Physician Series Part 2: Real Estate Tax Strategies to Offset Physician Income

EP 24 Transcript

00:00:18:01 - 00:00:50:48

Mike

Welcome to our second episode of our physician series for the 2025 Hidden Money podcast. Kevin, I excited. Hopefully you've watched our first episode, but if you haven't, if you watch this and go back and check that one out, this one. We're excited to talk about how physicians can save money in taxes, kind of like all of our episodes, but this one we're going to focus mainly on physicians with with multiple income streams and one of our favorites, how physicians can use real estate to save taxes.

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00:00:51:01 - 00:01:17:42

Mike

I love real estate for so many reasons. One main reason is you're not really creating anymore. It's it's a finite resource. And unless it's some place like Detroit, Michigan, it's always going up in value. But depreciation, it's a magical deduction. And depreciation can allow you to seriously reduce your taxes. And you get to depreciate an asset that's going up in value.

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00:01:17:47 - 00:01:36:22

Mike

When you go buy a vehicle, you get to depreciate it. You get expenses for it if it's used in business, but it's going to go down in value the second you drive it off the lot. When you buy real estate, not only is it often option for a potential for an income stream in the future, it's fair market value is going to go up and you get to take depreciation.

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00:01:36:22 - 00:01:39:53

Mike

So thanks for joining us. We're going to talk about that in this episode. Yeah.

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00:01:39:56 - 00:01:40:20

Speaker 3

And

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00:01:40:20 - 00:01:42:29

Kevin

there's so many ways to structure real estate and

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00:01:42:32 - 00:02:01:27

Kevin

handle real estate when it comes to taxation. So this is going to be just blanket advice. We recommend that you talk to either us or a CPA who knows what they're doing to actually enact this. So what we see a lot now is in our last episode, we talked about the self-employed physician who we maximize our tax savings at the entity level of their practice level.

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00:02:01:36 - 00:02:07:50

Kevin

And now the tax liability has now passed through down to them personally. And so now we have to actually pay our tax.

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00:02:07:50 - 00:02:08:45

Speaker 3

So

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00:02:08:45 - 00:02:34:27

Kevin

what can we do now on our 1040 tax return to reduce this income that I have as a physician I and let's say there's multiple strategies. One, if you're married, in your spouse in this we see this a lot where typically you have a high income earning doctor, and then you have a stay at home spouse, and that stay at home spouse is kind of managing the house, managing the schedules, managing, you know, this life.

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00:02:34:32 - 00:02:40:45

Kevin

And that spouse can actually be utilized for tax purposes when it comes to real

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00:02:40:45 - 00:02:41:02

Speaker 3

estate.

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00:02:41:02 - 00:02:46:53

Mike

Be careful how that sounds. You're not using your spouse. You're partnering with your spouse.

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00:02:46:53 - 00:02:51:09

Speaker 3

Yes, partnering with your spouse, utilizing their time. Yes.

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00:02:51:09 - 00:03:08:13

Kevin

utilizing kind of their, they're ability to use this tax, this section of the the Internal Revenue Code to reduce the physician's income, the high income earning income, and the way that's done. So you have you have two types of real estate. When when we're when we're talking real estate for tax purposes.

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00:03:08:13 - 00:03:10:52

Kevin

Now in reality there's more than just two types of real estate.

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00:03:10:52 - 00:03:11:44

Speaker 3

hunters. You

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00:03:11:44 - 00:03:16:55

Kevin

have short term, mid term, long term. You have all sorts of different categories in real

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00:03:17:13 - 00:03:19:42

Mike

Residential, commercial, yada yada.

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00:03:19:55 - 00:03:22:32

Speaker 3

Yeah. But when we're talking taxes, it's two. You got

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00:03:22:32 - 00:03:28:02

Kevin

short term real estate your Airbnbs in your Vrbo. Those are average lease time at seven days or less.

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00:03:28:02 - 00:03:55:32

Kevin

That's short term then. If it's not short term it defaults to long term. So long term as you're going to be your your single family multifamily properties could be, storage facilities, anything that has lease time or lease agreements that are longer than seven days on average throughout the year. Those are long term rentals. Those two have different tax rules, sets of how to eliminate W-2 income for the position, or 1099 income or business income from the position.

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00:03:55:56 - 00:03:57:51

Mike

Or heck, any other kind of income.

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00:03:58:01 - 00:03:58:22

Kevin

Yes,

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00:03:58:22 - 00:03:59:03

Mike

yes.

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00:03:59:03 - 00:04:20:05

Kevin

this or any other income, this, you know, any sort of W-2 income. But depending on where you go, if you go, the short term rental route or the long term rental route will drastically change how we structure how we tax plan. Now, the overall tax plan, the tax deductions are roughly going to be the same in either, the depreciation.

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00:04:20:05 - 00:04:28:45

Kevin

What we can deduct that doesn't change. What changes is how do I utilize that targeted, segment of real estate to reduce my active income?

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00:04:28:59 - 00:04:53:35

Mike

Absolutely. I do want to just throw out. We're always speaking in generalities. You have to in tax speak, generally speaking. That's why we say that a lot. At least I say that a lot. There are ways that a 30 day or less property can be treated as a short term rental, bed and breakfast type places. There's a lot of caveats, but we're speaking about 99% of the tax rules here with real estate.

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00:04:53:39 - 00:05:10:33

Mike

It's a it's a big get. How about I'll talk about the short term real estate and you talk about the long term one. So, actually no. Let's go to real estate professional first because without knowing that you don't understand the amazing beauty of the short term rental loophole. Right.

