Table Of Contents
In this episode, Brandon and Thomas go through tax issues that crypto investors face along their crypto investing journey.
This episode is sponsored by Landlord Studio and Tax Smart Investors.
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.
Brandon Hall 0:05
Your source for all things real estate, 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
everyone thanks for tuning into this episode of The Real Estate CPA Podcast. Today we're gonna talk about something that we get a lot of questions on for both clients tax smart investors and just general people we come in contact with as most of the people we come in contact with are first and foremost investors. And the topic of the day is going to be cryptocurrency. Obviously, it's been gaining a lot of popularity over the last several years and is really heated up in this last six months or so. So we're gonna go through some of the tax issues that crypto investors will face along their crypto investing journey.
Brandon Hall 1:04
Not only have we gotten a lot of questions on it, but it's just an interesting space. And it's something that we want to get a little bit more into, as I guess the world kind of gets into it. But we actually, what's we're doing this podcast today is a little bit different than other podcasts we've done because it's going to be talking about cryptocurrency and tax moves with cryptocurrency. Now, personally, I think that cryptocurrency in real estate play well together, because it's kind of just like investing in equity markets to you invest in something that makes a lot of money. The question is, how do we get out of it and avoid taxes, and it really all points back to real estate at the end of the day, like it's really always gonna point back to real estate. So I think that that that real estate's just the central hub of tax benefits that anybody in the entire world, or I guess us can use to their advantage. We're going to talk a little bit about that with crypto today. But before we do, I want to invite everybody that is investing in crypto interested in crypto to come and join us at facebook.com/groups/tax Smart crypto investors. So just like our tax smart real estate investors Facebook group, we are launching a tax smart crypto investors Facebook group. And the purpose of this is to kind of do a market test. We're trying to figure out if there's feasibility if there's enough people asking tax questions, and if there's a need there that we can come in and fill. So come in and join the tax Mark crypto investors, Facebook group, Tom and I will be triaging the questions that flow through there and and be answering those. And if we can be of help. That's great. And if we can figure out how to structure the help and price it that's even greater. But yeah, so it's a little market test that we're running and today's episode is going to be about taxes related to cryptocurrency moves and investments and when you earn it through mining and airdrops and things like that, but but Come join us at tax Mark crypto investors, the Facebook group facebook.com/groups/tax Smart crypto investors,
Thomas Castelli 3:06
for sure, for sure we'll see you guys there. But there's two different types of tax issues we're gonna have to deal with with cryptocurrency and one of them is more or less along the lines of urine investor, how is that taxed and then also if you earn the cryptocurrency, through airdrops and other things that like Brandon had just mentioned. So kind of kick start things off. As of today. cryptocurrency is defined by the IRS as property. So generally, if you buy property and you then you later sell property, you're going to have a capital gain. And it's really no different. We're crypto in that respect. If I go and buy Bitcoin at $30,000 a coin and I later sell it at $60,000 a coin, I'm going to have a capital gain. Now if I held that cryptocurrency or held that Bitcoin for less than a year, it's gonna be a short term capital gain, and short term capital gains are taxed at your ordinary income tax rates from zero to 37%. And then, if I held that for longer than a year, it would be taxed as a long term capital gain, which are currently subject to the zero 15 and 20%. Capital Gains Tax rates. Also, when you hold it as an investment along these lines is also could be subject to the net investment income tax if you are subject to the income tax thresholds or if you're above those thresholds rather. So in a nutshell, that's kind of how it's taxed on the investor side of the coin. No pun intended, but something else that comes up is the wash sale rules. And currently, as of this date, in this day, it's currently November 24 2021. Wash sale rules only apply to stocks and securities. And as we just discussed, cryptocurrencies property and not a stock or security today, so you're not subject to the wash sale rules. And briefly what the wash sale rules mean, is that if you were to buy cryptocurrency, and then sell it at a loss and By immediately right back, you cannot take that loss due to the wash sale rules. And there's a 30 day window in which that can occur. And basically, what they're trying to do with the bill back better act is broaden the scope of the wash sale rules to include crypto virtual currencies, as well as other items such as regular, basically, currency trading Forex. So while the bill back better act has not been passed, and there's been a lot of changes to the proposals over the last few months, it is very likely that this will stick and make it into the bill for experienced tax professionals out there. If you're listening, this should be no surprise, it's kind of common sense in the tax world. And it's probably long overdue at this point,
