In today’s episode of the Share The Wealth Show, Verline Davis takes us on a journey through her career as a tax brain surgeon, property manager, and real estate investor.
Tune in as she shares her story and provides valuable insights into how she got started in these fields and achieved success.
Vearline Davis is a Tax Strategist who helps clients with Advanced Tax Planning. Her journey began when she purchased several rental properties and was surprised to find out during tax time that she was not considered a Real Estate Professional and had very few write-offs.
After years of research and from the experience of her previous CPA, she learned that not all tax professionals are created equal. Verline believes in the power of tax planning and enjoys seeing her clients transform and achieve financial success, and improves their overall well-being because they do not have that added stress running in the background.
Verline’s journey is sure to inspire and educate. So sit back, relax, and let’s dive into Verline’s fascinating story.
[01:17 – 12:13] Who is Verline?
How she got into these fields (Property Management, Tax planning, and Real estate Investing)
She shares her experience with her previous CPA which gave her a lot of trouble.
The realization that not all CPAs are alike.
How she financed her first properties
Strategy in purchasing properties
[12:14 -19:29] Next Phase of Verline’s Journey
How she started as Property Manager handling multifamily properties
How she was hungry to dig in and learn more about the back end of property management on a tax level.
[19:30 – 25:13] Verline as a Brain Surgeon
529 Alternative / 529 College Fund
She teamed up with different CPA’s
Tax Strategy for W2 employees and start-up business owners
[25:14 – 37:16] Real Estate Professional Status
Two tests to become RE Professional
Work and participate 750 hrs a year
short term rental status
[37:17 – 38:07] Closing Segment
Watch out for part 2 of our conversation with Verline!
“I came to the realization, that not all tax professionals or CPAs are created equally.” – Verline Davis
Connect with Verline!
Let’s get connected!
[00: 00: 00 – 00: 00: 40]
At the end of the year, I got to talk with my CPA who I trusted. You know, she was seasoned. She charged a lot, so I thought she knew what she was doing. Here I was listening to Robert Kiyosaki telling me to do all these things, and I was taking his step-by-step guidance. And then over here, I get with the CPA, and she was like, no, you can’t do that. You can’t write it off. You’re doing everything wrong. So by default, that got me in a lot of trouble. She gave me a huge tax bill to the tune of about $70,000 for that year. Aside from her bill that I, you know, her invoice that was like $1,300, $1,500 per return. It was weird, but.
[00: 00: 41 – 00: 01: 15]
Welcome to the Share the Wealth Show, where minority professionals can learn to escape the racial wealth gap and catapult themselves into abundance. Your host, Nicole Pendergrass, grew her net worth from being negative to multiple six figures. Join her on her investigative mission to expose secret strategies of the wealthy so we can all have the tools needed to build the life and legacy we were created to possess. Now it’s time for the show.
[00: 01: 16 – 00: 02: 27]
Hi everyone welcome back for another episode of the share the wealth show. This is the show where we talk about the strategies to grow protect and build minority wealth, and today I have with me, Miss Berlin Davis and I just can’t wait to jump into your story and really dig out because you’re doing so many things and every piece of it is like critical like I just, I don’t even know. you’re handling all this stuff. People ask me how I do all the stuff that I do, but everything to me just seems so intentional with everything is kind of interconnected and that doesn’t normally happen for a lot of people. So I know people have no clue what I’m talking about, but I’m just going to really quickly go over your bio. You are a tax strategist and your journey began by default. You read rich dad, poor dad, which is like, you know, majority of us who get started and trying to do something different. And you were determined to break out of the nine to five lifestyle and get to the other side, the other quadrant of investor.
