165. Brandon Hall's Discussion on The Real Estate Professional Status at the 2022 Tax & Legal Summit

Check out Brandon Hall's discussion on The Real Estate Professional Status (REPS) from the 2022 Tax & Legal Summit!

Full Transcript:
This podcast has been transcribed using AI, please excuse spelling, grammatical, and other errors.

Thomas Castelli 0:00
You're now listening to the real estate CPA podcast, your source for all things real estate,

Brandon Hall 0:05
accounting and tax. Here we reveal our secrets that can save you 1000s in taxes, streamline your accounting process and help grow your business. Stay tuned to hear insightful interviews with industry experts, successful real estate investors and current clients on what strategies they use to grow their business, and how they steer clear of Uncle Sam.

Thomas Castelli 0:30
Hey, everyone, thanks for tuning in to this episode of The Real Estate CPA podcast. We just hosted the 2022 tax and legal summit for real estate investors this past weekend. And in case you missed it, we want to let you know what you missed out on. That's why we'll be sharing two sessions on the podcast over the next two weeks. And on this episode, we'll be sharing Brandon's session on everyone's favorite topic, the real estate professional status. We're gonna jump into that in just one minute but before we do a quick word from our sponsors, if you're a do it yourself landlord managing rental properties landlord studio is made for you. The software helps landlords simplify income and expense tracking. With their easy to use app, you can digitize receipts record income and expenses in real time and generate reports and even manage leases and tenants plus landlords Studio makes late rental payments and bank visits a problem of the past with secure online rent collection get the rent paid directly to your bank account. And you can even automate rent reminder emails and late payment fees. Landlords studio is also the best way to stay tax compliant. They offer a range of financial reports including Schedule II and supplier expense reports designed for tax time, you can learn more about landlord studio and start your 14 day free trial at landlord studio.com/cpa. And use the coupon code real estate CPA at checkout to get 25% off your plan. Again, that's landlord studio.com/cpa and use the code real estate CPA to get 25% off your plan today. Hey, everybody, thanks for joining this session of the 2022 tax legal summit you just heard from Peter Kim, our keynote speaker. Thanks again, Peter for coming on. And we're now joined with Brandon Hall, founder of the real estate CPA and CO hosts of this weekend's event for one of the most popular topics we have here at the event. And that's the real estate professional status. Brandon, thanks for coming on.

Brandon Hall 2:14
Thanks, Tom for having me. I appreciate it. I'm Brandon Hall, I run the real estate CPA is managing partner founded the firm back in 2016. And we only work with real estate investors, we have about 800 clients or so at this point 33 staff pretty pretty good sized operation now. So it's been a lot of fun to coach new tax accountants up and in start service and the larger landlord populace. I guess it's been a it's been a good time. But we do a lot of a lot of free content, a lot of education. We have our Facebook group tax smart investors, which we can talk about a little bit later on. But yeah, it's been it's been good. Thanks for having me.

Thomas Castelli 2:56
Anytime. All right, so let's just get started here. For those who don't know, what is the real estate professional status.

