The Wisconsin Investor
Each week, we bring you interviews with some of Wisconsin's top real estate investors who share their tips, tricks, and strategies that you can implement right away. This show is dedicated to helping Wisconsin real estate investors elevate their game. Along with interviews, I'll also dive into hot topics in solo episodes and feature experts from various real estate sectors across Wisconsin.
The Wisconsin Investor
The Big Beautiful Bill Explained — And How It Can Help You Build More Wealth
New Tax Law Just Changed Everything for Real Estate Investors
The “Big Beautiful Bill” just rewrote the tax code—and if you're a real estate investor, you need to know what changed. In this episode, tax strategist Kaden Hackney breaks down the biggest updates, including 100% permanent bonus depreciation, massive cost segregation advantages, and Opportunity Zone extensions that can help you build wealth tax-free over the next decade.
Here’s what’s inside:
• How to immediately write off ~20% of a property’s value
• Why keeping a rental could now beat a $30K wholesale flip
• How to stack bonus depreciation + Opportunity Zones to defer AND eliminate taxes
• What the 20% QBI deduction and lower tax brackets mean for your business
• And how to avoid depreciation recapture completely in 10 years
If you’re wholesaling, flipping, or buying rentals—you need to understand these updates. The investors who act on this info now are going to be way ahead when tax season hits.
💡 Bonus: Join our buyers list at WisconsinDiscountProperties.com and get our FREE BRRRR for Beginners course delivered instantly.
What's going on? Wisconsin investor audience. Welcome back to another episode. I've got an amazing guest for you guys today, a very timely guest for you guys. Today we are gonna be getting into the big, beautiful bill and so, regardless of your political affiliation, we're gonna have a lot of great information for you as a real estate investor out there today, and I'm gonna introduce our guest here in a second. Before I do, as I do on every episode, I'm going to talk about our sponsor, wisconsin Discount Properties.
Speaker 1:As you guys may or may not know if this is your first time listening we drop off-market deals in your inbox every single week at 6 am if you're Central Time and these are all heavily discounted properties. We've got our website. We're working on improving and making some changes. We're about to launch some case studies on there to show you guys actually some of the deals that if you were on our buyers list, that you missed out on, and you're missing out on some big numbers here, guys. So we're going to break that down. These are actually case studies. We've gotten the numbers directly from the buyers who bought these properties. We're going to show you those.
Speaker 1:Another thing we're doing as well for our people who are joining our buyers list. If you join the buyers list, you can do that by going to the website wisconsindiscountpropertiescom, plugging your information in there. We are giving away my BRRRR for beginners course. So at one point we charged $3,000 for this course. That was when I was doing some more one-on-one coaching along with it. We recently have been charging $2,000 for just the course and we're going to give it away for free now. So go to the website, fill it out. Connor Reese from my team will give you a call after you join the buyers list and they'll tell you how to get that course and you can start taking action on building real wealth today. With that, let's get into today's episode. I have Mr Caden Hackney with me from Beck. Cfo Caden just became a tax partner, I believe. Is that correct, caden?
Speaker 2:Yeah. Yeah, that's exactly right. We're real excited about it. Got a lot of energy for it.
Speaker 1:Beautiful. Can you tell people what does that mean when you become a partner Because I didn't know this with like law firms and accounting firms, Like I didn't understand what it means. But teleaudits, what does that mean? That's a big deal.
Speaker 2:Yeah, yeah. So that means that, for lack of better terms, I was able to negotiate a buy-in, be able to become an owner in the organization. So, with my partner, marcus Krigler, we have decided to join CARTs together for the next foreseeable future. That's awesome, man.
Speaker 1:And we had Marcus on maybe 10, 15 episodes ago. We were just talking general real estate tax strategy things. And then, right before 4th of July July 3rd I believe is when the big beautiful bill got signed into law and there's some pretty big implications good, bad or ugly into that bill for real estate investors. And so Mr Caden here decided or reached out, asked if we'd want to have Beck back on and break down this big beautiful bill. And of course I jumped at this opportunity because it's so timely, so relevant and I think it's so important for our audience out there, obviously in real estate investing, to know all about this bill. So, caden, start out. Man, wherever you want to take this, I know you've been doing calls left and right for our CG audience and for your clients on the big beautiful bill. So we're kind of getting maybe a refined version here, which is great, but tell us a little bit about what are some of the highlights of this thing that real estate investors really need to be aware of and take advantage of going forward.
Speaker 2:Yeah, that's a really great question and I think you know, before I jump and dive into this a little bit, I want to, you know, give you guys some context on how this bill has kind of worked itself through and even some upcoming changes that I'm expecting to happen over the next few weeks. Okay, so the bill got introduced back in March to the House of Representatives. They chewed on this and passed it in May. It went to the Senate, had some changes and revisions, went back to the House and then finally that House version got finalized, went to the president, got signed. Well, to all of us who don't work in Congress it seemed like that was a long enough time to have gotten it right, but they felt like they were rushed. So, even the signed bill, there's a lot of issues and things being identified that people actually want revisions and corrections to be made. So there's going to be a corrective bill actually getting passed here in the next month or two that's going to change some of this stuff oh, wow, that's interesting.
Speaker 1:I know one thing I saw. I was reading an article today actually about this. It was about the gamblers, the people who are professional gamblers. They're they're fighting to get get some things changed. There was something where you can explain this piece, probably, if you can bear with me like I can.
Speaker 2:But it sounded like a bad deal for gamblers. Yeah, gamblers they were. Basically, if they went and made a million dollars, but they spent a million to make a million, they were going to get taxed on 10% of what they made regardless. So they were only going to be able to take 90% of their losses against their income. So they're paying basically a phantom tax at that point on money they didn't actually make and that's something that's definitely being lobbied to get updated and changed.