[00: 02: 28 – 00: 03: 44]
So, your bio is just so okay. You became a landlord, you’re a real estate professional. I know you also, I’m just going to go from the LinkedIn bio because it’s easier for me to comprehend. Property manager, investor, realtor, and now tax strategist. Wow, that’s crazy. There’s so many different pieces, but they all fit together. How did that come about? And what was first kind of going, instead of me reading this story, why don’t you tell everyone how you kind of got into all those different fields. Absolutely. And thank you, Nicole, for having such a platform. I want to congratulate you and thank you on that because it’s much needed. Believe me, this is like gold, like gold. If anyone hears this, and if you just sit, there’s so much information out there, but it’s kind of watered down and its misinformation, actually, right? So we’re being led astray in so many different areas. But you have a podcast too, as well, though, right? Yes, I do. Yes, I definitely have not gotten to check that out, but that is on my list because that already sounds like something I need to listen to like every day. Right. Okay, go ahead. I’m sorry. Go ahead.
[00: 03: 45 – 00: 04: 40]
Yeah. So you wanted to know about my background and my background, like I said, was by default. So what happened was some years ago, I was reading The Rich Dad Poor Dad. I was going to all of those seminars in New York for real estate investors and whatnot. And I’m like, I got to do this. I got to figure out a way to break through. And I was a young single mom at that time. So I was like, I gotta get to the other side. So I did, I said, let me go out and purchase some properties, right? Let me buy them outright cash. And I did, I bought maybe four at one time. And I was excited. I was like, this is what Robert Kiyosaki said to do. I’m doing it, right? So I was doing that, the properties were cash flowing. Some things in there I was doing wrong, but I didn’t know, you don’t know what you don’t know, which was I was using my own money, which was a no-no, I know that now. And I can teach others that. But then at the end of the year, I got to talk with my CPA who I trusted. You know, she was seasoned. She charged a lot, so I thought she knew what she was doing.
[00: 04: 41 – 00: 05: 31]
And you know, I kept running into these pitfalls when it was time to file my taxes, but it was like, you can’t do that. You can’t write off that home office, even though you don’t live there at all. It was just dedicated for me going from, you know, New York to New Jersey to, you know. upstate New York or Pennsylvania. It was a midpoint. She said, you can’t write that off. So I’m like, okay, a CPS is telling me this, so I better believe her. She knows the tax code. She knows I don’t wanna trigger audit. You’re not a real estate professional, and which we could talk about a little later, the definition of a real estate professional is someone that does it, and they don’t have anything else that they’re doing. So that makes you a real estate professional by default. And I was not working. This was what I was doing, you know, every day of my life. And she said, you can’t do that. And she kept telling me these reasons. I cannot, I cannot, I cannot.
[00: 05: 32 – 00: 06: 40]
And like I told you in the summary that I, that I wrote to you, like my balloon was, it was going down. Like I was losing, yeah, I was losing steam because here I was listening to Robert Kiyosaki telling me to do all of these things. And I was taking his step-by-step guidance. And then over here, I get with the CPA and she was like, no, you can’t do that. You can’t write it off. You’re doing everything wrong. So by default that got me in a lot of trouble. She gave me a huge tax bill to the tune of about $70,000 for that year. Aside from her bill that I, you know, her invoice that was like 13, $1,500 per return. It was weird, but yeah. So I kept saying, you know, there has to be more. And I didn’t know what that more was at that time. I didn’t know what that more was. But I was like, this is not it because Robert Kiyosaki and the Donald Trumps and the people that are, you know, heavy into real estate, they wouldn’t make it the way they do if this was the case. Right. So I just studied and I kept meeting more CPAs and, you know, kind of evaluate and analyze and asking a lot of questions, right. Questions on questions on questions.
[00: 06: 41 – 00: 07: 40]
And I came to the realization that not all tax professionals. or CPAs are created equally. They don’t think alike; they don’t study the same things. So what I realized was I was maxing out at somebody else’s ceiling, right? What they knew, their level of, you know, using strategies or going further or, you know, updating their skillset. I was maxing out at that point. So I was like, you know, there’s more. So like you said, I do a lot, but this came in… pieces. I didn’t jump out there and say. Hey, I’m a tax strategist now. So I had to keep learning and learning and learning. Um, and then do you want me to continue? I can continue from what took me into property management. Okay. Wait, wait, I do want you to continue, but really quick, just before we move on, you said you bought four properties like out front, like how did you finance that? If you were using your own money, you pay cash.
