplex
– They are very favorable because you have multiple tenants paying rent at the same time. If one person moves out, there is still some cash flows
– Less maintenance typically on a multiplex
• (28:15) Other Real Estate Licenses
– Active in Real Estate License: For people that make less than $150,000 – Material Participation: Not having a rental unit, but a business
• (29:00) Short Term Rental Benefits
– A short-term rentals are anything that can qualify for anything less than 30 days of occupation
– You can classify any losses associated with the business as offset to your ordinary income (you must own a short-term rental, you have to be material participation, & documentation!)
– There are many tools today that allow you to manage short term rentals (even out of state) You have to be the one who is property manager and must document everything
• (40:26) Breckendrige, CO has made it very complicated by putting different zone/resort zones. So, to buy a short-term rental, you would need a very qualified agent right now
– Some alternatives to Breckenridge could be Keystone and Grand County
• (46:20) Gina’s Book Recommendations/Resources
– Rich Dad Poor Dad by Robert T. Kiyosaki
– Short-Term Rental, Long-Term Wealth by Joseph Bafia
• The Seven Tests of Participation (Material Participation Tests: Definition, IRS Rules, Vs. Passive (investopedia.com))
1. You participate in the activity at least 500 hours during the year.
2. Your participation constitutes substantially all the participation for the year by anyone, including nonowners.
3. You participate more than 100 hours and as much or more than any other person.
4. The activity is a “significant participation activity” — that is, you participate more than 100 hours — but you participate less than one or more other people yet your participation in all your significant participation activities for the year totals more than 500 hours.
5. You materially participated in the activity for any five of the preceding 10 tax years.
6. The activity is a personal service activity in which you materially participated in any three previous tax years.
7. Regardless of the number of hours, based on all the facts and circumstances, you participate in the activity on a regular, continuous, and substantial basis.