Ep #156: Tax Strategies to Keep More of That Hard-Earned Cash Flow in Your Pocket and Away from Uncle Sam – with Craig Cody
September 27, 2017
Intro: [00:00:02] You’ve been searching for the best way to generate passive income in your life and heard that real estate is a great way to do it but you’re tired of all the so-called gurus who are all talk and no substance.
Kevin Bupp: [00:00:15] Get ready to celebrate because Kevin Bupp has spent 14 years successfully making it happen. This is the Real Estate Investing for Cash Flow podcast. Now. Here’s Kevin Bupp.
Kevin Bupp: [00:00:29] Hey guys Kevin Bupp here I want to walk me to another episode of the Real Estate Investing for Cash Flow podcast where our mission is to help you build and maintain massive amounts of cash flow through income producing real estate investments.
Kevin Bupp: [00:00:41] Our guest for this week’s show is certified tax coach certified public accountant and published author Craig Cody at today’s show we’re going to be speaking with Craig about both my favorite and my least favorite things in this world. Favorite one being real estate investing and my least favorite is taxes. But more specifically we’re going to go into detail on very specific tax strategies on real estate investing that can help you keep more of that hard earned money that you’ve been making into your pocket. So as an added bonus Craig is going to give you details on how you can snag a free copy of his book titled 10 biggest tax mistakes that cause business owners thousands but you’re gonna have to listen until the very end to find out how to grab that free copy. Ok before we go on the show Craig I’ve got a few laundry list items I want to quickly run through with you guys. First and foremost we’ve just got some crazy exciting things happen here at Sunrise Capital Investors which as you guys probably know by now is our investment arm. That is a mobile home park investment firm that we own and operate. We’re full time investors – I’m a full time investor – that is my business and we’ve got multiple deals in contract right now.
Kevin Bupp: [00:01:42] We launched the fund earlier this year and we are currently raising capital we’re looking for partners. If you’re an accredited investor and you have an interest in the mobile home park niche have an interest in higher than average returns. It’s an incredible niche to be invested in it both in a good market and even better in a down market. OK. It is probably one of the only if you want to call it recession proof it’s probably one of the only recession proof real estate asset classes that I know of. And so if you have any interest in what we’ve got going on here at Sunrise Capital wanna learn about our partnership opportunities. You can go to our website SunriseCapitalInvestors.com. You can even download our investment prospectus directly from our Web site. It’s a secure portal for our investors. You can create a username a password get access to our private placement memorandum our investment prospectus and even schedule a time via Calendar Link to talk to me or one of my partners about our opportunity. OK so SunriseCapitalInvestors.com and next up guys if you find yourself in the Tampa Bay area I’m based in Clearwater Florida. You hear me mention this each and every week probably. But I love meeting others that share passion for real estate investing.
Kevin Bupp: [00:02:47] And so if you’re that person what does that be mobile home parks. There could be anything and you find yourself in Tampa Bay anywhere here for business or pleasure whatever it might be. And you’ve got some extra time. Let me know when you’re coming. I’d love to coordinate the time to get together for you know beer coffee dinner lunch whatever you know whatever fits the schedule. You can shoot me an email directly my personal email address is Kevin@KevinBupp.com and that’s let me know when you’re coming and we’ll try to coordinate our schedules together and now guys. Without further ado I’d like to welcome our guests for today’s show Craig Cody. Craig how are you doing today but I’m doing great. Thank you very much for having me on. Yeah. Thanks for joining us and I guess first and foremost Craig if you would for those that I guess I don’t know who you are and just wanna learn a little bit more about your background maybe to take a few minutes on to pass the mike back to you and take a few minutes and thought this was a bit more about yourself and how you got started down this path of being a tax consultant and CPA.
Craig Cody: [00:03:38] Oh great. Yeah well I’m a certified public accountant I have a firm of ten I’m a certified tax coach and a business owner and actually a former New York City police lieutenant.