[00: 07: 41 – 00: 09: 00]
Yeah, I had cash. I had cash. You just saved up. enough for four properties? Like how do you do that? I had savings saved up and up in this area where I was at it was upstate New York very close to Albany or in Pennsylvania Pittsburgh you could find properties for you know sixty thousand fifty thousand thirty thousand and these are cash flowing properties right that’s been some time ago and I haven’t checked the market recently in that area but this was an area where you can purchase these properties like this and they cash flowing and they already have tenants in them. So yeah, I don’t know if that’s the same story, but hey, jump on it. You know, there was little areas like, on the outskirts of Albany, there’s little pockets and I don’t know if it still exists, but I managed to look up and find some properties up there. And I got in a network up there with some other real estate professionals. And it was kind of like, hey, I don’t want this property. You want it? And then we were just passing properties off to each other like that. Yeah. That’s what I was wondering, like how’d you even… start that search? Like if you were living in that area or were you in New York City? How did you have the confidence to just jump in and buy properties that either weren’t by you or buy so many at one time? Because that’s the hurdle I think a lot of people have. Like they’re scared to make that actual move and take action. Right, yeah.
[00: 09: 01 – 00: 10: 22]
And when I was going to these seminars, that’s a great question. I knew that the strategies that they would teach me in these books I knew that I’m going to either have to move far, you know, downstate somewhere. Or so I said, let me try within New York state. Let me broaden my search. And that’s where I found like a pot of gold in New York state, not the city. Yeah. I have heard about Albany area and the prices being pretty low and reasonable. But then it’s also one of those areas where like, you need to know what’s going on in the area could be block by block. Like it could be rough in some spots, but. I mean, when you’re in New York City, nothing else is pretty rough. Right. Exactly. I was like, let’s go scare you. Yeah, exactly. OK. But yeah, so I think that having the courage to take what you are learning, to plug into other networks, and just not be afraid to take action and just get started, that’s. That’s fantastic way. Like you never get to that next phase until you start taking steps. Cause you don’t know, like you thought you were going in this direction and buying these single family properties. And then you end up, you know, in other areas, but that probably wouldn’t have happened if you didn’t start there first. You know what I mean?
[00: 10: 23 – 00: 12: 07]
Listen, I know you’ve been digging in, studying everything you can, listening to all the podcasts, reading all the books, even going to meetups. You basically have a degree from YouTube University, right? But you still feel stuck. You don’t know how to actually implement what you’ve learned. You’re nervous about taking the next step. And with the economy like it is, especially with the downturn looming, you’re even thinking maybe you should just wait it out. I know you’ve heard that real estate makes more millionaires than any other asset class, but you know what else? More millionaires are made in the downturn than any other market cycle. So now is the perfect time to jump in and really get started. I’m super bullish on growing my portfolio this year, and I don’t want you to miss out. So I’ve decided to start the Micro Family Investing Accelerator. This is a mentorship program where I personally guide you through my five proprietary pillars so you can learn how to buy your first commercial multifamily property and scale while not biting off more than you can chew by focusing on five to 20 units. That’s what I call Micro Family. And so you can also get hands-on guidance from an experienced micro-family investor, me, who’s been right where you are, nervous about how to start. And so you can also create the cash flow needed to give you freedom and options to build the abundant life that you were destined to live. So I’ll be limiting the first cohort to five students because they’ll have direct access to me and I will be heavily invested in their success. If you’re ready to grab 2023 by the horns, schedule a free discovery call with me today. The link is in the show notes. Let’s hit the ground running in 2023. I look forward to seeing you on the inside and now let’s get back to the show.