Speaker 1:Yeah, it doesn't really make sense. Like, who put that in in the first place? That seems kind of like what?
Speaker 2:Yeah, I don't know. Frankly, didn't focus too much on it.
Speaker 1:Not really relevant too much for us real estate investors, but interesting nonetheless. Uh, that they're. They're like you said, they're making some revisions, but anything that you can see that you want to touch on with the revisions that are kind of juggling right now, that is up in the air, that that may affect real estate investors.
Speaker 2:Yeah. So right now, you know, marcus and I we've kind of had this conversation on some of the prior calls that we've been on. This is the fifth one so far.
Speaker 1:Okay.
Speaker 2:We've kind of said, like everybody's out there saying that these laws are permanent, and we said, yes, the law as it's written today says that, hey, this is not going away until someone comes and changes the law. And we're about to see, potentially, that Right now, bonus depreciation this has been a big, big thing that the real estate community has been looking forward to and anticipating. It is back at 100%, so the rate is 100%. There's no stair step where it's sunsetting and going away anymore and there's also no expiry date. So at least, as the law reads today, 100% is here to stay. I don't know if anybody's trying to touch that, but that could be something where, hey, they're like, well, let's keep 100%, but maybe we want to put, because the first bill that got introduced by the House actually had 100% expiring, I believe, in 2033. So that was a timeline and the Senate removed that timeline. So I don't know if we see something shift there where our window of opportunity gets defined a little bit more clear.
Speaker 1:Okay, Can you just explain? You know I've had had you had Marcus on, I've had another accountant on here talking about bonus depreciation and what that is. But can you just explain to people who maybe this is their first experience hearing this they didn't listen to those episodes, they don't know what bonuses. Can you explain why that's, that's a big deal, why real estate investors have been waiting to hear about this for a while?
Speaker 2:Yeah, yeah, so big thing in real estate. We're all trying to build wealth. Wealth is built through assets and when we go and buy a rental property or something like that, we may invest $300,000 into that property and what happens is depreciation is how we are able to take a tax benefit over time. So a single family home typically gets depreciated over 27 and a half years. Well, what makes bonus such a big deal is real estate professionals. They can say, hey, we want to take that $300,000 and we're going to use what's called a cost segregation study. It kind of buckets it up and two of the three buckets are qualified for bonus depreciation. Bonus depreciation at 100% says that those buckets get written off immediately in year one and that usually produces massive tax savings. That helps strengthen the return on investment.
Speaker 1:What's the bucket that doesn't get touched? So you mentioned there's three buckets. What are the three buckets, kate, and then what's the one that doesn't get touched?
Speaker 2:Yeah, great question. So when you buy a piece of property, I'll just break it down real easy using a dollar.
Speaker 1:Okay.
Speaker 2:We buy a dollar rental property, typically we're going to split it into a store of value for land and then a building. Okay, the store of value for land. The golden rule says that's going to be a 20% store of value and then we get 80% taken into the building. Okay, the cost segregation study is going to split that 80 cents into three buckets. One is going to stay the building, the second will be land improvements and then the third will be fixtures, furniture and equipment. Land improvements is a fancy way of saying landscaping, sidewalks, your driveway, those kind of things. Um, fencing, stuff like that. Fixtures and furniture um, that's going to be stuff like flooring in the house, light fixtures in the house, hvac could be, you know, appliances in the kitchen and the bathrooms, it's those kinds of things. So your land improvements in the fixtures and furniture and equipment, those qualify for bonus and those get that immediate write-off with 100%.
Speaker 1:Okay, got it. I always wondered that what the one was that didn't stay. Now, the important part about that for people to know is like so when you're saying this dollar, can correct me if I'm wrong here if I had to write that off, basically the 80% or what percentage is it usually that you're writing off of the, not the land, but everything else? What kind of percentage?
Speaker 2:Yeah, so kind of break it down. You take 80% and then usually on average, after seeing thousands of cost segregation studies, you're typically going to see about 25% of the building value get put into those depreciable classes that qualify for bonus. So a good rule of thumb is $0.20 per dollar you invest is what you could expect to have as a bonus write-off with 100% bonus.
Speaker 1:Okay, so in normal years you'd have to take that 20 cents and then divide that by 27 and a half, right? And then every year that's your write-off, correct?
Speaker 2:Not quite. So the 27 and a half. You take the 80 cents, divide that by 27 and a half. Okay, that's typical With the cost seg. You end up saying, okay, 80%, we take 25% down into those bonus eligibles, we write those off. The remaining 55, I think that's right 55 cents. That gets split over 27 and a half.
Speaker 1:Okay, so the other buckets that you're talking about, are those a faster? Normally a faster? Is it a five and a 15-year depreciation?
Speaker 2:schedule.
Speaker 1:Okay. So that is kind of where I was going with this for the audience. So the 25% that Caden's talking about, or whatever that smaller number is, normally you'd have to take those in either five-year depreciation schedules or 15-year depreciation schedules, so it's a smaller tax write-off basically every single year. What Caden's talking about is you can accelerate that into one year and now you're getting a big lump sum write-off. And what's important about this, caden mentioned real estate professional. Caden, can you talk about what is a real estate professional in the eyes of the IRS?
Speaker 2:Yeah, so the IRS defines the real estate professional in section 469. This isn't like a license, it's not like oh, I'm a realtor, I qualify. It has nothing to do with that. It has everything to do with what you do and how you spend your time and what you own. Okay, so you have to get at least 750 hours in a qualified real estate trader business. Um, you know, real estate trader business. You can think of property management, land development. Um, you know, like a real estate brokerage, uh, you can be realtor. You know all of those types of activities are qualified real estate activities. You have to have 750 hours. Um, you know the? The next kind of thing that really matters, there is going to be what's called material participation. This is where ownership comes into play. You actually have to own at least 5% of the asset that you are doing the real estate business.