Brandon Hall 5:42
in kind of following the theme of reporting requirements. So in the infrastructure bill, that did pass relatively recently, there were two new reporting requirements. Now brokers of cryptocurrency have to send out a form 1099 B, just like if you were buying equities. So so now you should start to expect to receive a form 1099 B. And I believe that that starts January 1 2023. So not now, not next year, but January 1 2023. The other thing too, is that if you pay, I believe that the rule, I don't know the rule off top my head, but I believe that if there was a transaction in excess of $10,000, then I believe that the receiver, like the business would need to then report that on form 8300, which is, you know, where banks are reporting that. So there's there's additional reporting requirements now, from the infrastructure bill, which which could actually impact, you know, businesses that are accepting cryptocurrency and large amounts. I mean, that is quite a burdensome requirement to place on, on on businesses. And so anyway, just things to keep in mind that there's these additional reporting requirements coming out for crypto. And so if you're investing in crypto, and this is a tax podcast, if you're investing in crypto to avoid taxes, you're gonna lose that battle. The IRS is very well aware that cryptocurrency exists, and they are finding ways to get information on it. If in the past, you've been trading crypto and you haven't been reporting those trades, I highly recommend that you retro actively fix that. Because eventually the IRS is going to catch on. It does take time, but they will catch on. So you're seeing these increased reporting requirements coming out in these bills, and they're gonna only get more intensive. So if you are investing in cryptocurrency, and if you haven't done things by the book, be very careful because you could be setting yourself up to fail here within the next couple of years. All it takes is an audit. And by that point, I mean, they're they're going to have highly trained agents that know exactly how to look at cryptocurrency ledgers and transactions. So be really careful, be really careful. If you haven't been reporting it correctly, you might want to go back and retroactively fix that.
Thomas Castelli 7:54
Yeah, and with that in mind, you might want to take a look at what platforms you're using to buy and sell crypto because some platforms have better reporting than others in terms of being able to show you your transactions and how everything played out. We've known this from the past, there's some platforms out there that aren't very good that don't have very good reporting. It takes a lot of manual time and effort to sort through while other platforms make it relatively easy. So just something you might want to keep in mind as you're going through your crypto trading endeavors. But that said that's kind of the the investor side of the coin when you're buying and selling crypto on the open markets you're you're more or less investor or trader. Now the other side of this is what happens to certain transactions when you let me back this up before we go into that was kind of want to review some taxable versus non taxable crypto events because there's been a lot of questions we have received on on this specific issue. So basically, some taxable events are going to include when you buy an item with cryptocurrency so if I go to Starbucks and I use a platform that allows you to basically buy items from a store with cryptocurrency, you're converting that cryptocurrency to the US dollar, then using the US dollar to actually buy the item, you're basically selling your Bitcoin for the US dollar and that can trigger a taxable event. If for example you bought that cryptocurrency then it appreciated then you're selling it into the US dollar that can create a taxable event. Another tax event is also when you trade cryptocurrency for other cryptocurrency so if you use Bitcoin to buy Dogecoin or Dogecoin to buy Aetherium or you've got in and she beat you and you use your Bitcoin to buy the Shiva, you know, whatever the case may be, those can also become taxable events. Also, if you receive crypto as part of like a hard fork or crypto mining that can also be a taxable event. Now, some things that are not taxable events that you want to know is if you donate crypto, for example, that's not going to be a taxable event, gifting crypto below that limit which is Currently $15,000 per individual and in 2021, it's not gonna be a taxable event. If you just simply buy cryptocurrency with US Dollars or another currency, that's not going to be a taxable event. And also, if you just transfer your crypto from one crypto broker, for lack of a better term or a wallet to another one, that's not going to be a taxable event either, which is good to know. But just know that if you are converting your crypto into a currency such as the US dollar, that could be a taxable event, or if you're buying goods or services. With Bitcoin, you're essentially or any cryptocurrency, you're converting it to the US dollar first. And there's just something you have to something you have to keep in mind.