[00: 12: 08 – 00: 13: 29]
So, all right, you could go ahead and continue with the next phase of the journey. Yeah, so then I moved from up north to Florida. So this opened up another, you know, set of opportunities here, right? I did have… a rock bottom time in my life, you know, going through a divorce and, you know, struggling and no family here in Florida. I was like a lone wolf down here. So I had to figure things out quickly. And what I did at that time was I got into property management because I had already had that, that skillset from up North. So I was like, okay, let me, you know, use this down here. And I got into property management, um, you know, in a multifamily side. So a thousand unit properties, managing them, operating them. And I’ve just loved it so much. It’s still a piece of me. It’s my heart, right? So I got so good in doing that, that now companies usually call me and when they having issues with something that’s not right with the asset. So I can come in and I’m usually within 30 to 45 days able to kind of figure out what is happening with this property. Is it a staffing issue? Is it, you know, our marketing? Is it maintenance? Is it, you know, what are the rents like? So I get in. fairly quickly as a consultant, I’m able to pinpoint what’s happening on site and give them a devised plan to move forward to fix those issues.
[00: 13: 30 – 00: 14: 37]
So that was the property management side of it, right? So I feel really good and confident that I can jump on any asset and kind of evaluate what’s happening, but I want it more. I want it more than that. I wanted to know how do we break this down with tax strategies? How do we run cost segregations? How do we bonus depreciate these assets out? So I had a need to, again, hop again, because I wanted to know that side of things, right? Yes, I could run a property. That’s cool. But I wanted to know the back end of it. So that’s what led me into the tax side of things, like seeing how we break down these assets on a tax level. Yeah. Wow, this is kind of crazy. And the fact that I already know you’re a different breed because you actually like property management. That’s like… There’s a thankless job, right? You have to deal, most of the time people are calling you when there’s issues, right? So you’re like constant fire putter outer. Yes. I don’t know if that’s a word, but anyway. But yeah, so, and you just found the joy in that. And that just speaks to your personality and certain traits.
[00: 14: 38 – 00: 16: 52]
And that’s where everyone has different skillsets, right? And things that they have an inclination for. And when you’re looking to either find your path or get certain things done. If that’s not up your alley, then you need to find a partner who has the strength where you are not strong in that area. And that kind of is where great partnerships and just knowing your, not knowing, but like trying to find your strength and what you can add to the table or what your superpower is to help you with the next phase of your journey. So that’s really great. All right. And before we go on, I just want to throw in there that you would think that the owners and the investors in such properties, thousand units, you know, they have it all together. Maybe they have the strategist or the team put together and that’s so far from the truth, right. Most of these assets are upside down and it just sit in there, look, usually like twiddling their thumbs like, and when I come on board I’m like no this is not how it’s supposed to be we are not supposed to be sitting at 90% occupied. Why? We have to reverse engineer why we sit in here. Is it the market? Is the clientele? Is it the geographical? Let’s change it. Let’s fix up some things. So yeah, I find I do. I’m a nerd in that area, I guess you can say. Well, that sounds good to me because I’m kind of nerdy when it comes to that, that kind of stuff. My patience for actually figuring it out is another thing, but I constantly have to even like, my property management company, I feel like they just go with the flow. And I need to sit down and rein in and look at numbers and ask the questions and like, okay, I know I’m a small fish in your big ocean and all the properties that you manage because I don’t have like a thousand unit with this property manager, but I still need to have certain metrics. Matt still need to have answers for why, you know, the cash flow is there or not there. You know what I mean? So I don’t know. I think. whether you’re on the property manager side or you’re on the investor side, hopefully your property manager is being like you are with the properties and really dissecting and making sure things are operating efficiently because that’s what they’re supposed to be doing.