Speaker 2:And so if you own 5% of a partnership. Your hours can qualify towards that. Material participation. Um, so material participation, there's seven different tests. Won't get too deep into it. Your accountant can probably help you figure that out. Um, but it's just checking some boxes, to be honest.
Speaker 1:Okay, and so what you're basically saying is, if you're just a real estate agent out there, you don't own any assets, you're not going to be able to, obviously you're not going to have a property to write off anything with in the first place, but you would not be considered necessarily for this purpose tax purposes a real estate professional.
Speaker 2:Yeah, it really depends on how you get paid. So a lot of realtors that I see they're contractors for a brokerage, so they're technically business owners, and those hours that they spend in that business would help towards the bucket. If they don't have assets, though, it doesn't really do much for them.
Speaker 1:Yeah, it's kind of like a chicken or an egg thing. You got to have one or the other there to get the tech trade off right. So that's important, guys. One of the things that I think is interesting Katie and getting correct me if I'm wrong on all this stuff but one of the examples. Somebody explained to me this a few years ago when bonus was a hundred percent, when I, when I was getting going, as I said, like imagine you're a doctor and you're making 500,000 a year, something like that. You're heavily taxed, right, you're highly taxed individual at that on on your W-2. Let's say your spouse is owning. You guys own some properties and your spouse is managing said properties and they're hitting these litmus tests and now they're able to become this real estate professional. Theoretically, let's say, you had enough depreciation to wipe out the $500,000. That doctor could essentially pay $0 in federal income tax. Is that correct? Am I explaining that correctly?
Speaker 2:Yeah yeah, there's definitely some limitations on how much you can do, and we actually I have a good example of when that doesn't quite work out as how you would expect A client of ours who has almost that exact situation one of the spouses is a doctor, makes really, really high wages through their job and the other spouse is a real estate professional. Well, part of the old Trump 1.0 tax bill, it introduced this thing called excess business loss. That put a cap on how much business losses could actually offset non-business income, like your wages, your interest, your dividends, capital gains, life income. So we've got you know, for a married couple you can only offset up to $626,000. So you've got someone who gets like a $700,000, $800,000, $900,000 W-2. You're going to get hit with a little bit of an issue there if you're trying to use depreciation alone to offset your income.
Speaker 1:Okay, interesting. I never knew that. See, that's why we do this podcast, man. I learn something new every time. It's great.
Speaker 2:There you go. So the big beautiful bill has now extended that excess business loss limitation and made it permanent as well.
Speaker 2:Okay so it's not going away, it's here to stay, got it. Where one of our clients is kind of in big trouble with this is they use business losses and then, you know, the way that they kind of still were able to get out of paying taxes was using itemized deductions. They do large charitable donations so they'd go and use you know they did a conservation easement, they've done a leveraged asset donation. You know these type of things. It's basically'd go and use you know they did a conservation easement, they've done a leveraged asset donation. You know these type of things. It's basically you go and you know either give an asset that has appreciated in value, you get a large deduction from the IRS, you don't pay capital gains on it, or a conservation easement saying, hey, I'm willing to restrict the use of some of my land and give that to the government and you know they'll preserve and and kind of take care of the land for the wildlife and the plants and all that.
Speaker 2:That's. That's what those two things are. Nevertheless, a new limitation on itemized deductions got written into this tax bill and we actually did a big case study about this kind of led with this almost with with folks Not everybody's paying less taxes from this bill, this particular individual in 24 paying zero. That same situation against the new tax bill. They're paying $216,000 in federal taxes because the laws changed.
Speaker 1:Wow, that's insane. Okay, so let's break that down for a second Caden. So what were the issues then? Or what are the issues now with the beautiful bill on those two particular examples there of the easement and the leveraged asset donation? What changed? Is it just that limitation that you were talking about?
Speaker 2:Yeah. So we went from essentially no limitation on the itemized deductions that was coming into play versus now for folks that are in the 37% tax bracket that's the highest income tax bracket they have to do this crazy calculation where they take their income and subtract it's about 578,000. That's where a married couple crosses into the 37% bracket and they can take three-sevenths of a dollar for everything over that $578,000. So if we're talking a million, I'll get a little calculator out here.
Speaker 1:Three-sevenths, again, who comes up with this stuff?
Speaker 2:Yeah, congress, they love to scratch our heads right oh my goodness.
Speaker 2:So if you had a million dollars of of gross income, you have to take that and subtract 578 and then multiply that by three. Divided by seven, that means your max itemized deduction is only 181 000. So you have a million dollars of income. You can only reduce it by 181,000. You're left with the difference. Wow, and now you pay a lot more taxes, and that's that's what will happen if we don't change something. So we're uh, you know one, hoping for some changes in this correction bill. Maybe they didn't mean to reduce the benefit of charity so much, because it seems kind of crazy to place such a big restriction on how charitable someone could be benefits for it. But otherwise we're talking to them about hey, do you have any way to do a deferred stock option with the spouse, or is there maybe another retirement? We could put more of these wages, reduce the non-business income, so we're not so exposed.
Speaker 1:Okay, so let me just give an example. Let's say let's say I make a million dollars in in wholesaling right and then I've got I buy enough buildings where I've got a million dollars of bonus depreciation I can take. Are you saying I wouldn't be able to take that whole million dollars of depreciation now, or is that separate from what you were describing?
Speaker 2:Yeah, great question. So in that case, your wholesale I'm assuming that that's your wholesale business right. Right, right, yep. So your wholesale business is business income. Business losses can offset business income. Okay yeah, so there's separate entities.
Speaker 1:So let's say we have a you know holding company llc versus our s corp llc. S corp llc is the one generating the wholesale income. The holding company is going to be just a pass-through entity. Does that matter?