Brandon Hall 3:04
Okay, so to explain real estate professional status, we first need to start with the passive activity loss rules. So the passive activity loss rules are the most important rules for real estate investors to understand. And it's because everybody is subjected to the passive activity loss rules. And if you don't understand these rules, the losses that your rental real estate will create will be locked up, you won't be able to use them. So if we understand the passive activity loss rules, we can understand how to unlock those losses to offset things like our W two income and our business income, dividends, capital gains, things like that. So the passive activity loss rules were put into place in 1986. And the rules basically stopped people from being able to use rental real estate as a tax shelter. So before 1986, I could have a million dollar w two job, buy a piece of rental real estate costs, segregate it, which just generates a lot of bonus depreciation or extra depreciation that would create a tax loss not an operating loss. Remember, with real estate, I can have 10,000 bucks of positive income, but I can tell the IRS I lost two grand thanks to this depreciation expense, right? So pre 1986, I'd buy all this rental real estate up, I would accelerate my depreciation expenses and then I would use the tax losses to offset my w two income easy peasy. But 1986 the passive activity loss rules were put into place to stop that from happening to stop high income earners from using rental real estate as a tax shelter. So the rules basically said, Hey, if you have a rental activity, it's considered a passive activity. And losses from passive activities can only be offset by passive income or gain on sale from passive activities. So losses from passive activities can no longer offset non passive income is my w two income and my business income that's non passive income. capital gain income from stock sales or bitcoin is, is non passive income, interest, dividends non passive income. So these rules basically said, your rental real estate losses can only offset rental real estate net income, gain on sales from rental real estate or income or gain on sales from other passive activities that you might be involved in. Like if I put $100,000 into the local hair salon, and I was an equity partner and I get a profit allocation as a result. But I don't do anything related to the management, I'm not cutting hair, I'm just the money guy, right? I just put the money up for the expansion or something. And they're just allocating the profit as a result, that's passive income to me. And that passive income can be offset by my rental passive losses, because passive losses can offset passive income. But my rental losses cannot offset my w two income can't offset my business income. That's what the passive activity loss rules did. And so to circle back to your question, what is real estate professional status, real estate professional status is an exception to those rules. So the rule say all rentals are passive, unless you qualify as a real estate professional. So real estate professional status is simply a way to get around the passive activity loss rules, if I qualify as a real estate professional, and if I materially participate in my rental real estate activities, then my rental real estate activities will be non passive. And so if there's any losses from those activities, then I have non passive losses that can offset my non passive income. And that's ideal, because my w two income and my business income, all of that is non passive. So in an ideal world, all of my rental real estate activities are considered non passive, because the losses that I generate from those rental activities will directly offset all of my other income. But if I can't make them non passive, then then all my rental activities are just going to be passive, they're stuck in this passive bucket. And they're going to generate those tax losses, but I can't use those tax losses. So those tax losses become suspended, and they carry forward.

Thomas Castelli 7:12
Alright, so. So that's, that's that that's amazing. That's an excellent explanation of the real estate professional status. So the one big question everybody has, because everybody wants to be a real estate professional, everybody wants to take their losses from their rental real estate and offset their W two or other business income, how does one become or qualify as a real estate professional.