[00: 16: 53 – 00: 18: 36]
But I get both sides of it. Like I get it. Like there’s a lot of balls moving and stuff, but that’s why you have to optimize systems and kind of know how to dig in. So how did you get so good at property management, especially of large… units when you were property managing yourself like four units. You know, it’s a whole different animal in managing like an apartment complex than a single family residence. So how did you kind of learn the skill set there? Yeah, it was definitely a learning curve, right? And the one word that would jump out at me is hunger. I was hungry, right? So I came in and I had to prove myself. I didn’t jump up to property manager right away. I had to prove myself because that was the question. you’re coming from residential properties into this, it’s a different beast, blah, blah. But what they didn’t realize was I was hungry. So, and I was from up North, so I was gonna figure this thing out. So I got into leasing, I was like, let me show you what I can do. I got into leasing and within a, you know, probably a year I went to assistant manager, that’s the one that’s, you know, now my position is doing the books, collecting the rents, sending people to evictions, doing all like that. And within probably another year, eight months to a year, I was already moved up to property management. I had even one company that I was working with, they said, you do so well at collecting, right? You do so well at collecting on bad debt, making sure people pay their rent. The way you talk to them, you make people want to pay their rent, right? They actually created an internal collection division for me to run. So, yeah. Property management, yeah, property management is. I think a lot of people take it lightly in a lot of property management companies that I ran across.
[00: 18: 37 – 00: 19: 54]
Like you said, they’re going to do what this as long as the market is doing the same thing, they’re cool with it. Right. That’s what our competitors are doing. Right. We ran the cops, but I always want to go for further and beyond. I need to figure out how we can do better than our cops. Right. Not linger around because they’re lingering around at 90. That means it’s okay. Yeah. Nice. And you know what, coming from up North and New Yorkers, they just move different than people down South. Yeah. With everything, it’s a little bit more urgency because up here, everything is quick, quick. If you move too slow, you miss it, right? So we just, you take that because it’s habit to get down there. Okay. Taxes. So then you wanted to go deeper and did you like, you had to go back to school, I’m assuming, to become a CPA? Like what was that process like? What were some of your first projects? Like What’s your normal clientele? Right. So when I got into this side of it, I had to figure out taxes, there’s different levels to taxes, right? There’s tax preparation. That’s kind of like the front end surface level using a software to kind of gather some numbers for you, some deductions, and that’s the end of that. I wanted to go further. So it would be the difference between your primary care doctor and a brain surgeon. I wanted to be on a brain surgeon side of things, right?
[00: 19: 55 – 00: 21: 20]
So what I did was I teamed up with some CPAs and I, you know, kind of worked with them side by side. I brought in my own clientele. I studied the tax code. I studied, you know, case law. I look at some of the publications and I just was educating myself because now remember, I still got a burning pain in me from what that CPA did to me many years ago. So it’s still in my head. That fire is still burning. I’m like, I have to figure this out. So I got with some CPAs and worked side by side with them. and figured out what was happening in that scenario. And nine and a half out of 10 people that I speak with kinda say the same thing. My CPA doesn’t talk with me. They don’t answer any questions. They don’t have time for me. They’re not saving me any money. They’re not doing any of that. So I said, okay, there’s a breakdown here. And a large percentage of this breakdown is communication, right? So I said, man, I gotta get in this area. So that’s what a tax strategist is. So I work with CPAs, I’m not a CPA. I do not want to be a CPA on purpose. I do not want to go back to school or further my education. My job is to come in like the brain surgeon and I have to figure out the problem as fast as humanly possible. Why are you paying, you know, $200,000? Cause a lot of my clients had high W-2 earners, right? And they have that tax bill with that, that taxable income sitting there and it’s really high. And I have to figure out, tell me your lifestyle.
[00: 21: 21 – 00: 22: 36]
So when my clients come on board, they tell me their lifestyle, what’s happening, what’s your plans for the future? Are you married or single? Do you own real estate? Do you want to own real estate? Do you have a side thing that you or your wife do on a side? You have a college fund set up for your children? What’s your retirement like? What’s your health coverage like? I need to know all of these things. And then I go back and I devise a plan out of the tax code, right? Whip them up a nice little plan where we can make everything kind of almost pre-tax. your health coverage, write it off, right? We can set up college funds that are other than the 529. Cause usually if you go to your CPA, they’re like, oh, get a 529 college fund. Well, we’re kind of putting our children on payroll a different way, right? So where we have access to the funds to do what we want to pay our children so they could go buy their video games. They can, you know, do whatever they want to do. That’s all pre-tax dollars. A lot of people. Yeah, a lot of people, they let the IRS take everything they take and what’s left over, then they live their lifestyle off of what’s left over. So in tax strategy, we flip it upside down. We make sure that we write off everything we have to, and we give the IRS what’s left over, right? I like that. Yeah. I like that so much.
