In this video, I discuss 10 different strategies to avoid and/or mitigate capital gains!
This information could potentially save you hundreds, thousands or millions of dollars when you’re investing into Real Estate…
Tyler ‘tax free’ Bossetti here gonna teach you in this video how to build generational wealth tax-free okay now specifically what we’re gonna go over today is what is called short-term capital gains and also long-term capital gains okay.
There’s two different types again of capital gains tax and it’s a big reason why investors specifically real estate investors like myself and potentially like you are able to either make a lot of money or potentially lose a lot of money is understanding this exact area of taxes okay.
Now you know full disclaimer here I’m not obviously a CPA I’m not giving you tax advice by any means but what I am going to share with you is how I’ve been able to build an eight-figure real estate portfolio tax-free also leveraged on other people’s money okay.
So again today what we’re going to go over is what is the difference between short-term and long-term capital gains and then also I’m going to go over 10 different ways you can avoid capital gains regardless of sleepy Joe Biden decides to you know change up the tax law and whatnot I’m gonna go over exactly how you can prepare yourself now and start doing things today in order to build your portfolio build generational wealth and again stop handing money to the government and you can protect that money and you can continue to put it into more and more real estate deals like me.
So number one we’re gonna go over what is short-term capital gains okay short-term capital gains is pretty simple whether you’re buying stocks bonds real estate even a car let’s say right let’s say I buy something for a thousand dollars and I sell it in six months for two thousand dollars that thousand dollar profit I would have to pay short-term capital gains because that is the profit on that asset within less than 12 months if it’s more than 12 months I would have to pay long-term capital gains but the way that they calculate what the tax code is a different percentage based on when you sold right.
And you made the profit and also based on the actual income okay so if you look at this chart here you can see the difference of short-term and long-term capital gains and ideally obviously it makes sense to keep that asset class whether again it’s stocks, whether it’s bonds, whether it’s again a watch or a car or real estate keeping that for for longer than 12 months and a lot of the investors that invest alongside me in our real estate deals.
They actually invest for 12 or longer months because they can avoid that short-term capital gains because as you can see again here on the chart you can see that it is higher if you are selling to making a profit less than 12 months okay so again the biggest thing and the biggest difference between short-term and long-term capital gains is the time frame of when you sell that specific you know asset and you make the profit and then the way that you’re taxed on it is is higher with short-term capital gains based on ordinary income.
Again for the third time here that you can see on the chart okay so again short-term versus long-term capital gains how do we actually avoid capital gains altogether specifically in real estate and that’s what we’re going to go over right now the 10 main ways that I avoid capital gains and and how you can do the same so the first step to avoid short-term capital gains is living in the property for at least one year okay.
So what I do is I buy distressed properties here in Columbus Ohio let’s say it’s a hundred thousand dollars and I put fifty thousand dollars of repairs to the property now it’s worth two hundred and fifty thousand dollars okay so what I can do is either one I can go live in the property right and have a hundred thousand dollars of equity and refinance and be able to put that money as far as the difference from the lender into my pocket tax free right.
Because I’m refinancing the loan and and that debt quote unquote that I’m getting from the bank is tax free and then after 12 months right on the 13th month I can move out of the property start renting it out cash flowing on the asset and you know sell it in in two or three or four years and I would be potentially just paying you know long-term capital gains.
The second way is to live in the property two out of five years you avoid capital gains altogether so what I could do again same circumstance you buy the property you renovate it you live in it for let’s say a year and I go move to Miami and I rent it out for a year and then I come back a year later right year three and I live in it for another year as long as you live in the property two out of the last five years you avoid capital gains.
All together you don’t pay short-term or long-term capital gains again as long as you lived in the property two out of five years now in the first example I gave I live in the property and I decide to move out after year one and I don’t live there two out of five years and I sell the property and I make that hundred thousand dollar profit what I can do which is step three is what’s called a 1031 exchange and what a 1031 exchange is is when you sell an asset like a piece of property and you make profit on it.
Let’s say a hundred thousand dollars in this example and you roll over that hundred thousand dollars of profit into the next like property right so I can go buy a single family here make a hundred thousand dollars sell take that hundred thousand dollars you work with what’s called immediate and those funds never hit your account right and you have to identify the next property in 45 days okay.