Craig Cody: [00:03:50] In addition to being a CPA for the past 15 years I’m a certified tax coach and what a certified tax coach does is where someone that looks to be proactive with clients. So most accountants CPA is very good at putting the right numbers in the right boxes but they’re reactive they’re looking in the rearview mirror what we look at is planning techniques and strategies to help our clients you know keep more of what they make. I’ve actually co-authored an amazon best selling secrets of a tax free life. And my latest book is what you mentioned the 10 most expensive tax mistakes that cost business owners thousands.
Kevin Bupp: [00:04:29] Okay okay very cool. And you know there’s I went on Amazon before we jump on the phone here and I mean there’s got to be thousands of books on taxes you know even even as niche as real estate investing and how to basically save on taxes write how to keep more money in your pocket and I counted at least 20 titles Craig that had the word tax free. Learn how to be tax free or tax free wealth… I mean there is a million different titles that had tax free. Is that even possible? Is it possible to be tax free?
Craig Cody: [00:04:59] Well I think it’s really legally probably not possible to be tax free. And to be able to live you know you need to make some money to live on and pay some taxes.
Craig Cody: [00:05:09] Sure you know short of having like a huge loss in real estate that gets carried back to 20 years or so to 20 years. But that’s not most people so you know tax free is a bit of a misnomer. But you know the idea there is you can plan to minimize your taxes and really keep more of what you make.
Kevin Bupp: [00:05:26] Mm hmm. So. Tell me about the right timing. I mean you kind of gave the definition of what a tax coach is but what’s the right timing for someone like me or any of the listeners that are tuning in that are either maybe just getting started as a real estate investor or already season and then are lots of different properties. I mean maybe I’m sure they probably have an account at this point in time but you know as you define tax code is completely different live a more proactive manner how you approach things and so what is the right timing to get involved with someone like yourself. I mean from a business owners perspective.
Craig Cody: [00:05:59] From a business owners perspective it’s today OK not not tomorrow not next year because in order to do real tax planning it takes some time and you need to be able to carry out different strategies so you can actually reap the rewards of your tax planning. So it’s not a whole lot when you go see your tax accountant or CPA in February March or April. There’s not a whole lot he can do for you. Then what if you go and you see him today and you talk to him about tax planning and he wants to be proactive he can help you today.
Craig Cody: [00:06:36] So unfortunately most accountants and most individuals business owners they think of tax planning as well I see my accountant and he tells me how much of an estimated payment to make. So tax compliant. There’s a difference between compliance and planning.
Kevin Bupp: [00:06:52] So in the planning stages does that also take into account like even Entity entity formation and know choosing the right type of whether it be an LLC or an S corpus Corp.. I mean is that something that is involved with being a tax coach.
Craig Cody: [00:07:06] Yes it’s definitely because you know too often what happens is a client goes may speak to their attorney and they say I’m going to do this you know create something for me and that attorney likes to create policies or maybe that an attorney likes to create you know corporations or S corporations.
Craig Cody: [00:07:23] And if they just took a little time and you communicated with your CPA and your CPA communicated with the attorney you could find. OK what’s the best of both worlds. How do we do this to get the best legal structure and also to get the best tax structure.
Kevin Bupp: [00:07:37] Got it got it. I want to talk a little bit more specifically about real estate. Again we’re a show that literally interviews for the most part real estate investors and a lot of you that tune in are real estate investors and so from a real estate investment standpoint give us some of the big benefits I mean of investing in real estate. I mean what are some of the things that maybe some listeners might not know or some of the big key benefits of actually buying real estate.
Craig Cody: [00:08:02] Well there’s obviously the asset appreciation which is a wonderful thing but that could take a few years and then the other thing is the non-cash expense called depreciation. So you know most expenses you actually have to lay money out to actually get the benefit of them whereas depreciation is is the way to come in which you write off assets and so a typical rental property is depreciated over twenty seven and half years. And there’s ways to actually accelerate that depreciation so you get more of an expense upfront than you do down the road. So that’s a wonderful thing about real estate. You have this non-cash expense.
