5 Tax Benefits for Real Estate Investors 2018
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5 Tax Benefits for Real Estate Investors 2018


Are you a real-estate investor? You want to save on your taxes? I’m going to show you
five key ways that you can save on your taxes,
thanks to real estate. That’s today’s episode. Let’s get to it. Hey everyone, I’m Clay Morris,
longtime real-estate investor founder of Morris Invest. This show is devoted to helping
you create passive income and creating financial freedom. I don’t care about real estate. Yes, that’s the vehicle
that we use to get there. What I care about
is allowing you to create more
space in your life if you want to spend
more time with your kids, you don’t want to commute
to and from work anymore, you want to be on
vacation, and you want to have passive
income coming in every month from
your rental properties. That’s what we want to
teach you on this channel. Financial education– that’s
what we want to teach you. And today, we’re
going to teach you five ways in which this new tax
law is already benefiting us as real-estate investors. So get out your pad
of paper and pen because I’m going to dive
into some really great areas, if you’re not familiar
with this new tax law, how it can benefit you. Number one is the
corporate tax rate. It has now been
reduced significantly. What does that mean? What is a corporate tax rate. Well, it’s the rate at
which businesses are taxed. You often hear Warren
Buffett talk about the fact that he is taxed less
than his secretary. That’s true. His secretary is
a W-2 employee who works for him at
Berkshire Hathaway, actually is taxed at a higher
tax rate than a business. And now, under the new tax
law, corporate tax rates have dropped to 21%. This is an enormous cut in the
corporate tax rate and the way in which a business is built. For many, many
years, corporations were crying about the fact
that you could go to Ireland, you could go to other parts
of the European Union, you could go to
Australia and New Zealand and be taxed at a
much lower rate. That’s why all these companies– Apple, Google, and others– are putting corporate
headquarters or corporate offices
in places like Ireland because they could then
offshore so much of their money. Well, guess what. The United States
would like to have some of that money come back. And this, according
to the tax experts, could be a boon for
businesses to come back to the United States– Having more of
the infrastructure back here at home, hiring
individuals here at home. Think about Airbus,
for instance– moving that headquarters
perhaps to North Carolina, moving it out of Europe
here back home so that we could create thousands of jobs. But they would also save
a boatload of money. It makes them really
competitive with the world. So a 21% tax rate– that is perhaps the
biggest winner overall– corporations being
slashed down from 35%. Think about that savings– 35% to 21%. So as a corporation who
invests in real estate, you just got a
boatload of savings. So now you might be
new to the channel, and you might not
be familiar with how we invest in real estate
here at Morris Invest. We have businesses that
invest in real estate. I, Clayton, do not invest in
real estate in my own name. That would be a road to ruin. And we have a lot of videos
here and resources here on the channel for you to be
able to reach ahead and click on to be able to learn more
about the best entities to buy real-estate
investing and all of that. So please check
those resources out. We will be happy to help you
go deeper into those structures and how to best set those up. I personally use LLCs,
Limited Liability Companies– Limited Liability Corporations–
to own my real estate. That’s a company. That’s a corporation. And guess what. I now have the benefit of
this tax overhaul the way in which my business is taxed. So my business owns
the real estate. The cash flow for the tenants
comes into that business. And guess what. Now, that corporate
tax rate’s way lower than it would’ve been
if Clayton Morris owned that property. If I just own that property and
I took $700 from the tenant– thank you very much– guess what. Now, I’m taxed at like 35%. I’m taxed way higher
as an individual than I would be
as a corporation. That, my friends, is
financial intelligence. That, my friends, is
how we buy real estate. We buy them in an entity, OK? Please remember that. We buy real estate
in a legal entity. There’s a whole bunch of
different ways to do that. Number two, small businesses– they’re getting a 20% deduction
now on pass-through income– now small businesses and guess
what– ding, ding, ding, ding– real-estate investors. So if you’re a small
business, and you have a passive
business, now you get to have that benefit
of that 20% deduction. So this was one of
those things that was worked into the tax bill
literally the night before, like the night before. Real-estate investors
had now been asking for this deduction
for a long time– this pass-through deduction
because the oil and gas industry has had
it for a long time, but real estate
investors did not. Now we get it– a 20% deduction that we now
claim passively as that money flows through. So professional-services
companies, like doctors, and lawyers, and
accountants will only get that 20% of that
deduction if their income is less than $157,000. However, real-estate investors
get a 20% pass-through deduction on their income– another reason to be a
real-estate investor. How many times have to
pound the wall to tell you? But that additional incentive
now in the tax code– a 20% deduction– is
absolutely killer. I frankly cannot wait to see
what my taxes look like next year. It’s going to be a total change. We’re talking like
Tens of thousands of dollars in
savings just because of this switch in the tax code. Number three on the list is
business-equipment deductions. Now section 179 has
now been shifted to allow residential properties. So now guess what. Roofs, HVAC units, fire
alarms, security devices– those additional improvements,
those additional items for my business can
now be written off under the new tax law. So business equipment has always
been computers and machinery. Now, these standard
deductions, these depreciations can now exceed to things
like roofs, HVAC systems, and additional items. So again, the IRS saying, hey,
why don’t we just make it more broad, why don’t we dive
a little deeper into some of the areas where people
are having to depreciate– roofs and those extra
items inside of a company– these are powerful
tools for you to be able to use in your arsenal