Brandon Hall 7:33
So before I tell you how, what the quantitative tests are, I just want to echo that everybody does want to be a real estate professional and, and you should also if you're listening to this, you should want to be a real estate professional, because I'm gonna use my milk example, my purchasing a half gallon of milk. I've used it a few times, I think, on the podcast and other videos that I've done. If you walk into the back of the store, and you're there to pick up a half gallon of milk, and that half gallon of milk is $1. Today, you reach into your pocket and you pull out a $1 bill. Okay, so you hold it up, you know, I got $1 Bill nice and crisp, smells nice. Looks beautiful, right? For whatever reason, you decide, I'm not going to buy the half gallon of milk. So you put your dollar bill back into your pocket deep into your pocket. And then you you leave the store? Well, you wash your jeans a few times that year in you, hopefully more than a few times. You wash your jeans a lot after after every use ideally. And then you go back to the store a year later, you but you forgot about the dollar bill that's stuffed down in your pocket. So you're now back at the store, you walk walk to the back, and you remember oh yeah, I've got to buy this half gallon of milk now. And you reach in your pocket and you're like I remember I've got that dollar bill. So you reach in your pocket, you pull it out there it is not as crisp as it used to be. It's a little wrinkly, but it's still $1 bill. And you walk back to the to the back of the store where the milk section is. And you look at the price tag, and now it's $1.03 or $1.08, I guess in today's inflationary environment. But the point is, is that your dollar bill a year ago could have bought that half gallon of milk. But now your dollar bill cannot buy that half gallon of milk because it's $1.03 You need three additional pennies to buy the milk. What happened? Inflation happened? The cost of goods goes up over time, right? Well, the same thing is happening with your rental real estate portfolio. Okay, so every piece of rental real estate that you purchase has predefined tax benefits baked into the purchase price. It does. I can Tom and I in anybody on my team can literally sit down and pull up a spreadsheet or create a spreadsheet that shows you here's your tax benefits and you decide when you take them. Okay, and with this dollar with this milk example, it should be obvious that I should take all of my tax benefits today as much as I can today. Because this inflation things happening, if I leave dollars trapped in this in this rental real estate, by not accelerating depreciation by not using the cost segregation study is by not using tax losses that offset my income, then then the tax dollars that I leave in this rental real estate, it's getting eroded, the purchasing power is getting eroded. Everybody knows intuitively or, or hopefully, that you shouldn't leave large amounts of money sitting in a bank account, right? You know that you don't leave large amounts of money sitting in a bank account, because my bank account earns interest of half a percent, but inflation is 3%, or 8%. In today's world, so every year, I lose purchasing power, the same things happening with your rentals, you have predefined tax benefits in your rentals. So you have to decide how quickly you draw down on them. And that's why it's so important to qualify as a real estate professional. So everybody should want to qualify as a real estate professional simply based on this principle of time value of money. I'm trying to extract the tax benefits from my rental real estate as quickly as possible. And the way to do that is to qualify as a real estate professional now, can you qualify? That's the big question. To qualify as a real estate professional, you get to spend 750 hours in a real property trader business, you must also spend more time in real property trader business or businesses, then you do anywhere else. So if I have a full time w two job or if I work in the CPA firm for 3000 hours a year, or however my tom toms workhorse, probably what 8000 hours a year for you, you do like two years in one line,

Thomas Castelli 11:26
I could I could do become a real estate professional if I had enough real estate and make that claim. But

Brandon Hall 11:32
yeah, but you have to spend more time in real estate than you do anywhere else. So if you spend 2000 hours a year, you w two jobs, you have to spend an additional 2001 hours in real estate and it's not going to be feasible. So So you got to be either working a part time job or not working a W two job, or you have to be working full time in a real property trader business. So I could be a real estate agent, for example, that's one of the 11 real property trades or businesses that that you can rack up real estate professional status hours with. So if I'm a real estate agent, and I spend 1200 hours being a real estate agent during the year, and I don't have another job, and I don't do anything else, all I'm doing is being a real estate agent. Well, the $1,200, it gets me above that 750 hour test. And since I'm not doing anything else, it's also more time than I spend anywhere else. So I mean the other test as well. So I'm a real estate professional for tax purposes. And then you just have to make sure that you go and materially participate. Because sometimes we get people that are full time real estate agents, or builders or developers or flippers or whatever. And they are real estate professionals from a tax perspective, but they didn't go and materially participate in the rental activities. So the rentals are still passive.

Thomas Castelli 12:42
Okay, got it got. So you can qualify by working in a real property trader business, which you mean, you could be an agent to build or flipper, can you? Can you drill down on what you mean by materially participate in your rental activities? What does that mean?

Brandon Hall 12:57
Sure. So there's seven test material participation, the three that we see most often are and I guess, let me back up. The passive activity loss rules say, all rentals are passive unless you qualify as a real estate professional, and any trade or business that you don't materially participate in is also passive. So qualifying as a real estate professional simply gets you over that That one hurt, all right, that all rentals are passive, it simply gets you over that, but you still have to show that you materially participated in the landlording trader business. So what is material participation, there's seven tests, but the three that we see most often from the least number of hours to the most is, one, your participation in the activity is significantly all of the participation in the activity. So what does that mean? That means that it did I say that rises significantly all your participation is,

Thomas Castelli 13:47
is it substantially or substantially?