Brandon Hall 10:38
Something else you talked about, you know, I think you use the example of going Bitcoin to Doge or, or whatever like going one coin from one coin. A lot of I've seen a lot of people thinking that that's like a 1031 exchange. But it's really important to remember that a 1031 exchange only applies to real property. So you cannot 1031 exchange your Bitcoin holdings or your coin holdings. So if you let like Tom said, when you liquidate one coin, you you have to pay tax on whatever that gain is from the time that you bought it. So you compare your cost basis to the liquidation value, even if it's just a marginal, like if I buy one coin, but then later I sell a 10th of it. Well, I'm going to take a 10th of my cost basis to figure out my gain, right. And we're going to talk about some of that too. But it's just important to know that you can't go coin to coin to coin to coin the coin. And think that it's going to be treated anything like real estate where, you know, in real estate, it's like Monopoly, right? I like literally the game Monopoly, I buy four houses, then I'm able to exchange those four houses for one big hotel. And I don't have to pay any tax on that transaction. That is called a 1031. Exchange. You can't do that with coins.
Thomas Castelli 11:49
It's essentially like stock you can't buy Apple and then sell it and then go buy Tesla and not there's no x you're not exchanging Apple for Tesla, you're exchanging Apple for the US dollar, if you're in the US, and then if you're then you're by taking that US dollar and you're going to buy Tesla, there's no exchange. There's no like kind exchange feature, unfortunately. So
Brandon Hall 12:10
no. So what are the tax implications of like an airdrop, and for those that don't know what an airdrop is? Can you explain that real quick, too?
Thomas Castelli 12:18
Yeah. So an airdrop is basically when you get free coins deposited into your wallet, the best example I can give them an airdrop that many people might already be aware of, is if you go on like a platform like coin base, and you learn to earn coins, like you can fill out you could do a little quiz. And they'll AirDrop you like $4 worth of like stellar or whatever they're going to airdrop you, that's free money that they're giving you or money that you earned is basically gonna be subject to ordinary income tax rates, because it's basically considered earned income and in a sense,
Brandon Hall 12:49
yeah. And then when you sell the coins later, what does that look like?
Thomas Castelli 12:54
So yeah, later on, when you ultimately sell the coins, that's going to be the difference between the sales price. And the cost basis, when you receive the coins is going to be a capital gain, either short or long term, depending on depending on how long you held the asset. And what's that cost basis, that cost basis is going to be the value of the coin at the time you've received it.
Brandon Hall 13:15
So if I'm AirDrop $4 worth of coin, I have to recognize ordinary income of $4 on my form 1040, right. And then $4 is my cost basis. So when I sell the coin later, or a sliver of the coin, for $10. Now I've got a capital gain of six, right? Right, in the reason that the $4 becomes my cost basis is because I'm paying tax on it, because I'm reporting it as ordinary income on my 1040. So any any money that I've paid tax on becomes my cost basis. And that's true, really, in any asset. Any money that I've invested in any sort of asset that I've already paid tax on is my cost basis, I don't have to pay tax on that income again. So I received the $4 of income of coin, I have to pay taxes on that $4, even if I don't liquidate the coin. But now $4 becomes my cost basis since I've just paid taxes on it. So when I sell it later for 10, my gains only six bucks, not 10 bucks.
Thomas Castelli 14:12
Right? Right. So if anybody's getting any massive air drops is something you're going to have to keep an eye out on the similar situation for pretty much mining, if you're mining or staking your coins that can also be considered ordinary income as well. And that could be subject to self employment taxes on top of your ordinary income tax rates, which is something you're going to keep in mind. And depending if you are a professional miner, if you're a professional and you're doing this as a business, you're running a business, you'll be able to deduct your expenses against the income that you earn from your mining efforts. And to back it up real quick if you do mine a coin. So if you mined a coin and you receive that coin, the cost basis of the coin is going to be the fair market value at the time it was mined. And then that's going to be counted in your ordinary income like we just discussed. If you've later sell that coin, it's going to be a capital gain or loss depending on, you know whether or not you sell it for more or less than you bought it for. But just
Brandon Hall 15:08
so for those that are listening that don't understand what mining is, can you briefly explain that?