Kevin Bupp: [00:08:40] Can you define depreciation. I mean again we’ve got we’ve got a little bit of everything across the board spectrum as far as experience so maybe for those are just getting started they might know the basics of what depreciation what that really means but what does it really mean in the bigger picture of investing real estate.
Craig Cody: [00:08:55] So from a tax perspective when you buy an asset and let’s just say it’s a it’s a rent residential rental property you you spend a hundred thousand dollars on a piece of property and it’s we’re just saying the building that’s the part that’s the principle. The government says you can’t expense that hundred thousand dollars in year one. You have to expense it over twenty seven and half years. So. every year you get the write off approximately four thousand dollars worth of depreciation expense towards that hundred thousand dollars. So instead of running it all off at once. So if it’s a seven year asset maybe that piece of equipment you write you off over seven years. And there are different types of bonus depreciation typically not involving real estate. But then there’s something called course segregation if we could talk about that juror. which course segregation is a way to accelerate that depreciation. So you put that hundred thousand dollar building and we’re not talking about the land we’re just talking about the structure. And normally you’d depreciate the whole thing over twenty seven and half years. But if we go and we have a study done and there’s studies that can be done very reasonable they break that building into all different parts we break it into three or property five year properties seven year property 15 year property. So what you wind up doing is you get more depreciation in the early years and less in the later years. And that dollar saved today is worth a lot more down the road than that dollar saved in 15 20 years.
Kevin Bupp: [00:10:21] Sure sure. Yeah that’s that’s that’s something that we don’t really take advantage of too much in the niche that we’re in because there’s really not what we’re depreciating for the most.
Kevin Bupp: [00:10:29] It is the you know the infrastructure of our mobile home parks which it literally equates to the roads and the war in the sewer lines and it’s already at a 15 year depreciation schedule so there’s not much of course segregation that we can do but as far as multifamily operators and I’m sure other types of commercial real estate it’s a very important strategy to consider. Correct. Right.
Kevin Bupp: [00:10:51] So what I won’t talk about deductions in others. I know that we’re getting kind of the basics here but I won’t talk about some of the less common deductions that you know a lot of people know that they can maybe write off part of their home office they can write off part of their expense of their automobile whether it be gas or mileage or the airfare hotels things like that self-help but are there any other less common deductions that might not be known to those that are tuning in.
Craig Cody: [00:11:15] Yes. So you do talk about the Home Office. All right. So what the Home Office does it opens up a whole nother arena for someone that has a legitimate home or office and certain rules you have to file to have a legitimate home office but if you have that then you can actually have a home athletic facility which can be used for your employees and their family. So which makes that pool in the backyard now becomes deductible expense that home gym and deductible expense and this is all stuff that’s allowed in the code.
Kevin Bupp: [00:11:48] If you have employees though?
Craig Cody: [00:11:48] You can be an employee or be a property manager or something like that.
Craig Cody: [00:11:59] So typically with some planning you could you know make sure that you fit that criteria. So. And the second thing is that you know failing to plan people don’t take the time to plan they’re going to buy our vehicle and they spend a lot more time researching it than researching ways that they could actually save on taxes. They don’t they don’t they’re concerned about calling their CPA cause he’s going to send a bill you know versus taking a little time and communicating with him and figuring out OK well maybe it’ll cost me a couple dollars but I’ll save a lot of dollars.
Kevin Bupp: [00:12:34] I want to talk more about the pool. This is this is actually interesting topic because I’m building a house right now Craig and so and I think we’re putting a pool in so that’s an there and I’m and I’ve got a literally a dedicated home office that I’m building specifically to where we have a main office. But I’ve got my own LLC which I act you know that literally is the owner of the different places that we are and that’s one of the members at least. And so in that scenario I could essentially write off a portion or all I guess of that pool expenses that what you’re saying?
Craig Cody: [00:13:03] That’s exactly what I’m saying. And the code allows for it.
Kevin Bupp: [00:13:05] Interesting. I never knew about that one. That’s pretty cool.
Craig Cody: [00:13:08] And that’s a that’s a really nice one. OK. It also goes for a home gym if you have a home gym.