Brandon Hall 13:50
Thank you, thank you, your participation is substantially all the participation in the activity. So if I spend 30 hours managing my rentals, and nobody else is involved in the activity, so my 30 hours are the only 30 hours that anybody spends, then I have spent 100% of the total time that anybody has spent in the activity, right, there's 30 total hours and then my 30 hours. So in theory, my participation is substantially all the participation in the activity, right? But if I spend 30 hours and then I've got repair people a property manager and like all these other people that spend 40 hours, then the total time is 70 hours and my practice my portion of that is 30 hours. So 30 divided by 70 is not going to get you above that substantially all threshold. So material participation test number one is substantially all your participation must be substantially all participation, which basically means you have to self manage it can't have anybody else touching it. You got to do all the repairs, maintenance everything yourself. And you do I know I just threw out 30 hours. I mean, in theory, you could do it with 10 but make sure that you work with your CPA on it. Don't take my word for it. This is a disclaimer that I don't want you to come here and think, hey, Brandon just granted you the the authority to say that you materially participated with 10 hours, you would experience a lot of pushback from the IRS if you were audited on something like that. So don't do that without getting professional help. But in theory, with a very narrow interpretation of the material participation regs, it could work. So the second material participation test, assuming that you can't meet the significant, or the substantial participation, the second one is that you spend 100 hours in your activity and more than anyone else, so 100 hours, and more than anyone else. What that means is like, if I have somebody that spends 103 hours in the activity, I need to spend 104 hours, 100 hours in more than them. And then the third material participation test is spending 500 hours in my rental activity. So if I can spend, if I can meet one of these material participation tests, I only have to meet one, if I can meet one of them, then I will be materially participating in my activity. So if I combine that with real estate, professional status, I've got real estate professional status and materially participating in my rentals, then I'm going to successfully jump my rentals out of the passive income bucket and into the non passive income bucket. And now I can do the caustic studies, I can create the bonus depreciation, I can get these big tax losses, and it will offset any other income that I have in that non passive bucket.

Thomas Castelli 16:22
Got it God. So you have to put some work in to actually make this happen. It's not something that I could just buy and hire a property manager and go sit on the beach. So you're telling Oh, yeah, 100%? That's a bummer. All right. So what are the some of the strategies on how what kind of strategies do people use actually qualifies, they're like, I understand that you have to material participate, what if What if you can't, what if you can't to participate material, the participate is there another way you can qualify?

Brandon Hall 16:50
So if you can't materially participate in the activities? Well, well, let's say the large portfolio, you could make an election to group all of your rental activities together into one. And you could materially participate in like one or two rentals, but the entire group will be treated as material participation. So that's kind of like like, maybe, maybe, maybe I don't have a full time job, maybe I have a part time job. And I pick up a couple rental properties that are local to me. So like within driving distance, and easy drive, and I'm going to do a lot of rehab. So if I'm going to be significantly rehabbing these properties, then I can spend a lot of time rehabbing them, right? Not if I'm not, if I outsource to a GC, I've got to do a lot of the work. But in theory, I can sink a lot of time into this rehab, and then maybe I have a portfolio across the United States, that's all being managed by property managers, well, I can't, I can't materially participate in the rentals that are out of state, that'd be managed by property manager, there's no such thing as managing my property manager, I know a lot of people say, Oh, I'm gonna oversee my, that doesn't work. It doesn't work with the material participation rules, who if somebody told you that disregard it, you got a property manager on it, you're not materially participating, property managers materially participating. So maybe that's my case, I've got 10 rentals across United States, where I'm passive. But I can buy local rentals, I can rehab those local rental spend a lot of time doing that rehab work. And I can make an election under the Treasury regulations for 469. It's the nine G elections. So dash nine G, I can make an election treat all of my rental activities as one for the purposes of material participation. So if I'm able to materially participate in these local rentals that I'm rehabbing, and they become rentals by the end of the tax year, then I can make this election and all of the other rentals that that I couldn't otherwise materially participate in, they'll get grouped in to this, this where I'm already materially participating. So I'll be materially participating in the entire group at that point. So that is one strategy that you could deploy another strategy that you could, you could deploy to buy short term rentals, which we did a session on yesterday with Justin. And, and that was a really good session. So if you if you want to re listen to that, that should still be live in the group, or the post should still be there in the group. So go, go go listen to that. But that's something that a lot of our high income earner clients are looking at right now. Because they're looking at their situation saying, Alright, I'm making, you know, $800,000. In my w two, my spouse has zero interest in real estate, what are my options? Well, you buy by short term rentals, because it's an exception to these passive activity loss rules.