Speaker 2:Yeah. So in that case, assuming that you have what's called basis, basis is basically the tax bank account that allows losses to pass through, which, in a holding company, should be no problem. You know, I think I could spend an hour talking about basis, so, for listeners, you might want to talk to your accountant about what that is, to be honest. You might want to talk to your accountant about what that is to be honest. At any rate, the losses from the holding company will pass through, the income from the S-corp will pass down. Everything will kind of get reconciled dollar for dollar down at your personal return. So in that situation you should be fine.
Speaker 1:Okay, all right, I'm like sitting here listening. I'm like dang, if we good year we might screwed paying a bunch of taxes, no matter how much depreciation I take. Oh my goodness, what are you talking about? The downsides of bonus depreciation, cause I know there's the government's not going to get paid, you know at some point. So talk about what are the risks of doing some of these accelerated depreciation schedules.
Speaker 2:Yeah, so this is a really, really interesting conversation. Depreciation, you know I don't I don't know how other people define it necessarily, but I call it. You know an interest-free loan from the IRS. You know it's it's not really accruing interest. You will pay it back later, you know, and you get to choose when. So you, you don't have to accrue interest over time. You get to know exactly how you're exiting and you get to choose when that is right.
Speaker 2:That's one of the best forms of, you know, debt that you could carry for sure Very, very favorable. So when we go and take these accelerated write-offs, we're lowering I'm going to use that word basis again, so your asset. Let's say you bought it for $300,000. Okay, this is something that where I'm going to kind of break up two different calculations and try to keep it simple. Okay, real estate investor says I bought it for 300,000. Five years later, I sell it for 450. I made 150, right, that's what logic says.
Speaker 2:Okay, the IRS is going to say you did buy it for 300, but we gave you a tax saving benefit and you wrote off a hundred thousand of it. So, in their eyes, they're going to say four, 50 minus 200. They say you made two, 50. Okay, so the two equations look a little bit different. You're getting taxed on higher level of income, the.
Speaker 2:The way that we want to look at this, though, and why this makes sense, is, let's say that you did write off a hundred thousand dollars, and it was in year one, and you're saving at a 40% tax rate. You just saved $40,000 today, right, well, that that $40,000 goes back into your business or back into your pocket. You get to hopefully use that money to drive more wealth growth. So you know that 40,000 over five years hopefully turns into, you know, 60, 70, $80,000 of value to you. And now it's made borrowing those benefits from the government way more um valuable and beneficial to you so that when you pay the tax back later it still made sense and beneficial to you. So that when you pay the tax back later, it still made sense, right, right.
Speaker 1:Yeah, I've always been told, and correct me if you're wrong on this, but a dollar today is better than a dollar tomorrow. That's exactly right. Our dollar continues to lose value every single day, and so if we can use that dollar today to create more than inflation, then why wouldn't we use that today to beat out inflation and get ahead of it, right? Create some wealth, right.
Speaker 2:Exactly and an interesting case study that Marcus and I went and looked at there's actually some potential where today, in a wholesale business, if you're in the highest tax bracket, income bracket it's going to be really, really interesting to look at the numbers. If you go and let's say you make $30,000 in wholesale deal and you're in a 40% tax bracket, you're going to pay like $12,000 of taxes. So your after-tax profit is only $18,000, right? Well, if you take that property and look at it and say what if, what, if we actually just kept it and we're going to, instead of wholesale it, we're going to get it, we're going to put some dough into it, we're going to keep it as a rental.
Speaker 2:All right, let's say that, that that rental, you're all in $250,000. Let's say that your ARV is, you know, after repair values $333,000. So you've got some equity in there of 83. Let's say that you were able to get loan to value at 75%. That means you know that's a successful BRRRR. Is what I'm giving you the numbers for. Sure, right, yep, so you don't really leave anything in the deal. You've got this equity, the tax savings on that $250,000 asset, with a cost segregation study, what do you think that that comes in at. We just said your after-tax deal is going to be $18,000. Surely you make less right.
Speaker 1:Well, dude, it's going to be insane, because now, if you can accelerate that depreciation I'm just going to do some basic math here real quick. I don't know You're probably going to save $40,000 in taxes, right?
Speaker 2:Yeah, maybe not that high, but the point is $20,000.
Speaker 1:That's about the number you're going to get. So you go from an eight that's a $38,000 swing. That's what you're telling me, Just in taxes.
Speaker 2:Yeah, basically Exactly, you go from having to pay 18 to getting 20.
Speaker 1:Yeah.
Speaker 2:Now, if you kind of look and try to compare more apples to apples, though, you get 18,000 of liquid cash if you sell and do the wholesale, or if you execute it as a rental, you actually get more money back in your pocket, and now you have the store of value as an asset, right? So you're building wealth. Oh that's good buddy. That's good.
Speaker 1:We need to get somebody to go put this in actual numbers and break it down on a little screen, because that was really good right there I'm tracking. I just hope the audience picked up on that. But that makes a lot of sense versus. You know, I think that's one of the things that we've always done. We wholesale but then we hold assets as well. So we're wholesaling, holding, wholesaling holding and the holding is to offset the tax implications. Right, the cash is to live off of and to, you know, pay the bills today and do all that kind of stuff. But the goal is to buy enough assets that I can write off a good chunk, if not all, of that federal tax.
Speaker 2:Yeah, exactly, and, corey, for you I'm happy to go and record a piece of content that you can share, to follow up with that and show those numbers broken down to see the apples to apples. I've got that ready to go for you.
Speaker 1:Let's go, buddy. We will put that all over the socials and we'll throw it up on our website as well. That'd be awesome. We'd love to see that. Yeah, for sure. Perfect.
Speaker 2:Now the big key for people listening to that this only works if you're in a high tax bracket. If you're in the lower tax brackets, the numbers, the math doesn't math for you. Okay, and my recommendation at that point is go make more money, Don't worry about the taxes, go make more money.