Kevin Bupp: [00:13:19] I want to talk about… It’s not a fun topic, but I want to talk about death and I want to talk about how tax code applies to us in going back to being a real estate investor. And I want to talk to you about the the consequences that occur as far as we own you know we own real estate investments and we pass away what happens with that number one assuming that we have an estate plan in place. But as far as from a taxation standpoint what happens when we pass and our heirs get our property as far as taxation is concerned. OK.
Craig Cody: [00:13:52] So let’s we get what we call step up in basis if it’s done correctly so let’s kind of talk about that. You own. Well let’s just say you own a building that your basis in that building it’s been depreciated that maybe a basis is 50 thousand dollars on that building but it’s worth five hundred thousand dollars today if you own that inside of your LLC when you die that building gets a step up in basis to the value today which is five hundred thousand. Your heirs sell it tomorrow and they basically have no tax. But the problem we see a lot is where people have those pieces of property and they have them inside of corporations. And the problem when it’s inside of a corporation is typically the real estate doesn’t get a step up in basis. The corporation gets the business and very rarely do you want to buy somebody corporation. You want to buy their assets because if you buy the corporation you could be on the hook for some future liabilities. So if they sell the asset inside they don’t get a step up in basis and now we have this whole tax ramification that they wouldn’t have it if it was done properly which took a little bit of planning.
Kevin Bupp: [00:15:03] Interesting. Go ahead.
Craig Cody: [00:15:07] That it a mistake. We see you know very often. Very often.
Kevin Bupp: [00:15:12] I mean do people even use I mean nowadays is it come to see real estate investors use like C-Corps as their entity of choice or that’s kind of like that’s kind of you two or three decades ago common before LLC became a lot more popular.
Craig Cody: [00:15:29] C-Corps are rare, but we see them. S-Corps are not that rare, and you don’t get a step up in the S-Corp.
Kevin Bupp: [00:15:38] I don’t want I don’t want to fall off the deep end here. But I mean what are what would be one of the reasons why someone would have actually would form a escort versus a an LLC and I’m not talking strictly from a real estate investment perspective.
Craig Cody: [00:15:51] I would pretty much say no planning involved. Sometimes they form themselves sometimes they don’t really have a real conversation with the attorney.
Kevin Bupp: [00:15:59] Gotcha.
Kevin Bupp: [00:16:01] You know there’s not many reasons why.
Craig Cody: [00:16:05] There’s usually not a good usually not a good reason every once in a while you know if its foreign owned, then is different. Sure. But for the most part there’s usually not a good reason.
Kevin Bupp: [00:16:14] Ok. How about like-kind, I know we’re kind of all over the board here but there’s so many topics where we can go and there’s a lot I want to cover here in this short time we have together but as far as ten thirty one exchanges are concerned I think most everybody probably knows what a 1031 tax-deferred exchange is. I mean, is that something that your firm advises on as well? I know that you guys aren’t probably an intermediary but is that something that you have a lot of knowledge in?
Craig Cody: [00:16:40] Yeah we’ve been involved in a whole lot of them over the last say probably 15 years. So yeah. And sometimes we see their accounted for incorrectly too you know a big mistake you see ten thirty ones as they start the ten thirty one in October ten thirty one fails in March and then they wind up picking it up in October on their income tax return and they probably didn’t make estimated payments. They get these big penalties retroactive. And when really it should have been picked up in the following year and it could be you know penalties. You know we had one where it was it was a big sell and you know wound up having to go back and amend it and say decline a lot of money and penalties.
Kevin Bupp: [00:17:24] So there is a way to set up the 10 30 one 2 if it’s carrying over to the following year there’s a way to settle up so that it doesn’t become retroactive to the bank.
Craig Cody: [00:17:31] Well if it’s if it’s done correctly it flows and it’s fails it flows into the taxes of the following year not the preceding year. Gotcha gotcha. Let’s remember you don’t have access to that money.