Thomas Castelli 19:27
Right, right. And let me ask you this. Let's say that everybody knows here I'm a full time accountant, right? I'm not qualifying as a real estate professional, not possible. But let's say I get married. Like, let's say I get married to somebody and they can qualify as real estate professional. What does that what does that look like?

Brandon Hall 19:43
Great question. So so if you're if your spouse qualifies as a real estate professional and you're filing a joint tax return, then your entire tax return is a real estate professional status tax return. So so your spouse, one of the spouses has to qualify as a real estate professional completely on their own So in this example, your spouse would have to log the 750 hours, and your spouse would have to spend more time in real estate than they do anywhere else. But once they qualify as a real estate professional, you can actually count each other's time, for the purposes of material participation, that sort of that second threshold test they have to get over. And the way that this would like a common example that I like to drum up in something with something like this is let's say that you do get married and your spouse is a real estate agent, or your spouse is a flipper or builder or wholesaler. They're in a real property trader business, they do it full time, 2000 hours a year, well, they're a real estate professional, right. So they spent at least 750 hours, and they did it full time. So they didn't, I mean, they spent more time there than anywhere else, because they did it full time. So they're a real estate professional for tax purposes. But recall my my previous statement, were, being a real estate professional is great, but it doesn't mean that your rentals are automatically non passive, you have to go and materially participate in your rental activities, so that that real estate agent would have to come back and materially participate. But if you're married, you can count each other's time for material participation. So maybe your spouse has zero interest in rental real estate, all they want to do is just be a real estate agent the entire time, but they don't want to touch the rentals, you can manage the rentals. And as long as you hit those material participation tests that we just talked about, then your spouse qualifies as a real estate professional completely, completely on their own. And you're the one that's logging those material participation hours, your spouse can count your material participation hours in the rental activities. So you can you can cross pollinate their I guess, with the with your participation tests, but one spouse has to hit real estate professional status completely on their own. I should also add that you have to have a 5% ownership stake in the business that you're working in, in order to qualify as a real estate professional. So sometimes we get questions of like, Hey, I work for an asset manager, as my w two job or I work for a construction company. And I'm doing these like the site work all day long. But if you don't have a 5% ownership stake in the employer, then the work that you do cannot count as real as real estate professional status ours.

Thomas Castelli 22:20
Bummer, bummer. So for everybody out there who's who has who's working full time w two in a real property trader business that they don't own more than 5% on can't qualify. There you go. Okay, so what other what other strategies that people combined with this? I know you mentioned, you know, if you qualify as real estate pressure, you can take losses, you can take losses against your other income. How do you how do you increase your losses? Like, yeah, how do you increase your losses without actually having a loss? Like, how do you do that?