of depreciation and taxes. Like I always say, if you’re
a real-estate investor, you should not be paying
anything in taxes. If you do it properly,
you do it legally, and you do it according
to the tax code, you shouldn’t be
paying anything. That’s the bottom line. And there’s so many
incentives like this– the 179 deduction–
that are in there now. And you can dive much
deeper into the 179 if you want to see
all the nuances. It’s dense. It’s very dense,
but dive into it so you get a better sense if
it’s right for your business, or if you’re a real-estate
investor, how this could affect your holdings. Number four, your children–
do you have children? Are you thinking
about having children? Guess what. Good news. Good news. You can now hire
them as an employee. Now I love this. So you can have even
little children. It doesn’t even matter
how old they are. They can work for your company. They can’t be doing all
kinds of crazy manual labor? We have child-labor
laws in this country. But parents who hire children
can get that deduction up to $12,000. So children who work
for their parents’ company, or any other
company for that matter, can now earn up to $12,000. Well, where’s that money
going to come from? That’s going to come from
you, the company, right? So your company,
ABC Linoleum, is now going to hire the
children to be pictures in the store on greeting
cards that are sent out, or mail and advertising. So maybe you have your
children photographed, and they’re part of the
advertising campaign for ABC Linoleum in Kansas City. Who cares, right? And they work for you. They had to do a photo shoot. They are now part of the
face of this company. Maybe they come
in on the weekends and they help to clean
up the retail store. Maybe they are responsible
for helping loading some boxes off the truck. Maybe they help
shred some documents. You know, you get big piles
of paper, and you need, want to shred that
stuff, have them put it through the shredder
as an employee. They have to do a
reasonable amount of work to be considered an employee. And dive deeper into the tax
code to learn more about that. But guess what– one
child up to $12,000. So we have three
children, right? And it’s doubled from
where it used to be. It used to be $6,000. Now it’s up to 12,000. So that’s $36,000 that now
can come off of our business’s bottom line that we are
not then being taxed on because we are
paying our children, who are employees of the company. So if you’re a
real-estate investor, and you’ve got a
business– you set up your business as a real-estate
investment company, maybe they come out and help
look at properties with you. Maybe you spend some time
looking at and drawing up samples of construction
on the internet. Who knows what it is– you
can get creative about this. But make sure they’re actually
a part of the company. We use our children in a
lot of different videos. We have them doing some
office work with my wife– some documents and
shredding of it, putting things together,
putting stamps on envelopes and mailing out
different things. So our kids are working. And you can pay them that. And guess what, that
$12,000 per child comes off of your bottom line– so again, thinking
like a business owner, as a real-estate investor
who owns an entity, you are a business owner. Think of it that way. And number five on the
list is the estate tax. Now this is great because
almost everyone can now leave their money, their
assets to their children and not have to
pay a huge estate tax on that money
and that transfer. Real estate has always
been great in this regard because if you’ve done like
1031 exchange– by the way, I’ve got a whole series of
videos on 1031 exchange what that looks like– but as a 1031 exchange,
you transfer that down to your heirs, and then they
decide to sell it after you pass away for some reason
instead of keeping it for the cash flow–
which would be crazy, and I don’t know
why they would– but they decided to sell
it, well, guess what. Then they are only then
taxed on the capital gains from the original
value transfer way back. Maybe you did a it shows
like four or five times. So your children have always
been able to have that benefit. But now, the estate-tax
exclusion has increased from, if you’re a single person–
$5 million to $10 million, and if you’re married, it’s
$10 million to $20 million– so just a huge increase
for those people who want to leave
money to their heirs. As a real-estate
investor, when you’re buying 10, 15, 30 50,
60, 70, 100 properties, you’re building an estate. You’re building a dynasty. You should be able
to protect it. And now, under this new law,
the handoff to your legacy, to your dynasty, is
now protected in a way that it wasn’t before– additional benefits if
you’re a real-estate investor in that estate being
handed down to your kids. So those are five key ways
that, if you’re a real-estate investor under this
new tax law, you are going to do really well. Set yourself up as a business. The passive deduction
of 20% now deducted– that’s amazing to offset
your other income, being able to have children
in your family as employees of your company, and
how many kids you have– You don’t have to keep cranking
out kids if you don’t want to, but my God, $12,000 per
child now is that deduction if they work for you– some killer strategies here. That’s why if you really
embrace the tax law, and you understand that the tax
law is written to benefit you– not to hurt you– it incentivizes you
to become wealthy, then the sky is the limit. Once you start sinking your
teeth into this stuff, man, your brain starts
going in all kinds of exciting and creative ways. So that’s what it does
in our family anyway. We sit around the dinner table
and talk about this stuff. So I hope that you will
be excited about it for you to go out
there and take action, become a real-estate investor. I believe it’s the number
one way to build wealth. And if you’re looking to book
a call with our team at Morris Invest, we would love to talk
with you about picking up rental properties. We help thousands of people
around the world do it. All you need to do
is go to our website, click on the “Book a
Call” tab right there. 8 questions will pop up,
like, hey, what’s your name? What’s your email address? What’s the phone number
that we can call you? And tell us a little
bit about yourself, and then you pick the best time
to jump on the phone with us. It’s that simple to do. And we look forward
to talking with you about rental real estate. Until next time,
everyone, go out there. Take action. Become a real-estate investor. And we’ll see you
back here on the show. Have a great one.