Kevin Bupp: [00:17:43] Yeah yeah. Tell me. I mean what are some of the things that we need to know I mean I want you to put yourself in the shoes of your giving. You know you’re giving you’ve got 10 minutes or 15 minutes to give somebody anything we haven’t covered so far but you’re in the room for fairly new real estate investors maybe a few that are somewhat seasoned but you know fairly new. What other advice would you give in a short period of time that you feel is incredibly relevant and important to know assuming that we can? We only have 10 or 15 minutes left to chat.
Craig Cody: [00:18:11] The most important thing is to communicate with you professional as you should. If you’re in this business and it’s that business you should have a team of professionals. You should have been an attorney. You should have your advise that you should have your CPA and they should be part of your team and you should be communicating with that team. All right. You ever use them to get the value out of them. So some other things that from a planning perspective that people should be doing. You know there’s you know if you want real estate you can you know have companies that manage a real estate you could hire your kids inside of those companies to manage your real estate and then you know like six thousand dollars is not taxable. So if you do it correctly and you have to document everything Tax Court said you could hire your kid as early as age 7. We typically don’t recommend that. I like to see 11 and 12 year olds or older and then let’s just say you kid goes to a private school in Florida. You can now make that private school tax deductible because you pay your student your child the money goes into his bank account and then the draft the monthly draft and school comes out of his account. So you’ve made a non deductible expense deductible expense.
Kevin Bupp: [00:19:24] Interesting.
Craig Cody: [00:19:26] Another thing is missing medical benefit. So you know people with large out-of-pocket whether it’s braces or you know older people when they have a lot of cosmetic stuff done you know can set up a medical expense reimbursement plan and you know now all of a sudden you could say send that ten or fifteen thousand dollar medical expense that you really would not get the benefit of and make it a hundred percent deductible.
Kevin Bupp: [00:19:50] Interesting. I didn’t know that either. I’m learning all kinds of new stuff.
Craig Cody: [00:19:57] Oh good stuff. All good stuff.
Kevin Bupp: [00:19:59] What are some qualifying questions that if we’re going to we’re going to go out and we’re going to seek a tax professional a tax coach what kind of questions do we need to be asking to qualify this individual to make sure the right fit for us?
Craig Cody: [00:20:14] Well you want to talk to them about you know how often do you communicate with your clients. OK.
Kevin Bupp: [00:20:22] Is there a set schedule typically? I mean what would your answer be if I ask you that question?
Craig Cody: [00:20:26] We like to communicate with our you know clients on a regular basis and regular could be monthly. With the advent with the advent of Skype and Zoom you know you’re not driving somewhere for a half hour sitting down with somebody and driving back. You’re going into your office closing the door and you’re having a 15 minute 20 minute 30 minute phone call and you’re seeing what’s going on and you can get a lot of value out of that. So communication is really the most important thing. You know obviously you want to make sure that the person is you know in my case you wanted to be a CPA. OK. Or an enrolled agent or a somebody that knows what he’s doing has experience in the real estate field with your in real estate field. Recommendations. That’s always a good thing.
Kevin Bupp: [00:21:14] I was going to ask. You know like you bring up the point of making sure that they have experience in a real estate field. I mean what would be validation for experience? Like I’ve you know 40 percent of my clients are in a real estate space or we’ve got a tax accountant in our firm that you know 80 percent of his clients. It’s all he does, or what is the right qualification as far as real estate specific experience from a taxation standpoint?
Craig Cody: [00:21:38] I think somebody that’s been involved in that field for a while and somebody is going to make you feel comfortable that they know that they do have that experience. And let’s face it the proof is going to be in the pudding. And unless you talk to references it’s you’re going to have to really trust your gut and feel that OK this guy knows what he’s doing. He talks a good talk. So let’s hope he knows what he’s doing.
Kevin Bupp: [00:22:02] Absolutely. I want to talk about your book a little bit Craig the 10 biggest mistakes maybe give us like three of them but then after you’re done giving us three three of the 10 mistakes share with our listeners how they can grab that free copy I told they had to wait to the end so that the suspense is hanging and so what’s what you ship those three mistakes and you can tell how they can get that free copy.