Brandon Hall 22:48
Yeah. So So rental real estate, let's, let's pull up a calculator. I'm just gonna read the numbers out as I calculate this. So let's say that I buy $100,000 Home $100,000. And let's say that $10,000 is allocated to land. So $90,000 is my building. I depreciate rental real estate over 27 and a half years, short term rentals are depreciated over 39 years. I can't remember if we covered that in Justin session or not, but that's a mind blower. So the short term rentals 39 years are considered non residential, believe it or not, but $90,000 building because land can't depreciate. So I depreciate that over 27 and a half years. So that that results in 30 $3,200 a year in annual depreciation, when I purchased this $100,000 building, that might be fine. But if I earn let's say $6,000 of net operating income from this rental activity, so it's cash flowing, well $6,000 of cold hard cash hits my pocket with this regular depreciation $3,200, I would do $6,000 minus $3,200. And I would be left with $2,800 of net taxable income. Okay, so net operating income, and net taxable income are two totally separate things really important to understand. I can have 6000 bucks hit my pocket, but in this example, thanks to this $3,200 of depreciation, I get to tell the IRS I only earn $2,800. So I'm paying tax on the $2,800. Not on the full $6,000 of earnings. But as Tom asked, the question is, well, how do I accelerate this it? Can I make this juicy here? And the answer is yes, you can. So on this $100,000 building. Let's say that I do a cost segregation study and I'm able to identify $25,000 worth of five, seven and 15 year components that make up my building, right? When you buy a property. All of the components in the property really make up the value of the property. It's not like I didn't just buy a building. I bought the roof, the windows, the carpet, the appliances, the cabinetry, the flooring, everything that goes into the building, and all that those components have value. So a cost segregation study, the purpose of it is to identify all those components and allocate the purchase price allocate value to those components. So let's say I buy $100,000. Home, I do this cost segregation study, and $25,000 is allocated to five, seven and 15 year property, that's also eligible for 100% bonus depreciation, which I get to claim in the first year of ownership. So if I have $6,000, of net operating income, minus $25,000, of bonus depreciation, then I have a $19,000 tax loss that I get to report to the IRS. Even though I earned money, I earned that $6,000, that's cold, hard cash that hit my pocket, I physically have it, I get to tell the IRS that I lost $19,000. If I'm a real estate professional, and I qualify for the exceptions to the passive activity loss rules, I can take that $19,000 In offset my w two income, or my business income, so that $90,000 If I'm in the 37% tax bracket, it could very easily generate 7300 bucks 7400 bucks of tax savings for me in the year that I acquire the property. And if you think about the scale of this, you know, a million dollar property. Now I've got $74,000 of tax savings, right? So you can really like like scale up and it can give you cash back when you've sunk a lot of cash into a rental property.

Thomas Castelli 26:27
Sounds really powerful. So like now that I've listened to this, you know, I know the benefits, I know why I know how to qualify, and I know how to accelerate my depreciation to really throw some gasoline on that fire. I'm about to go implement implement this right now. What else do I have to know what what do I have to do to protect myself? In the event I get audited by the IRS?