[00: 22: 37 – 00: 23: 52]
Okay. So what is this? I wanna dig a little deep in some areas. The 529 alternative that you’re discussing, what kind of strategy is that? The 529 alternative would be to put your children on payroll, right? The IRS allows us to make our children, you know, $12,950 per year per child. You have to be doing something, right? They have to be doing like, my children help me with, you know, setting up technology. I don’t know how to do most of this stuff, right? They help me with my social media accounts. There, you know, the little one that’s like nine years old. She takes care of the office. Right. She’s teaching me about TikTok. So I have job descriptions for them. So it’s not like they’re not doing anything. Right. And what we would do is we would open up a custodial bank account and I’m able to put $12,950 per child into these bank accounts for them as payroll. Right. And what that does is it bring down my taxable income. So it’s a win. It’s dropping my taxable income. And then also they don’t have to pay taxes on it threshold. So that’s a win-win situation right there. Okay. Yeah. I definitely have heard about that.
[00: 23: 53 – 00: 25: 03]
And if, but what if the person is, is a W-2 employee and doesn’t have some type of side business or, you know, a business that they would be able to put their kids on payroll for, you know what I’m saying? Or does someone just start a business? I mean, you can’t just open an LLC, but what have you seen people do to try to get their kids on a payroll? Yeah, most people are doing it whether they know it or not. So a lot of my clients are IT engineers, right? So on W2 paper, on W2, they’re making $400, $500,000 on W2. But then when I dig deeper, remember that conversation, what do you do? What do you like doing? Well, I’ll consult on the side. Okay, then that’s your side business, right? That’s what you do outside of the W2 job, nine to five. You’re consulting, that is your business. So we can write off your home office. Now we can write off your cell phone, we can write off your meals, we can write off your vehicle, we can put your children on payroll. It opens up the door to a whole another world now, right? Okay. A lot of people are doing it and they don’t know they’re doing it. And that’s what conversation is, it comes into play and it’s so valuable. Okay.
[00: 25: 04 – 00: 25: 50]
And if they, I guess if they’re consulting, they’re getting some type of payment for that and they could just open the entity and make sure that that’s separate. Right. Now I know in the beginning you mentioned about the real estate professional status that your CPA told you were not. So you said it’s as easy as not have, if you don’t have another job you can claim real estate professional status but like I’ve tried to, I’ve studied it like I’ve listened to some very in depth podcasts about it. But I’m definitely not no expert. But can you dig more into Real estate professional status for people who don’t know what that is and what that entails, like what the criteria are to be able to claim that when your taxes and what you what it does for you.
[00: 25: 51 – 00: 27: 03]
Right. So a lot of taxpayers and clients that I have they say I’m just a person with two or three properties they I’m just a person with two or three properties. So that’s what you would think and that’s probably what you were told. work materially participate on your real estate 750 hours per year. Which when you break it down, that’s not a lot. It’s probably like 14 hours per week or something like that. But if you have a nine to five job, that’s going to be hard to prove to the IRS that you can, you know, do a nine to five job and then 15 hours a week or so on this property over here. However, if you have a spouse that they work part-time or they don’t work, like a lot of my clients say, oh, my wife, she’s just a stay at home wife. You know, that’s her job. That’s what she does. And, and I’m like, no, that gives you access to become a real estate professional. So she’s not just a stay at home wife. You know what I mean? If we paint this picture out the proper way that now makes you real estate professionals, right? By default, through the spouse. So, so that’s the only one was, I know you said it was two.