Craig Cody: [00:22:23] So what we talked about a couple of these already so I’m going to run through a bunch of them we talk about failing to plan OK. We talked about having the room business entity. We talked about missing family employment. Can you hire kids? Can you hire your wife? A medical expense reimbursement plan medical benefits. Missing a home office. And what what does a Home Office open up to you? All right. Car and Truck expenses. Meals and entertainment. Well those are a number of things and you know a little plug here – you’re missing my help.
Kevin Bupp: [00:22:58] What was that again? What was the last one?
Craig Cody: [00:22:59] Missing my help.
Kevin Bupp: [00:23:02] Missing your help?
Craig Cody: [00:23:04] Yes. Missing the help of a CPA.
Kevin Bupp: [00:23:06] Oh! Got ya. Got ya. That one went right over my head Chris. Sorry about that.
Craig Cody: [00:23:14] Sometimes we talk a little bit faster up here in the north.
Kevin Bupp: [00:23:19] I’m from Pennsylvania. But I’m not as fast as you. You’re from Boston right
Craig Cody: [00:23:23] New York New York New York.
Kevin Bupp: [00:23:25] Gotcha gotcha. Yeah you guys a little faster on Pennsylvanians. So how can how can we grab a free copy of that book Craig?
Craig Cody: [00:23:32] Ok so they can go to a Web site. We have a special you URL for your listeners which is going to be a www,CraigCodyandCompany.com/REIcashflow.
Kevin Bupp: [00:23:47] OK.
Craig Cody: [00:23:48] So that’s real estate investing cash flow. So it’s REI cash flow and they can fill out the link and we’ll send you actually a free paper copy of our book.
Kevin Bupp: [00:23:56] Fantastic. Guys I’ll put that in the show notes as well so you’ll be able to grab it from there if you can’t remember it. I know my memory is horrible so I forget that in a heartbeat but I will put the show notes for you. So Craig right now we enter into why I like to call the Golden Nugget segment the show and this is where we’re going to kind of wrap things up for the day. But I’d like to ask if you had just one final last golden nugget of advice or wisdom that you could leave with our listeners that may inspire and motivate them as they progressed in the real estate investing career what would that one last golden nugget be?
Craig Cody: [00:24:22] Communication assembled that team and communicate with them. You’ll get so much out of it. It will really pay great dividends.
Kevin Bupp: [00:24:30] Yeah communication really is the key to anything right to any any successful relationship whether it be professional or personal whether it be between you and your business partner you or your spouse so your significant other. I mean communication is the key to everything. And I think that’s that’s an incredible piece of. Simple advice but incredibly powerful. So Craig really appreciate your time today. Really appreciate it come on the show and for those that are out there listening and I want to learn more about Craig and his company.
Kevin Bupp: [00:24:58] You could visit him at CraigCodyandCompany.com again that’s Kevin Bupp: CraigCodyandCompany.com, and Craig just one last time tell our listeners how he can grab that free copy of that book.
Craig Cody: [00:25:08] It’s www.CraigCodyandCompany.com/REIcashflow.
Kevin Bupp: [00:25:15] You got it Craig. Thank you so much you have a fantastic day. Talk to you soon.
Kevin Bupp: [00:25:19] Thank you for having me. Take care.
Outro: [00:25:21] Congratulations. Now you’ve got more of the best tricks of the trade in building massive amounts of passive income from real estate. For more amazing resources visit RealEstateInvestingforCashFlow.com. and we’ll see you next Monday morning.
Our guest for this week’s show is certified tax coach, certified public account, and published author, Craig Cody
In today’s show, we’re going to be speaking with Craig about both my favorite and least favorite things in this world, real estate investing and taxes, but more specifically, we’re going to go into detail on tax strategies specific to real estate investing that can help keep more of that hard-earned money in your pocket. As an added bonus Craig is going to give you details on how you can snag a free copy of his book titled “10 Biggest Tax Mistakes That Cost Business Owners Thousands” but you’ll need to listen in until the end to find out how to grab your free copy
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