Thomas Castelli 15:13
Right, right. So essentially, and this is where I'm going to stretch my understanding of the cryptocurrency space right here. So cryptocurrency is part of this decentralized network. And mining is, is usually what generates or validates these transactions on this decentralized network. And in exchange for your efforts in mining these coins, you often receive rewards, and the rewards are often going to be the cryptocurrency itself. So you'll see people with mining rigs, and all of these things, mining Aetherium, for example. And in exchange for being part of this decentralized network and facilitating these transactions, you may receive the Ethereum as the reward for your mining efforts. When you receive that Aetherium, as a miner, to fair market value at the time that you receive that coin is going to become your cost basis, that's going to be taxed as ordinary income to you. And it can be subject to self employment taxes on top of your ordinary income taxes. So basically, mining is essentially a business type of activity.
Brandon Hall 16:17
Right? You're basically trying to you're trying to win, the next simple way to think about it is you're trying to win the next Bitcoin or eath. And so what happens is people will, will build warehouses out of these, like highly optimized computers to in they'll build 1000s of them. The prices of graphics cards across here. Yeah, yeah, they're buying all the graphics cards. Yeah. They build 1000s of these highly powerful computers to go in. And then basically when the next Bitcoin, right, so it's like a competition, that's the way that that's the way to think about it. And when you win the next Bitcoin or or eath, or whatever you're mining, when you win the next coin, that coin is worth something, it's the fair market value of whatever it is, right? So Bitcoin might be 60,000 plus dollars, if you win the next Bitcoin, well, that $60,000 is treated as ordinary income, because you have a mining operation, you're running a business, your income that you're receiving from the mining is the Bitcoin worth $60,000. So that becomes ordinary income to you that that's subject to self employment taxes. And if you sell the Bitcoin at $60,000, then you just have $60,000 of income, you've already paid tax on it, so you're good to go. But if you sell the Bitcoin for $65,000, that's what Tom was trying to explain where, because the $60,000 of value that you receive is subject to ordinary income taxes, subject self employment taxes, you're gonna pay tax on that, even if you hold the Bitcoin. And because of that, the basis that you have in the Bitcoin is now $60,000. So when you go and turn around and sell it for $65,000, a few months later, you have a $5,000 capital gain. And it's gonna be short term or long term, depending on how long you actually hold the coin. So important to understand that when you're mining, you have multiple layers of taxes here that you have to watch out for. Now, the nice thing about mining I mean, what's the nice thing about mining right, I'm going to tee up with this softball question. The nice thing about mining is that when I buy all these computers, what do I get to do?
Thomas Castelli 18:24
You get to write them off, you get your tax markers, and you know, with with 100% bonus depreciation, you can take 100% bonus depreciation on the computer assets you're buying, because they're generally going to be considered five year property. So it's, it's fantastic.
Brandon Hall 18:38
Absolutely, yeah. Yeah. So you can you can be buying these really fancy computers and 100% Bonus, depreciate them, write them off, and that'll directly offset your bitcoin income, which is really nice, or your ether, whatever you're mining in type of income, which is really, really great. Now, what about forks? Explain crypto forks.
Thomas Castelli 18:56
Yeah. Okay. So again, stretching my understanding of this space, but okay, basically, the cryptocurrency has a certain protocol. And they're operating on this protocol. And then they basically upgrade the protocol. And they shift away from the former protocol, and it creates something new. And I think an example like this might be like eath 2.0, please don't kill me if that's not accurate. But like, you have Aetherium running on one protocol, they eventually upgrade it to another protocol. And there's a there's a fork, it diverges in the wreck of a fork in the road. And if you receive crypto as a result of this fork, that's effectively in a sense an airdrop in a way, and that's taxed as ordinary income when you do receive cryptocurrency during a hard fork to all the crypto experts out there. I hope I did this justice, really digging into the crypto space now to fully understand the crypto world. But that's that's essentially what happens. You receive crypto as part of a fork. The bottom line is it's taxes already. Income. Alright, so we're talking about borrowing, lending, borrowing or lending your cryptocurrency as well as NF T's to other popular ways to earn income in the space or getting involved in space. So if you have Bitcoin, let's say you have Bitcoin and you're on one of these platforms like Gemini or what or what have you, and you could basically lend your cryptocurrency and earn an interest rate on it, that income is taxable and is to be reported on your income taxes as ordinary income. So just know that if I have $100,000 worth of bitcoin and I go and put it on a platform, that's going to give me an 8% Return on my, on my money cuz I'm lending them the crypto, that $8,000 per year that I would be earning is going to be considered ordinary income. So just something to keep in mind. If you are lending your crypto, now, NF T's is another big one. Nf T's are non fungible tokens. And it's it's very interesting space. It's like your non fungible token is essentially your a Bitcoin is a Bitcoin. And an Aetherium is an Aetherium. But an NFT. Each NFT itself is different, like you could have $1. Okay, so I'm trying to say is,
Brandon Hall 21:11
yeah, you're right, you're right, if t is a is a non fungible token, and it's meant to represent one instance of whatever it is, so it could be like a GIF, or, you know, a painting or something like that. And, and you can trade those NF T's, like it's a layer on top of the asset, if that makes sense.