26 Comments

  • Simon Martinez

    Does that mean 20% deduction off the income the rental property produces?

    So if my rentals bring in $50,000/yr gross, does that mean I’ll only be taxed on $40,000 (before all the other tax deductions applied like depreciation/expenses/ect) ?

  • Vincent Jarbo

    Can newly opened LLCs purchase rental property? I’m getting mixed answers and I don’t want that personal financial liability

  • CJ Watson

    You the man Clayton! Cant say thank you enough for all that you do for the people. Your time and energy are much appreciated! Morris Invest is one of my all-time favorite YouTube channels!

  • Daniel Von Pache

    Lovely, lovely but could you kindly elaborate as to how mitigation(elimination by your recommendation) of tax liability being a direct indicator component of income and/or key fundamental to obtaining debt financing as DTI and DSCR predominate the lending landscape decision making under the new regulatory regime, aid in leverage and/of scale? Moreover, my recent experiences w/numerous lending/debt entities had taught me(quite harshly), that unless I'm willing to rewrite my tax filings and forego the "write offs", they are unable to lend. All things considered bottom line boiling down to simple arithmetic and partaking in advantageous policies, I am clearly missing something and kindly welcome any transformative feedback.

  • Marti

    I have kids that I actually do hire to work for me. they're in there 20s. They do things like clean out the property. If I claim that, do they also have to declare that?

  • Marti

    I inherited a condo in Florida from my dad. He purchased it for $35k. It's now worth about $65k. What does that mean for me if I sell it and use a 1031 company to roll it over to something say in New Jersey or PA. I'm thinking of a duplex.

  • Eng.Mbaria Mbugua

    We had missed your videos Clayton for a couple of weeks when you were of air. May you be rewarded immensely for sharing these vital information for those who want wealth creation.
    It would be paramount important if you could use figures to demonstrate working on tax benefits say for a house of 60,000 dollars. It would reinforce convincingly those in doubt.
    May blessings continue pouring to you.

  • Lvis M

    l really enjoy the videos I seen so far, I recently open an LLC but how do I added my house into it and can I add repairs on this LLC on my only house. Thanks for making this videos.

  • DJ Grier

    Awesome video!
    Question, I’m aware C-corps can sometimes run into double taxation. Which do you prefer C-Corp for real estate investing or S-Corp?

  • Maritsa Cortes

    Is there any way to get in touch? I currently live in Hong Kong but am moving back to the States soon. I tried to set up a call but unfortunately, it didn't come through.

  • Robert Joseph

    Clayton,

    what’s your opinion on how important ROI is for a first time homebuyer purchase living in a multi family home.

    Say a 3 unit house with you living on top floor and renting out bottom two to break even or net small gain over mortgage cost while living free and building equity until saving for next house.

  • Lilyrose Bee

    This is a really wonderful advice! Love your videos! I'm doing early planning for my 3 kids' college tuition. I read that small family businesses dont need to be reported on financial aid application. I have one rental property and plan to set up as a LLC. Can it qualify as a small family business such that it will need not to be reported on financial aid application for college? Thanks

  • The Art of Tracking

    Hello. Recently found your channel. Great stuff !
    When you make an LLC for a property you are renting do you have to change the property title to the LLC name like i sold it to the LLC ? Or does it just stay in my name.
    I am going to do this on the state website the LLC.

  • Theresa Davidson, RE/MAX Platinum Realty

    You mention Robert Kiyosaki's advice – why is/what do you think of that he saying R.E. is in a bubble and he is selling (which he hates to do)?

  • Cash Flow

    Wasn't this guy a Never-Trump guy on Fox News? Can you imagine the increase in taxes and regulations if Hillary was elected.

  • Todai61

    On a mortgage on a rental property, are you required to pay insurance and taxes, i.e., escrow through your bank? How does it work with a private investor?

  • Firstz Lastz

    K so correct me if I’m wrong.
    Open LLC which makes the rental income than open a cooperation under this LLC which is either C or S- cooperation and then hire kids under 18 as employees after that take advantages of section 179 & estate taxes? .. in this scenario aren’t u paying more taxes?

  • Jim Lahey

    Im in the process of buying my first duplex but had no idea about being able to tie an LLC into it. I have one but in registered name only, its not actually operating any services at the moment. Am I still able to do this?

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