Brandon Hall 26:46
Yeah, um, I would say the very first thing that you need to do is you need to work with a CPA firm that values the integrity of this tax position, because I would definitely not DIY it. And I would definitely make sure that the CPA firm that you're working with is going to tell you what you need to hear to win IRS audits. Because this is a highly litigated piece of the tax code. In we get like a two to four tax court cases a year on real estate professional status. And behind all those tax court cases are 1000s of audits. So if you're going to take this position, expect to be audited, audit rates are down right now. The IRS is overworked. They're they're underfunded. But if that ever changed, expect to be audited if you're claiming real estate professional status and claiming large tax losses. And that's not something to fear, right. We want to empower you to win IRS audits. That's what our firm believes in. So we tell our clients, we we're going to plan on you getting audited that way, when that day comes, you will be prepared and you will be confident. And we will be confident that we will win the audit. So a few things that that you need to watch out for one CPAs will tell you what you want to hear, not what you need to hear to win IRS audits. And I'll go over some of those things here in a second. But you have to guard yourself against that. Because you can get involved with a group that doesn't really know what they're doing, but really likes the amount that you're paying them to do what they're doing. And they may not tell you what you actually need to be doing. We have seen this a lot you might get into like courses and groups and different social groups and real estate meetups around the United States. That might tell you it's super easy to qualify as a real estate professional, there's no risk, and it's super easy. And you should really your red flag should be going up at that point. Because this is hard to do. It's hard to to substantiate. And you got to be really, really intentional, highly, highly litigated. So some of the mistakes that we see first, we see people claiming hours that don't count. So the 750 hour test the more time in real estate than anywhere else, well, what hours counting what hours don't count, that's important to understand. Because I could just sit here on realtor.com and surf realtor.com all day long. I can hit 2000 hours a year even with my full time w two job I could be working out my full time WT job and just like looking over here on the other screen. And I'm gonna be real estate professional. So it's really understanding it's really important to understand what hours count and what don't count. So let's go over that real quick. Investor hours will not count unless you are involved in the day to day management of the rental activity which means that you do not have a property manager yourself managing. So here's what investor level here's what investor level hours are studying, reviewing and monitoring financial statements. That's investor level activities, bookkeeping, acquisition, research, all those things can be investor level activities. So you got to be careful if you develop a time log with a ton of investor level activities. I should Also just pause because I realized that it explained this earlier, you do need to, to keep a time log on an ongoing basis, if you're going to qualify on a daily basis, on a daily basis, you need to be logging your time, the date, what property it applied to what you did at the property and how many hours you spent it, make sure that what you did at or related to the property, make sure those notes are really solid, I don't want to see I don't want to see a time log from you. Where it just shows, you know, 300 rows of emails or answered emails, that's not going to be descriptive enough to win an IRS audit. So again, we're focused on winning an IRS audit. And we're also focused on reminding future you three years from now, what you did on these dates, so be descriptive in your notes. But investor level hours don't count. Education and Research hours don't count. And sometimes we get pushback on this like, wow, well, that's not fair education, research hours should count but the IRS looks at it as if you if your hours that you're investing don't literally make your property operate then the hours do not count. So education hours our spent on this tax and legal Summit, unfortunately, do not count our spent going to the bigger pockets conference, do not count our spent listening to the real estate CPA podcast, which you should totally listen to we almost broke 100,000 listeners last month, those hours do not count. Research hours do not count. I have two tax court cases. One is half pour verse Commissioner, half pour is JFARP. Oh, you are half the board first commissioner. So you can Google that. And then also Padilla verse, Commissioner, so you can Google that. So those are our two citations to prove that these hours do not count the reason I'm giving you these citations, because sometimes you will have CPA firms that will tell you oh yeah, the education research hours count. And that's what I'm saying. You have to make sure that you are working with people that are not afraid to tell you what you need to hear to win IRS audits because when you get audited, it will be a very painful experience. If you've been working with a firm that is not, or that does tell you what you want to hear, not what you need to hear. So the last bucket of time that does not count, we've covered investor hours education, research hours, travel time is the last bucket of time. And that's kind of a toss up, it does depend on what type of travel. So like if you've got localized travel, you have a local portfolio, I mean, in local being within like a 2030 minute drive. And that's not a bright line test, don't like walk out of here going well, Brandon said 30 minutes, that's just my interpretation from reading various tax court cases. But if you have a localized drive transportation, then that travel time will count. But if you have to drive an hour, hour and a half or more to a rental property, or if you're flying to a rental property, that travel time will not count for real estate professional status. But it's important to also know that just because the travel times not gonna count for real estate professional status, doesn't mean that I can't write off the cost of the trip. So that's I feel like an important distinction to point out every once in a while because people kind of get confused with that. But the localized travel time is Les verse Commissioner. And that was one where they basically said, Hey, you're a real estate professional because the local travel or you're self managing your properties, and the local travel time is going to count as a result of that and they're all like localized travel. But we also have many tax court cases that basically show up if it's a large or if it's a longer travel time like Lou serovars. Commissioner I think the those are 2020 tax court case and I think that the properties were like an hour and a half away from from the rental or from from their home and that travel time did not count so just got to be careful.

Thomas Castelli 33:45
got it got it so we understand very powerful strategy God do things by the book, gotta have a timeline, God do things the right way. You know, if the if the attendees of this summit want to learn more about real estate professionals maybe wanted your firm to help them qualify for as a real estate professional, make sure they're dotting their T's and crossing their eyes. What's the best way they can get in contact with you?