Thomas Castelli 21:32
Yeah, yeah, it's usually sits on top of a protocol, most of the time, it's Aetherium, or maybe a Solana, you'll have all these non fungible tokens built on top of those platforms are built on top of those block chains. And the way NF T's are taxed is kind of two different ways to look at it, right. So there's the investor side, and there's the actual creator. So if you're a creator, you're an artist out there, and you create a video that you turn into an NFT, you're not taxed on the actual creation of the NFT. In and of itself, however, you would be taxed when you will ultimately sell that NFT. And that would be taxed as ordinary income. Now, if you're just buying and selling NF t's on the market, you're an investor and you're subject to same rules that we basically had discussed earlier, where you buy it, you have a cost basis, when at the fair market value, when you buy it, and you later on sell it, you might have a capital gain or loss. But so that's kind of how it works on the investor side, but from the Creator side. Again, if you create it, you're not taxed on it, you're only taxed on it at the point when you sell it. But just kind of be aware that when you're exchanging entities for another NFT, you're basically selling it turning into US dollars and then buying the other other NFT. Or if you're using cryptocurrency to buy NF T's you're selling the cryptocurrency turning into US dollar than buying the then ft. And same thing if you trade NF T for another. So just keep it keep in mind that there is no exchange feature here with NF T's either. And it's one I think we had a few questions from some, either clients or subscribers that attack smart investor service, what happens when you have weapons when you have a massive gain from an F T and because the licenses ran up. And you know, you can use capital losses to offset the NF T's. Remember, if these wash sale rules do ultimately make it into the bill back better act, which I believe they will, that's not going to take place until basically January 1 and onward 2022 and onwards. So it's not going to apply to 2021. So if you're if you have massive gains from NF T's or cryptocurrency in general, consider selling some of your loss positions this year and 2021 to be able to take advantage of you know, take full advantage of being able to use those losses, because you might not be able to do it if you want to buy it back next year with the wash sale rules. So I hope hope that made sense there. But basically, long story short, NF T's are basically treated as capital assets in the hands of an investor, or can be considered ordinary income in the hands of creator when the Creator actually sells those NF T's into the marketplace.