Speaker 1:Get yourself in that higher tax bracket. Then start worrying a little bit more about how the numbers are going to pencil out this way. Yep exactly Got it. That's good stuff. Going back to the big beautiful bill here, Caden, what are some other things? Are there other things in there as it sits today, that real estate investors are going to be keen on or that you guys are talking to your clients about?
Speaker 2:Yeah, yeah, so a few, I would say. This is probably more basic. It probably gets skipped over a lot. The tax bill is extending and making permanent our lower tax rates. So if you look back at 2017, before trump passed his first bill, the highest tax bracket was actually 39.6 percent. We're now at 37 and that's, you know, not set to increase. So just by default we we've got lower brackets. The width of the brackets are bigger, so you end up scaling to those higher tax brackets much more slowly and you pay less taxes as a default. And that's for everybody, rich or poor, no matter what. Everybody's getting a tax break that way.
Speaker 2:Okay, got the standard deduction. I think something like 70% or 80% of taxpayers. Okay, got this standard deduction. I think something like 70 or 80 percent of taxpayers are using the standard deduction. That's a a gimme from the government saying hey, for you single folks out there, fifteen thousand seven hundred and fifty is not getting taxed for married couples. That's thirty one thousand five hundred. We're not gonna tax you on the first. You know, fill in the blank amount, okay. So that's a give me to everybody. Before the tax cuts and job, back back in 18, those numbers were like 6,000 and 12,000.
Speaker 1:So holy cow.
Speaker 2:Yeah, Almost tripled. And now they're. They're here to stay at that higher rate and keep growing with inflation so big? Deal there.
Speaker 1:Oh, so they actually put some. They put some, some things in there to keep up with inflation as well with the reduction, okay yeah, the standard deduction and the the tax bracket.
Speaker 2:So today the highest tax bracket you cross at 578, next year could be 600,000 for example, okay, okay, yeah, well, that's good.
Speaker 1:I didn't realize that. Has that always been that way with tax brackets, or is that? Is that new as of 2017 or 2025?
Speaker 2:Yeah, it's. It's kind of always been that way. The law is kind of writing, because they're noticing that the rate of change is faster, so they're trying to keep up with you know what year they're basing it off of. So, prior to the Tax Cuts and Job Act, I think it was like 2006 or something that they were saying all right, we're basing all of our adjustments based off of the 2006 market and then they adjusted it up to 2015. Now it's 2025. And they're going to more regularly take a look at that. For us, Because we've all been here Prices have been jumping really, really high, really fast.
Speaker 1:For sure, for sure, buddy, that is the truth. Right there, my friend. What else are you seeing in there, caden? Give us some more dirt. What else is going on in this big old, 900-page, beautiful bill?
Speaker 2:Yeah, so this was a provision that got introduced and was going to go away after this year. It's called qualified business income deduction. Okay, this is for every business out there that's a qualified business, which most businesses are qualified businesses today. I think you could go and look up the exceptions is what I would recommend there. So, real estate businesses, if you're doing like a wholesale business and you've got a million dollars of profit, as long as you kind of check some compliance boxes, you're going to get a 20% haircut off the top. So let's say that you can't go and use all the bonus depreciation and that's not something that's all on the table for you. You could get up to a $200,000 deduction given to you by the government through this qualified business income deduction. Wow, and that's yeah, that's a free 20% discount.
Speaker 1:Yeah, that's awesome. And is this new in this bill, or was this something that was in previously as well, that was sunsetting, or what? Where did this come in? Yeah, that's awesome. And is this new in this bill? Or was this something that was in previously as well, that was sunsetting, or where did this come in?
Speaker 2:Yeah, so this got introduced back in 2017. It was going to go away after this year, but again, this one's made permanent and there's actually been a little bit of misinformation on it, because there was like differing rates getting thrown around. The first bill said 23%. The Senate changed it back to 20%. It's still 20%. That's what it's always been a 20% discount but it's here to stay. Now it's written permanently into the tax code until the law changes right.
Speaker 2:Yeah, until the next administration comes in and says I'm just kidding, we're going to change that now, yeah, and honestly, that's my curiosity is a lot of these things that don't have an expiration date. I wonder if they come back and say, ah, we want to put an expiration date, um, you know, 2030, 2033, something like that, cause, when they're not charging us taxes, uh, you know they've, they've got to pull that money from somewhere.
Speaker 1:Well, that, was the hope of Doge right. I mean again, regardless of what side of the political aisle you're on, I think every American agrees waste and fraud is probably not good and nobody wants to pay for that right. And so you look at where can we cut funds and money from spending so that we aren't getting taxed? I mean, we get taxed on so much stuff like property taxes, sales tax I got a wheel tax in our county or in one of the counties here for the road system and you just get taxed through the gills and you just kind of get sick of it after a while and it's like give us a break a little bit. Yes, we all need roads, we need social safety nets, all that good stuff. Everybody in America is on board with that. It's just how do we pay for those things? And then what are the things that we can get rid of so that we can all pay less in taxes?
Speaker 1:Ultimately, I think the heart behind what's happening right now and everybody has disagreements, I'm sure, on how we get there and what's considered waste versus some people is maybe different to other people, but I think the heart is there that nobody likes paying taxes. Our country was founded on the fact that we hate paying taxes. So I think that that's just in our DNA here in America. So I think, overall, paying less tax is a great thing, as long as we can figure out a way to still have the safety and the national security and all the other things that we want to be the best country in the world. Somebody's got to pay for that stuff too. Yeah absolutely.
Speaker 2:Yeah, there's a couple of you know a few more exciting things, I think, for the real estate world. This one's not new. It was introduced back in 2017. It was just going to go away. It's called Opportunity Zones. I don't know if you heard of that, oh yeah, oh yeah. Okay.