So I say I’m gonna buy one two three main street and this hundred thousand dollars is going to go into an escrow account that never comes into to my personal or business account take that hundred thousand dollars that’s my next down payment on the second property don’t pay any taxes on it okay and as long as you close within 180 days it’s all tax free right and that’s called the 1031 exchange where you are selling for a profit and then rolling over that profit into a like a like asset now keep in mind a lot of what we’re going over today is potentially going to change because of the the Biden triple threat tax law that you know could completely change every asset class okay.
And for more information on that and how I’m preparing and how you can prepare is in another video so go ahead and check that video out if you haven’t done so already and the fourth way is to invest from self-directed retirement accounts so if you’ve been following my channel or been following me on Instagram or again here on YouTube you probably know that there’s a lot of creative ways that I invest in a real estate through you know leveraging cryptocurrency leveraging credit but specifically using a self-directed retirement account such as an IRA or a solo 401k that can allow you to avoid what’s called a taxable event okay.
So what I do is I put money into a self-directed IRA I put money into a solo 401k and I also put money into different type of insurance accounts and then I can borrow against the cash policy of those accounts and invest that directly into real estate because again you’re borrowing with an interest rate attached to it.
Let’s say it’s three to five percent whatever the number is the money that I’m paying on the loan each and every single month is going towards the cash value policy so really it’s like me paying myself but I’m able to leverage those accounts and get tax advantages on the money going in borrow against them pull the money out of that account invest into a property over here and I fix and flip the property.
I make money well that profit never touches my account or my personal and or business account it just flows right back into the retirement account and there’s no taxable event all right so leveraging self-directed IRA accounts or self-directed solo 401ks is a phenomenal opportunity for you to leverage those retirement accounts because if you again been following me you know I’m not a huge fan of retirement accounts unless you can leverage them versus if you pull against the cash policy a lot of traditional 401ks.
The reason why they suck in my opinion is because you get taxed on the front end right you lose typically like 10 percent of the value up front and then you go make an investment with it you have to pay a loan but you also have to claim that as typically ordinary income and if you remember the chart that can be a lot of money that you’re just throwing out the window and in fact you may just lose money on the deal.
It doesn’t make sense so if you have money sitting with an old employer you can roll over those accounts with a self-directed account and below this video I have a phenomenal connection that can help you guys out they’ve helped hundreds of our clients set up those new accounts and also have helped our clients roll over from previous employers to be able to start borrowing against those self-directed retirement accounts and the fifth way is to keep bookkeeping and what I mean is specifically with what’s called capital improvements like I said I’m buying properties that are distressed here in Columbus Ohio and there’s a lot of money that’s going into those projects maybe fixing the roof the HVAC system.
So all of the work that we’re doing to improve the property and then when I keep it as a rental right you still have maintenance fees you still have tenants that are damaging the property or your goes wrong when you’re renting a property right.
The wear and tear but if you keep proper bookkeeping and you’re documenting everything with all of your properties whether you have one or you have thousands you can write off those capital improvements so if and when you sell the property for a 25,000 profit but you put 25,000 of capital improvements into the home it could basically be a wash at the end of the day 25k of income 25k of expenses boom at the end of the day you don’t pay any capital gains because you made capital improvements okay.
And the sixth way is to reduce your taxable income okay and I alluded to it a little bit with the retirement accounts but you want to make sure that you are paying yourself first and what I mean by that is when income is coming in from your business from your properties or from your day job doesn’t matter when the income is coming in you want to make sure you’re paying yourself first.
In other words you are putting that money into deferred tax accounts like those self-directed IRAS I like an IUL an insurance policy that allows you to borrow against the cash policy but you also have a tax advantage of putting money in there a solo 401k there are an abundance amount of accounts that you can put money in right to reduce your taxable income and it defers those taxes okay and the seventh way is to sell your assets when your income drops all right.
Now again there’s a lot of things out of everyone’s control the last 12 months 13 months 14 months however long it’s been with the bill gates coed virus but regardless if your income is dropping because you lost your business or you lost your job but you are sitting on assets it may be in your best interest to take advantage of a you know fire hot market like the real estate market and get top dollar for your property and because your ordinary income dropped let’s say a hundred thousand dollars because you lost your job but you can get top dollar for your property.