Brandon Hall 24:09
I know all of this is kind of sounded confusing, but compare it to the stock market. It's the same sort of concepts here, right? Like if I am a business and I create value, then the value that I create is going to be taxable to me whenever it's realized, that's the mining right? Whenever I realized the value, whenever I realized the coin, it's going to be taxable to me and I can continue to hold on to the coin or I can sell it at a later point in if T's coins stocks, you know, I've got a cost basis in all of this. And whenever I sell, I compare my sales price to my cost basis to figure out if I have a gain or a loss and then I look at how long did I hold the property for that I hold it for 12 months, less than 12 months or more than 12 months that determine shorter long term treatment. So it's all very Similar to how the world has already worked, we're just introducing a new type of property. And that's the difference. But what's important is that all of this is considered non passive, right? It's all considered non passive. And now I'm introducing a new term for people that are not avid listeners of our podcast. But for those of you that are avid listeners of our podcast, the green light should be going off in your head, like, Oh, this is starting to make sense. All of the coin income is going to be considered non passive or not from a passive activity, which effectively makes it non passive. So, when you when we're talking about rental real estate, and how this all meshes together, that's where like, the magic happens. And you know, if I, if I sell a coin, for massive gains, or I sell an NFT, for massive gains, what am I going to do to mitigate my taxation? I can't go and reinvest it into new coin, I just sold it I've got massive gains, well, you can buy rental real estate. And depending on if you are working a full time or part time job, or a job at all, or running a business or whatever you're doing, depending on what your main activities are, you could potentially qualify as a real estate professional for tax purposes, not like you know, getting my real estate license, but the IRS designation of real estate professional status. We have multiple podcasts on it, Tom, we'll get you the episode numbers, I think, and we actually named them reps, what Yeah,
Thomas Castelli 26:25
it's reps, O one, O two, O three, and O four. Alright, so
Brandon Hall 26:29
if you don't know what real estate professional statuses, go find our podcast episodes that we've previously recorded called reps, O one, O two, O three, O four, there's four of them to whole series, you'll walk away, probably being top 1%. In the United States, knowing what real estate professional status is and how it works. If you go and listen to that series, and yes, I'm proud of that. But when you have your coin, and you sell the coin, for massive gains, you need to start looking for ways to mitigate those gains. One of those ways is to qualify as a real estate professional for tax purposes, in qualified real estate professional for tax purposes, your rental real estate losses. Because you can use these gains to go and invest in rental real estate. That's the whole point. That's what I'm trying to get to right sell your coin, you take the gains, you don't roll them over, there's no 1031 or anything like that happening. You just taken the cold hard cash that you've received, and you're buying a bunch of rental real estate assets. And when you do that, your rental losses are passive by default. But qualifying as a real estate professional moves them out of that passive bucket and into the non passive bucket. And remember, I just said all that coin stuff that's non passive. So you got to move your rentals into the non passive bucket in order to have the rental losses offset your current income, but it's highly effective. So real estate, professional status allows you to make that move, it moves the rentals out of the passive bucket into the non passive bucket. That's what real estate professional status does. And so you're able to then go and buy rental real estate, use the tax losses from rental real estate tax losses, not operational losses, like real estate is typically going to give you cash flow, even while you report the IRS that you've lost money, it's a beautiful thing. So he buy a bunch of rental assets, you use the tax losses to offset your gain from your coin sales, and you net it out, you're good to go. There is a caveat, of course, and that is the excess business loss limitations. And that's a 500k cap if you're married to 50 If you're single. And what that cap is, is any loss in excess of business income is capped at that amount at 250 or 500. So if I'm a W two employee, and that means I don't have business income, so I don't have any other business income. I'm just a W two employee and I I'm trading Bitcoin I'm trading eath. I'm getting in on the Dogecoin you know frenzy, all that type of stuff. I've made a million dollars doing this. If I sell all my coin at a million dollars, then I cannot even if I bought a million dollars with a rental real estate, I can't use all the rental losses to offset my million dollar gain. I can only use up to 250k of rental losses, or up to 500k of rental losses if I'm married to offset that game. The way around it as it pertains to Bitcoin would be if I'm mining coin, because when I'm mining coin, I'm creating business income. And remember that 250 K that 500k cap is only in excess of my business income. So for the miners out there real estate can literally wipe your income out.
Thomas Castelli 29:33
That's fantastic and you know something about mining I don't know all too much about it. But I do believe it's relatively passive once you kind of get it set up I don't think that you know you're you're not actually saying they're mining the coins like like it would be mining gold that you build the rig and you let the rig go and I'm sure there's some monitoring that has to go on and making sure that things don't blow up and troubleshooting and bug fixing and all that type of thing. But that might be able to open you up to spending a lot of time in the real estate world in the real estate industry and allow you to qualify as a real estate professional and really allow you to really take advantage of both real estate professional status and all the mining activities that you're doing, which, actually, now I'm thinking about it. I'm like, Well, it's actually a really big opportunity here.