Speaker 1:But you can go into that this might be new for our audience.
Speaker 2:Okay, cool, so an Opportunity Zone. The government went and defined qualified areas. There's actually like a website. You can go and see the whole map of the us and it shows exactly where these areas are so typically going to be. You know, lower income areas, places that maybe time has, uh, eroded some of the luster of the neighborhood. So the government says, hey, if you go and create a qualified opportunity zone fund, this could be something where you go into a fund, like we think about a bunch of people together. This could also be an LLC with the right paperwork that got set up the correct way and qualifies as a fund more of a self-directed opportunity.
Speaker 1:Okay.
Speaker 2:Okay, so a few different things going on there. What the government has kind of written into is this is an alternative business strategy exit. Okay, if you've got, let's say, a big portfolio of assets or a business that you're trying to sell, something that's going to result in a lot of capital gains, the government says, hey, let's say that you've got, you know, $2 million of capital gains. If you go on, instead of keeping that $2 million, you put it into a qualified opportunity zone fund and invest that $2 million into an opportunity zone. We're going to give you a little bit of benefit for doing this, a little incentive. Okay, so you'll take that $2 million instead of paying taxes today, you get to defer it for five years.
Speaker 1:Okay.
Speaker 2:So you're not going to pay that tax today and in five years if you've held that qualified opportunity property, so the thing that you invested in with the money, if you've held it for five years, we're going to give you a 10% discount on your taxes. So you know, $2 million at 20%, that'd be like a $400,000 tax bill, right?
Speaker 1:Yeah, yeah.
Speaker 2:Well, they're going to give you a 10% discount, so you're, in five years from now, paying 360 instead. Okay, okay. Okay so that's, that's benefit number one.
Speaker 1:Okay.
Speaker 2:Um, the big play, the big benefit is, if you hold onto that qualified opportunity property for 10 years, they're going to give you a 100% tax-free exit on that qualified opportunity property. So let's give you some for instance, so $2 million that you put in your capital. Let's say that you went and bought a $10 million asset Okay, let's say that it was real estate assets. You're going to take depreciation on it. You're going to write it off. Get some huge tax benefits for doing that today right.
Speaker 2:Well, five years into it, you're going to pay the taxes on the deferral and add a discount. Well, 10 years into it, let's say that a $10 million investment is now a $20 million asset value. You bought for 10,. Let's say that you've depreciated half of it, so you've got, you know, $5 million of cost left. Well, on paper, the tax side of it's going to say all right, 20 million minus five, $15 million gain. So you're going to be expecting a $3 dollar bill that bill's going to be zero.
Speaker 2:You don't even recapture depreciation in this opportunity zone exit wow, that is crazy.
Speaker 1:Holy cow. How popular are these things, kate? Are you seeing this with your clients? Are they doing this, or is it? Is it not as common as what it maybe sounds like it should be for that kind of benefit?
Speaker 2:yeah, well, here's the kick. So this was brand new. Back in 2017, this stuff was like so new and so out there. It was so difficult to understand, yeah, the workings of it, yeah, that by the time everybody understood it well enough to actually do something with it, the benefits were just not there anymore.
Speaker 2:You were going to get to defer for two years. Two years doesn't, you know, make the math, make sense, right? Um, so this is, I mean, in my opinion, this is awesome that we're now getting to know about it and execute on it and use it now, and it's going to be there and available for us, at least as the current tax law is written. It's there permanently now.
Speaker 1:Yeah, wow, that's crazy. I never knew that you could just get your own LLC with the right paperwork. I always assumed it had to be some big kind of syndication you were getting involved in or something else, but it sounds like what you're saying is it could just be me go get an LLCc, get my attorney to get the right opportunity to sell on docs and and that kind of speaks.
Speaker 2:That kind of speaks to what I'm saying is the reason that we all thought that was because the big firms that could, you know, act fast enough to put all these deals together. They just did it for the masses and it was. You know. It was a little bit more costly and expensive for one person to go do this. Well, now we've had experience, people can do it and know how to set that up correctly.
Speaker 1:That's awesome, man. I mean, I'm just thinking about my own portfolio and I'm like man, even just to diversify some of them into. Can you 1031 into this thing? Could I sell something and 1031 in, or do I not even have quite?
Speaker 2:Yeah, it's not quite so. What you're going to take advantage of is that five-year deferral. So instead of the 1031 deferral, you're going to say, all right, I'm going to do my five-year deferral in my opportunity zone and you're going to go for that discount. So this is kind of like an alternative to the 1031.
Speaker 1:Okay. So let's say I'm just going to try to understand this I've got, say, that, $10 million building. Now I'm selling it for $20. I got $15 million in gain. Okay, I can now just take the 15 and go buy some opportunity zone stuff, or how. What's the play there? Cause normally I would think, okay, if I don't want to pay tax, now I got a 10 31 into something else with this $15 million, or it's gotta be over 20, right, whatever, your sale price is at 10 31. But what's the play? Like, how are you utilizing, you know, an existing asset sale to take and put it into an opportunity zone? Or like, what's, what are people doing in order to get into the get in the?
Speaker 2:zone, so to speak, Right yeah exactly Good marketing.
Speaker 1:Good marketing auto zone, we all know it.
Speaker 2:There you go so answered by auto zone. Well, hey, you know, maybe we go for it.
Speaker 1:That's right.
Speaker 2:Yeah. So what are people doing? They're saying okay, I've got this huge thing and this could be. Some people might get forced into this because their 1031 didn't work out.
Speaker 1:Oh, okay, there's all those time commitments.
Speaker 2:So I'm not saying that 1031 or Opportunity Zone is one's better than the other. I think it's all about your vision and what you're trying to do. The 1031, remember we talked about cost segregation and some buckets right. The 1031 lets you defer the gain on land, it lets you defer the gain on the building and it lets you defer the gain on the land improvement.