It all could be a wash at the end of the day right so although you may be getting a new job although you may be starting a new business and your income is going to be you know typically or potentially significantly higher you may be able to have it all be awash because your income is dropping right or you just may be in a different stage of your life where you’re not looking to necessarily you know exchange more time and make more money.
You’re just trying to build more passive income or it’s just inevitable something like covet happens where you lose a job you lose your business and your income it just drops that’s okay that may be a good time for you to sell your assets right.
Not have to pay taxes on it because your ordinary income is significantly lower than what it has been in the past and then you can use those profits to again do something like a 1031 exchange or at all as a wash at the end of the day and you can make more investments in the future okay and the eighth way to avoid capital gains is harvesting your losses.
Now if anyone tells you that they’ve been investing and they’ve never lost money I would recommend to not invest with them because it’s probably a lie and in fact having losses are not necessarily bad you have to make a lot of l’s in order to make many more m’s okay and write that one down again you have to take l’s to make m’s okay.
So what I mean by that is I’m not saying to just sell properties and lose money and and you know in fact that’s the opposite of what you should be doing paying taxes at the end of the day guys is a great problem to have it means you’re making money okay but let’s say that you went and bought 10 stocks or 10 properties and eight of them are crushing it right.
And eight properties may be crushing it which happens a lot of times but there’s always gonna be that one or two property and or one or two stocks that’s you know not performing as you potentially thought that’s simple risk and reward I bought these 10 properties I bought these 10 stocks eight of them are likely going to crush it and it is but these other two it’s worth the risk for me to put my money in there because if they if they significantly drop or I’m not making the cash flow.
I can just sell those properties I can sell those stocks and from the loss of those two stocks I may be able to offset all the profit or a big chunk of the profit that I made on those other eight assets right and again I’m not telling you to just sell everything off and lose money you know number one is not lose money.
Number two is use other people’s money but the point that I’m getting at here is investing is risk versus reward right we don’t want to lose money in any deal and or any investment we’re making but it’s inevitable as you are growing and as you are you know learning you’re gonna have losses and that’s okay.
You can take advantage of those losses to number one learn but number two offset any gains that you are also you know crushing it in so keep that in mind and the final two pieces they kind of go hand in hand and that is setting up a potential trust to do one or two things number one you can gift your property to family.
So again if you guys know anything about me one of the main reasons why I love real estate and why I’ve had such a passion for money and building generational wealth is I lost my father at a young age and overnight you know my family had to figure it out if you will right and and so for me there’s like this burning desire deep down to be able to hand off a massive portfolio to my future family and to do that tax-free so I can set up a trust and I can gift the property over to my children and they want to have to pay taxes.
Now again referencing lovely sleepy Joe Biden he may be changing a lot of these tax rules but again there’s different ways that I am you know preparing for this and this is through a trust right setting up trust for these properties to protect everyone involved and then ultimately the goal is to avoid the highest expense we’ll ever have in our lifetime which is taxes and the last piece to that is setting up a charity all right.
If you have a charity and you can run your assets through and as far as you know the profits that you’re making I can donate some properties to charity which is you know something that you guys should all consider to be a good person but also you can use charities as a tax deduction and or an advantage however you want to look at it so again from this video.
I hope you guys got a ton of value we went over capital gains short term versus long term I showed you guys the chart of how that is broken down based on the profits that you earn and at the end of the day I gave you guys what I believe is the most important 10 ways that you can leverage real estate to build generational wealth but most importantly you can leverage real estate to make money tax-free and you can roll over your profits many different ways and those 10 reasons are hopefully going to give you guys some value and really just get you started and or scale where you’re at today.
You don’t need to take all these 10 ways and implement them all today it’s it’s a process right as you’re starting as you’re scaling you’re going to eventually get these 10 pieces to work for you and things are going to change so it’s all about improvising it’s about getting in contact with you know quality CPA’s and attorneys and lawyers and delegate that to them right.
This is not me just figuring out if you will it’s paying hundreds of thousands of dollars to have phone calls and have successes and failures like I said you got to take some l’s to make some m’s so if you got value go ahead and share this with somebody specifically somebody that’s not looking to be a peasant and they’re looking to build generational wealth like yourself again go ahead and like subscribe to the channel if you haven’t done so already swipe up click here click there and check out all the resources below see you guys in the next video.