Brandon Hall 30:19
Yeah, well, in on top of that, there's liquidity pools too, right. So maybe you're maybe you don't know how to go and build these rigs, these computers, but you've got $100,000 that you want to invest in mining operations. And you know, somebody that's building the computers, and they're setting it all up, and they're running it in some major warehouse? Well, there's liquidity pools out there, where it's like a real estate syndication is effectively what it is, you get a lot of people to put $100,000 in, they buy a ton of computers, and they just go in mind all the coins that they could possibly mined. And it creates income for the overall fund, and you get an allocated share of that income or portion of that income. Well, that's business income to you. So same concept applies, you can go and buy rental real estate, the tax losses, as long as you're a real estate professional, you got to be a real estate professional.
Thomas Castelli 31:05
Well, what if it's a passive activity? Right? So if I go and invest $100,000 into liquidity pool, there's a manager liquidity pool, I do Absolutely. Nothing about that. I do nothing. Right. I do not spend 500 hours or more is there's other people involved, right. So now while yes, it's business income, it would be a passive activity to me, and I can go buy a bunch of real estate and still be passive still keep my day job, right?
Brandon Hall 31:32
You don't have to be real estate professional rise, your rental losses are passive, right. And the mining activity is passive because you're you're not running the mining activity, you're just investing in it, and you're getting an allocable share of the income. Right? So now you don't have to be a real estate professional, your rental losses can offset the mining activity income bam, yes, beautiful thing. We need all the crypto people in the entire world to know that we exist. So the US real estate to not pay gain on their crypto.
Thomas Castelli 31:59
Yeah, I mean, like you said earlier in the podcast, there's a lot of ways that that real estate and crypto can really coexist in a very beneficial way for tax years, no matter whether you're a real estate professional or not.
Brandon Hall 32:10
And we need all of our avid listeners to promote this fact, to all of your crypto friends, that real estate can offset this crypto income in a lot of different ways. Because then what will happen is all the crypto people that are making a lot of money, we have a couple in our client base that have made literally millions of dollars
Thomas Castelli 32:30
10s or 10s of millions of dollars. So you
Brandon Hall 32:35
know, it's incredible, it's really incredible, but we want them to come by real estate, because then all of our real estate, what happens the value goes up, right? Right, right, right. Right, right. Go out there until everybody that real estate is amazing. An amazing way to offset your crypto gains, will get all these crypto guys to come in and buy hard assets. And our asset values will increase.
Thomas Castelli 33:01
Yeah, good thing. I'm making investments in real estate soon just to make sure that the wave I'm riding the wave because you want to be in hard assets folks kind of off topic, but you do not want to sit in cash. I tell you right now sitting in cash is is a risky bet. So anyway, invest in hard assets, invest in crypto, it's not financial advice, but just don't sit in cash.
Brandon Hall 33:23
Tom comes me probably what once every two weeks now talking about how much inflation is eating away. Yeah. Yeah,
Thomas Castelli 33:31
you know, you know what it is? It's like I got hit with the perfect storm, right? Like I had all my plans in place to make all these investments and then all sudden inflation hits at the worst possible time for me, and it's just like crap. So my biggest learning lesson has been my biggest takeaway for 2021 has been a trust your gut because your guts probably right? And be, don't sit in cash, always have your money moving. Have you ever heard of the term velocity of money, I learned this actually from one of my investor friends, they don't want to sit on cash flow. And they immediately want to take the money from cash and move it into some type of security or some type of asset, just so they're always continually earning a return on their money, because cash inflation just eats away your cash. And with point 5% interest rates in the marketplace right now on savings accounts, not looking quite too sexy. In fact, buying a bunch of cryptocurrency and just lending that out at 8%, which is very easy to do. Well, Mike carries some risk. Looks very tempting in this in this current environment. So sorry for the tangent guys, but Welcome to the Real Estate CPA podcast.
Brandon Hall 34:40
It's all good. It's all good. Well, I think that's all we have for you today. So if you're interested in joining our market test, and really what that means for you is just getting tax questions answered related to crypto, go to facebook.com/groups/tax Smart crypto investors. You can just request access We will accept you into the group. And we'll try to answer some tax questions. See what people are asking and see if it's something that is viable for us to potentially get into as a service line. Absolutely. Alright everyone have a I guess you're listening to this. It's already been Thanksgiving, but we're recording this pre Thanksgiving. So have a happy Thanksgiving. And we'll see you next week. See you then. 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
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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.
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