Speaker 2:You're going to be exposed for the fixture, furniture and equipment depreciation you took, no matter what, it doesn't get you out of that. You're still paying some taxes. You're deferring the rest of it. So you pay that tax today, you defer it, and you could keep that up all the way until you pass away. Well, the difference between that and the reason I say pass away is, once you pass away, usually those assets get a step up in basis. The depreciation recapture is gone. You're moving on to bigger and better things. Your heirs are moving on to bigger and better things, yeah, your heirs are doing well.
Speaker 2:You're gone right the opportunity zone. You're planning to pay the taxes in five years at a discount. So you know you're going to save 40,000 bucks. But like we talked about, what is that money in your pocket today? You know that extra 360 now is you're planning on 360. You get to have that money in your pocket today in the form of that opportunity zone fund and buy a big asset that you can plan a huge tax-free exit on in 10 years.
Speaker 2:So the opportunity zone can get you out of depreciation recapture in your lifetime 1031, on the other hand, can get your heirs out of it instead, right?
Speaker 1:Well, that's what I was trying to wrap my brain around. So I sell this thing for $15 million gain. I go buy something now in an opportunity zone. I hold it for 10 years. Now I'm out of the gain. Is that what's happening? I'm not paying gain on that $15 million that I sold. Is that right? Am I understanding this correctly?
Speaker 2:correctly. So in five years you're going to pay gain on that first deferral, right? So if you had a gain of 15 million and you're taking that into the zone, in five years you're going to pay capital gains tax on that money that you put in and deferred. So you will pay some taxes. You get a 10% discount in five years. It's the new asset that you acquired with that deferred money. That new asset is going to be a tax-free exit.
Speaker 1:Okay, so I get it. So I still need to stash away some cash from that sale somewhere in order to-.
Speaker 2:Yeah, you need to plan for paying some taxes in five years.
Speaker 1:Okay, and then in the new one, yeah, because that's what I'm thinking. I'm like man for our younger audience out here. This is a great opportunity for you guys not have to keep kicking the can down the road Like with the 1031, you're just continually kicking the can down the road to avoid that tax. This is a way to actually get liquid without having to pay Uncle Sam in 10 years, right?
Speaker 2:Uncle Sam in 10 years. Right, that's right. Now there was some new tax law that was introduced on bonus depreciation in this bill.
Speaker 2:So this was actually kind of an exciting compound strategy that I think a little bit of planning and kind of deal creating could go into. And I bring this up because real estate entrepreneurs are really great at knowing how to partner with other people and take advantage of real estate driven moves right. So manufacturing has a couple of different code sections that's coming into play. I'm going to focus on a specific code of bonus depreciation. We've been dealing with 168 K depreciation, 168 N. These are code sections. 168 N is for qualified um manufacturing activities, for production activities. Okay, this gets really interesting. Let's say that we take that opportunity zone example. You're going to exit on some money and you're going to go into a manufacturing facility that qualifies as a qualified production activity. It's going to allow you to do not just like a cost segregation study and then writing off partial of that new building, it's actually going to allow you to offset 100% of the cost of that building.
Speaker 2:So if you take your $2 million of gain and let's say that you and another person with expertise in manufacturing go into a qualified fund together and you guys build a $10 million manufacturing plant and you're going to make a bunch of widgets and that person hopefully has some expertise Well, that $10 million asset that you just bought, you're writing that off in the first year it's placed in service. Wow.
Speaker 1:So is that the whole thing? Or you got to still subtract out the land. Wow, so is that the whole?
Speaker 2:thing. Or you got to still subtract out the land. Um, your, your land is probably going to get some store of value. That's okay, that's right. But other than the land, um, you know everything that's that. You know manufacturing plant area. So if you've got a couple of offices, you kind of have to partition that out. You can still do regular depreciation strategy with. You know your office building but the actual manufacturing floor and everything there, all the equipment, everything that's in there, a hundred percent written off. So in reality, of that $10 million you're probably writing off, you know, let's say, 8.5 to $9 million in that first year. Well, that could be an awesome strategy to get you out of paying that five-year tax. That's down.
Speaker 2:We carry forward some losses to offset that and what's crazy is 10 years later you don't pay recapture on that oh, wow, oh, that's a genius yeah, the other clever thing about this 168n is the government even says you have to use that facility as a qualified manufacturing or production activity for 10 years to avoid recapture, like instant recapture. If you change the use in year two, you're going to recapture that depreciation. So it says you need to do this for 10 years. Well, those timelines line up together. It's almost like they were trying to hint to us hey, we want you to do some manufacturing and we're giving you a way to have a massive exit Wow, Without a recapture.
Speaker 1:That's huge, man. You know, when I speak to some of the audience here, it's probably like whew, like I'm just getting started in real estate. This is not good, but for some of you guys out there that have some things going on or you're even just thinking about your own stuff in the next five years. I think what Caden's talking about here is just some creative things like using the tax code to really again, it's not about what you make, it's about what you keep and if you can keep all the profit of some of these things. It might take a while, right, 10 years is a long time in today's world, but, man, that's a huge benefit to be able to, especially if you're hitting some bigger deals here. That's a big time benefit there to be thinking about.
Speaker 2:Yeah, and I mean, I even see maybe some of us aren't at the scale to be able to go and execute that deal on our own.
Speaker 1:Right.
Speaker 2:But I'm sure that we start seeing some dealmakers go and put together a syndicated version of this, where maybe we're successful but we're not at that stage in our wealth building journey that maybe we can go and participate in some of this For sure.
Speaker 1:Yeah, that's exactly what I was thinking, man. Yeah, that's great. Man Caden, I know we're kind of bumping up against time here Anything else that you think is really important that we need to get out about this big, beautiful bill here as it sits today, that our audience needs to know before we kind of wrap things up for this session?