Brandon Hall 34:06
Yeah, well, well, it is our firm Tom, your partner here. So where should we direct them? We have a few resources. So the first resource it's a free resource. So the first two resources are free. The first one you can go to the real estate cpa.com www dot the real estate cpa.com. And in under the resources there is the education now we just got our website updated. Its resources, I'm pretty sure it's like the second or third tab. Yeah, under the resources tab, we have a 12,000 word guide to real estate professional status. I wrote the guide personally, after we got a lot of pushback about the education and research time questions and the investor hours and their CPA firms out there that say you only need 500 hours of material participation and 250 of anything else, all that bullcrap. And it's all detailed in that 12,000 word guide. You can download it and I think if you download it, it's like a 38 page ebook or something. So that's the first place I would go fully sighted so that you can go and use it when you have conversations with your CPAs. And you can say well did you did you read poor Maisie or whatever verse Commissioner I always say that one wrong Franco verse Commissioner, sometimes people are like, how many properties do I need and the CPAs go you need 15. But Smith first commissioner Frank Hoover's Commissioner show you only need one or two properties. So you're bringing these tax court cases, to the conversation, you're bringing these citations to the conversation and you're holding your CPA accountable to high quality advice. You can go to our website, the real estate CPA comm and download that guide there. You should also 1,000% Come and join us in our free Facebook group. It's tax smart real estate investors so that's facebook.com/groups/tax smart investors we'll be posting about that it throughout the tax legal summit here so don't worry if you just miss that. And then yeah, you can you can always hit our hit us up on the on the real estate CPA comm if you want to become a client, we'll explore this stuff in depth with you educate you on it. I think are we are I think our fees start at $4,500 for that tax planning. So if you if you that that's when if that's within your budget, and you want to work with our team directly, then that would be the way to do that. If that's not within your budget, just go to tech smart real estate investors, tech smart real estate investors.

Thomas Castelli 36:24
Calm I'm sorry. Yeah, tech spark fest.

Brandon Hall 36:27
Yeah, I mean, I'm like stumbling, just go there. Because we have courses that we roll out and we go through this stuff really in depth. And it's cheaper than the one on one services.

Thomas Castelli 36:36
Absolutely. All right. Well, thank you so much, Brent. I'm sure everybody learned a lot about the real estate professional status here. We're going to be coming up here next with Kim Lisa Taylor on Syndic a structuring syndication agreements, and basically entity structuring for syndicates. So that's coming up next. If you do want to grab recordings of this session and all the other sessions at this tax legal Summit, just go to recordings dot tax and legal summit.com You can grab them right there, and you can have them for life.

Brandon Hall 37:02
Thanks for listening to today's show. If you enjoyed the show, please find us on iTunes and leave us a review. You can also email us at contact at the real estate CPA comm with any feedback or topic suggestions, we are always taking on new clients and with the new tax laws in play. You really don't want to navigate this alone. Let us help you save money on taxes with your accounting and CFO needs. To become a client navigate to our client page at the real estate CPA calm and fill out a webform with as much detail about your situation as possible. Thanks so much for listening. Have a great rest of your week.

Join the Tax Smart Investors Community:

- Join the Tax Smart Investor Facebook Group
- Subscribe to our YouTube channel
- Check out the Tax Strategy Foundation Course

Disclaimer

The Real Estate CPA podcast is for general information purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Information on the podcast may not constitute the most up-to-date legal or other information. No reader, user, or listener of this podcast should act or refrain from acting on the basis of information on this podcast without first seeking legal and tax advice from counsel in the relevant jurisdiction. Only your individual attorney and tax advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this podcast or any of the links or resources contained or mentioned within the podcast show and show notes do not create a relationship between the reader, user, or listener and podcast hosts, contributors, or guests.

Always consult your own tax, legal, and accounting advisors before engaging in any transaction.