[00: 27: 04 – 00: 28: 44]
What’s the second one? Um, the second one is the short-term rental status. So. I just got into something recently and this is very indicative of Mary, my girl, that told me you can’t do this and you can’t do that. So what I do with my CPA, my team of CPAs is I do the tax plan, right, for my clients. I formulate it and then I ship it over to the CPAs to, you know, implement. Now we go into implementation. Well I sent over the plan and one of my clients and the CPA said, you can’t do this. And there were those words again, you can’t do this. Because those are trigger words. Yeah. Then the New York comes out. Yeah. He told my client you can’t do this and he kind of emailed me and said you can’t do this because he works a full time job and it’s no way that we will ever be able to, you know, classify him as a real estate professional. And I said, there’s a short term strategy, a short term investor partner where it says that you only have to work. 100 hours, there’s a 100-hour rule. And he was like, I don’t see that. I don’t know that I never saw that in my life. Now this was a CPA that’s been in business for probably 15, 20 years. He said, I never saw this. I said, oh yeah, it’s in there and I’ll send you the publication on it. Actually, you can hop on bigger pockets and hear about it. And then he sent me some publications. He like shot me off some publications, like, see, I told you. And I’m like. Okay, well, if you look in a tax code, and I gave him that snippet of the tax code, yes, it does say the 750 at the top, but if you look way down deep, there’s another section that says, or 100 hours, right, on your short-term rental.
[00: 28: 45 – 00: 30: 03]
So it took him some time, but he did apologize, and he said, I never saw that before, I never knew about it, and I apologize to that, I went that far sending you publications and whatnot, and I said, it’s okay. So that right there again showed me, how my position plays as the middleman, as the advocator, as the fighter for the taxpayer, because I’m gonna go deeper, right? There’s publications, which most CPAs, they look at publications. And then there’s the tax code. And on top of the tax code, what would trump that would be case study, case law. So that means, you know, that’s the end all be all, when it done went to court and the case was heard out and a decision was made. So yeah, as you can see the power in communication, right? And having these conversations, I’m sorry. No, you’re fine. So the 100 hours, because I did listen to the podcast that I was listening to was by Brandon, the CPA, the real CPA who’s really associated with Bigger Pockets. He did a super in-depth, him and another CPA, super in-depth podcast and like booklet and pamphlet, all this stuff like eBook about real estate professional status and the short term rental status.
[00: 30: 04 – 00: 31: 13]
And with a hundred hours is you have to materially participate more than any other person. Right. Yeah. Okay. So I was looking, I hate my loss limitations, right? I still have full time W2. And then if you start making a certain amount of money, your loss limitation cap keeps going down. Let’s like it phases out. Right. I, so I was like, all right, I got to, I got to stop this. Like What can I do? So I was studying STR a lot so that I could get involved in that. But then the other thing is, it can be very management intensive. And I know with my W-2 and my two kids, I have two toddlers, I don’t have time to be checking on patient, not patient, customer bookings and all that kind of stuff. And so I was looking at all the strategies to automate as much and make it as little as possible. But then in that case, I really can’t do that if I wanna have that write off ability, right? You can’t really do what, which part are you referring to? Automate most of the processes so that I can be as hands off as possible. Cause even what’s a hundred hours divided by 52 weeks? Oh, that’s like two hours a week. Yeah, yes.
[00: 31: 14 – 00: 32: 37]
So when two hours a week plus work more than anybody else on the project. Right. So when you say automating, if you’re talking about an app like, if you put your property on Airbnb, right, for example, they only do but so much, that’s just a platform, like a scheduling platform to make sure you get paid, they schedule it out and all like that. But you’re really scheduling the cleaners, you’re really scheduling out. What about the cleaners? The cleaners then are technically working on it more than me, right? Because they are cleaning between bookends? No, no, there’s a lot. What you can do, remotely, even if it’s set up as an automated process. Okay. You’re doing a lot more than you think of, and that’s where the law comes into effect, right? That real estate professional law, where you have to log everything. On the phone, my cleaners cut out on me. It took me three hours to call and search. I’m searching for new cleaners to come in, and my maintenance team, right? My maintenance team, all of these things, if you have to buy things for the property. That is still you hands-on because Airbnb is only doing but so much, it’s just the platform, but you’re still, and you can still prove to the IRS via your log how much you’re actually doing, how much you’re actually participating.