Speaker 2:Yeah, I think going through this we just talked about somebody who's going to pay more taxes. We just talked about how you could not pay any taxes, have huge exits without taxes. Hopefully, that paints a picture that your situation could be anywhere on that spectrum and it's probably really, really important for you to go and find somebody who's staying out ahead of this and is helping you avoid pitfalls. Take advantage of big benefits. We had a webinar, which people are more than welcome to go and watch that webinar, where we covered some stuff more in depth, covered some stuff more in depth. We show you a lot of different situations where different things that sound the same actually play very differently on the board for you.
Speaker 2:I think that's probably the message I'd leave, though, is find somebody who's going to work on this with you. We're happy to. If it makes sense to, you can go and visit us at beccfocom and get a free consultation to talk to us and see if it makes sense to work with us. But at the end of the day, go talk to somebody and don't wait until the end of the year. Do it now.
Speaker 1:Yeah, this is. I mean, this is the time of the year when you know meeting with your accountant is probably the best time to do it. A the big beautiful bills got passed and if your accountant's on top of things, they're going to be able to look at your current year and how things are trending and be able to help start planning for year end stuff. Right Like this is probably one of the best times to be having these conversations with their accountants. Caden.
Speaker 2:Yeah, absolutely. And the thing is the really good CPAs are going to have their doors getting kicked down and busted down. If you wait later, it's more and more likely that you don't get somebody that's going to really take good care of you, right?
Speaker 1:Exactly yeah, and so, guys, if you need some help, I mean, obviously Caden clearly knows his stuff here, right, and if you're sitting out there and you're going A my account that I have, I think doesn't really know real estate. I think that's one of the best pieces of advice I got. I got when I got started in real estate investing Caden's a mentor of mine said go get a real estate specific account, somebody who knows real estate, and that's what you guys do at Beck CFO right.
Speaker 2:Yeah, yep, so we're doing real estate accounting, real estate taxes and real estate CFO services, helping people understand their business better, know the numbers and, hopefully, keep more of their money in their pocket.
Speaker 1:Yeah, and you guys do the books for us on all of our entities, which is awesome. You guys do a great job on that. So bookkeeping as well. Another important thing it makes your accounting bill a lot lower when you have really clean books, so that's an important thing. You got to know your numbers, too, and you got to make sure that you can trust your numbers. I found that out over the years is I could look at my books, but if I don't trust who's doing the input there, I don't really trust my numbers. So that's another important part too. So I highly recommend Beck CFO for that as well. Very reasonably priced for what you get in service there. They've been awesome to work with. We've been with you guys like two years now. Maybe it's been really good you guys have done it.
Speaker 1:We just switched all of our stuff. We had some lower volume things that we had a VA doing and I just had to switch it because things were getting missed and I just don't want to have messy books. Man, I trust you guys to do a great job, and your team always does. We appreciate that. Guys, guys again, if this is overwhelming for you or you're like gosh, I don't even know where to start with this stuff, reach out to Beck. They'll hop on a free call with you. They'll talk some tax strategy with you and help hopefully, get you started in the right direction, because this is stuff you can take advantage of, like you said.
Speaker 1:Caden said, you can either be on one end of the spectrum where you're paying a bunch, or you can be on the other end where you're keeping a lot more of your money. But a lot of times it's the moves you make between now and December 31st or maybe April 15th some of it, I know. But regardless, have that conversation sooner than later. Cade, we always wrap with one fun question. Now you're in Virginia, so this might be tough for you, okay, but I'm going to throw it out there anyway and I'm going to see what you come back with. So do you have a favorite Wisconsin tradition or place you have visited or would like to visit here in this wonderful state of Wisconsin?
Speaker 2:Yeah. So I've got a good friend that I met when we were doing some service work in Finland. He's from the Green Bay area. Oh yeah, let's go, baby. For the last like 10 years he's been hyping up Green Bay telling me oh man, you got to get out here. The nature out here is beautiful. Go on camping. There's beautiful, beautiful lakes. So I'm definitely. I still talk to him every now and then. I just need to get a trip planned to the Green Bay area.
Speaker 1:Get it done, buddy, I'm going to hold you accountable to that. Our office is in Green Bay, caden, so if you are coming to town, let us know, and we'd love to have you come, take a little visit and get to meet some of the crew there. It'll be a lot of fun.
Speaker 2:Yeah, absolutely, yeah, that'd be awesome.
Speaker 1:Well, brother, I appreciate you taking time out. I know you're a hot commodity right now after all this stuff Not that you're not normally, but especially after this bill and everybody's trying to understand what the heck's all in it and how do we make sense of it all and all that stuff and I got a lot out of today. So I appreciate this information For you guys out there. If you're listening to this, as we say on every episode, go share this show. A it helps us continue to bring great guests on the show for you guys to bring a ton of value, like Caden did today. But also it's going to help you guys build your network right. People are going to know you're in real estate investing. They're going to know what you do. They're going to want to talk about doing deals with you, bring you private money. Whatever the case is, it's going to benefit you by sharing the show and you're going to help out some other people.
Speaker 1:There's people out there we've had on this show who got an episode sent to them of maybe not our podcast, but somebody else's podcast or our podcast, and it helped get them started in real estate investing and it changed their family's trajectory for generations to come. So please go out there, share the show like, subscribe to all that other fun stuff. If you are out there and you want to have a conversation about just getting started in real estate investing and you're not ready to get on the buyer's list, you can go to the contact us part on our website, put that information in or just give us a call or text with the number on our on our website at wisconsindiscountpropertiescom, and we will have a conversation with you and try to help you get rolling in your own real estate investing journey. So until then, guys, thanks for tuning in. We'll see you on the next episode.