[00: 32: 38 – 00: 33: 54]
Okay, so my assumption was just that because cleaners and maintenance guys would be there physically hands-on more than I am doing work, that I wouldn’t be doing more work than them, but. I get it. Like there is just a little bit more documentation you got to have, but it’s doable. You just got to make sure. Okay. Now, how about active, because I was just having this conversation today with someone, active losses versus passive losses, right? Because not everything, everything they’re in, those are two distinct buckets in like the tax CPA world and what you can write off I guess short-term rental is active income, but then regular rental is passive, long-term rental is passive income. So if you have an active W-2 job, well then active income with active income with short-term rentals, that’s why you can write off every day. Okay, okay. But if you have passive loss limitations from real estate and you have an active job, Okay, so let me do that because I’m still saying the same question.
[00: 33: 55 – 00: 35: 12]
So this is a situation, right? You have the person working the high income earner and their spouse who is stay at home or does their own thing on the side. Right. So the spouse applies for real estate professional status. And so anything that you can write off from rental properties is what would go against the passive income. that you’re getting from the rental properties, but it wouldn’t go against the active income from the other spouse, is that right? I’m just trying to understand like how this all works together. Yeah, that one spouse with the foot in the door, the stay at home mom or dad, that now gives you access to a real estate professional status, which means there are no caps no more. It’s unlimited losses, so yeah. So it doesn’t matter, it’s unlimited losses against active income too. It doesn’t matter what type of income it is, it’s just. unlimited losses against any income. Right, correct. So that, offset that the W-2, the other partner’s income. Ah, okay. And now we can offset that tax liability using the stay at home mom or dad, or they have a side hustle or they work part time. Because now we can draw out the picture that they have time, right? They have time to work on these properties and this business, yeah.
[00: 35: 13 – 00: 36: 21]
So what if there’s a couple that doesn’t have any properties yet, but they wanna have properties so that they can take advantage of this write-off and they’re in the process of building up their business but they haven’t gotten properties yet. Like, are you still able to claim real estate professional status if you’re in the business building phase and you haven’t bought a property yet? No, no, you have to actually have the properties. They have to be in service in order for you to get the real estate professional status. There are so many things that we could go on and on forever on this call. We can set up like management companies. We can set up consulting companies that answer your question. They can do other things up until they get those properties. The other things could be consulting companies. It could be, you know, everything that it takes for them to get ready. That’s what you’re talking about. That is in between what you wanna do and then when you purchase the property, right? we can set up an entity for that. That’s a business in itself, right? Cause you’re actively looking for these properties. You’re, you know, doing research, you’re meeting with realtors, you’re doing all of these things.
[00: 36: 22 – 00: 37: 17]
So you are doing something, but you can’t get real estate professional status until you actually have properties in service. Yeah, there’s other tax strategies in order to increase your write-off ability before, while you’re working towards that. Okay. You know, it could be, Uber, you could be an Uber driver, you can be DoorDash, you can do, it doesn’t have to be these big, grand, elaborate, you know, consulting companies and management companies. It doesn’t have to be, it could be, you know, one person is an Uber driver, or you have a W-2 and you’re an Uber driver, we still now can write off all of your daily expenses, the cell phone, the, you know, your home office. We can write off, you know, your vehicle expenses. Yeah, so it doesn’t have to be grand and elaborate. It can be a nine to five with something that you do on the side, which makes sure it doesn’t follow.
[00: 37: 18 – 00: 37: 55]
Okay. Okay guys, don’t kill me, but I’m going to have to cut this episode short. This is too juicy and we need to do this in a part two. So stay tuned for the next episode that airs and you can hear the rest of our conversation. Did you love this episode of share the wealth show? Be sure to connect with Nicole by following her on LinkedIn, Instagram, or Facebook. If you picked up any of the gems that were dropped by today’s guests. Make sure you not only put them in your bag, but if you know of someone who would benefit from this information, don’t keep it to yourself. Share the wealth and make sure to leave us a rating and review. We’ll see you for next week’s episode. Subscribe so you’ll be notified.
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