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00:05:10:33 - 00:05:20:12

Mike

So unless you understand the rules of real estate professional with long term or commercial real estate, you don't really understand the huge advantage of short term rental real estate.

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00:05:20:17 - 00:05:40:12

Mike

Like I said, they both have similar tax tax deductions and availability. But long term, the only way you or your spouse are able to deduct actual or active income from real estate is if you all qualify, one or both of you qualify as a real estate professional. What's it take to be a real estate professional?

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00:05:40:17 - 00:06:10:18

Kevin

A real estate professional is going to be 750 hours a year, and any qualified real estate activities such as brokering, buying, selling, real estate, fixing it up, repairing it, being a general contractor, if you're if you're working and with your hands and real estate roofers qualify as reps, I can even get a plumber. If you're improving real estate, that is qualified real estate activity time and you have 750 hours of that and over half your working time has to be in real estate

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00:06:10:18 - 00:06:12:10

Mike

That's where it gets most people.

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00:06:12:14 - 00:06:13:29

Speaker 3

That's why the doctor

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00:06:13:29 - 00:06:15:04

Kevin

is never going to qualify as a rep.

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00:06:15:04 - 00:06:32:13

Kevin

You may let's say you're a hustler of a doctor. You're superhuman. You're able to work 3000 hours a year and your job as a as a physician, and you got 750 hours of real estate management. You're just killing it. I don't know how that's even possible. You don't sleep, but let's say you do that. You're still not a rat.

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00:06:32:20 - 00:06:50:24

Kevin

Even though you hit the 750 hours, because over half your working time was not in real estate. That's why you're never going to hit rep status. But if you're married and your spouse stays at home, they have no other job that they will. They have a job, but no other job for the IRS purposes where they're earning income.

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00:06:50:39 - 00:06:51:32

Kevin

That goes to that

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00:06:51:32 - 00:06:52:11

Speaker 3

yes.

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00:06:52:16 - 00:07:01:18

Mike

Even though my wife works, stays at home raising our kids and doing homeschooling. She works more than I do. The IRS does not consider that a job. That's

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00:07:01:18 - 00:07:02:13

Kevin

It's not a it's not a

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00:07:02:13 - 00:07:03:53

Speaker 3

job or profession. So

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00:07:03:53 - 00:07:24:26

Kevin

she your spouse could get 750 hours managing the real estate you're buying with the positions. Income could get 750 hours. Maybe getting a realtor's license and buying and selling real estate on behalf of clients. Whatever gets you to that 750 hurdle and over half their working time is going to be in real estate.

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00:07:24:31 - 00:07:27:26

Kevin

So now there are real estate professional in that.

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00:07:27:28 - 00:07:35:20

Mike

750 hours. If you do the math, it's just under 14 or just under 15 hours a week. It's doable.

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00:07:35:24 - 00:07:35:52

Speaker 3

Yeah. And

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00:07:35:52 - 00:08:03:09

Kevin

let's think about this. Let's say you're making $1 million as a physician. Your spouse stays at home and your buy, let's say $1 million long term rental property. The amount of tax savings on $1 million rental property against that million dollar physician income, you're probably going to be saving probably 150 and tax. I would say, bottom line, if you bought $1 million rental, maybe a little less, maybe a little more, depending on the circumstance.

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00:08:03:09 - 00:08:06:25

Kevin

But let's say for this example, it's $150,000 of tax

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00:08:06:25 - 00:08:07:43

Speaker 3

saved. That's

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00:08:07:43 - 00:08:11:23

Kevin

$150,000 job for 15 hours a

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00:08:11:23 - 00:08:13:46

Speaker 3

week. Yeah. Think about that.

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00:08:13:46 - 00:08:27:45

Kevin

you're you're the benefit of them pouring 15 hours a week for the year to get rep status and utilize rep status and their material participation in the real estate we're buying with that physician's income is $150,000.

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00:08:27:47 - 00:08:29:01

Kevin

Job

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00:08:29:01 - 00:08:29:29

Speaker 3

Yeah

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00:08:29:29 - 00:08:30:56

Kevin

15 hours a week. I would do that.

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00:08:31:14 - 00:08:55:20

Mike

One of our favorite clients, he's also one of my physicians in the specialty areas. She is an amazing doctor. Her husband does a lot of stuff, but he wanted to kind of back down a little bit. There was a discussion they had, and she said, if you can help save me this, save us this amount of money in tax by qualified as a real estate professional, you can keep some of it.

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00:08:55:25 - 00:09:18:10

Mike

He was happy to do it. I think it's been a couple of years since then. And now they're not so happy because it is it. Running real estate is a long it's a intense job doing a lot of work. And they wanted to hire full service management companies. But it can be done. And it works for y'all in Kevin's example, let's say you save the $150,000 on $1 million property, you might have only had to pay 15% down.

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00:09:18:15 - 00:09:34:17

Mike

Generally speaking, if it's a commercial real estate, you're buying it as a as a rental property, you generally gonna have to come up with 20 to 25% down. However, there are rules about buying a second home. And I just want to get into this for a second. We're not finance experts, but we work with a lot of good ones.

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00:09:34:24 - 00:09:54:02

Mike

Financing. You can buy second homes and eventually turn them into a rental property. We see it all the time in the short term rental market, but also in long term. There's some rules, like you have to be more. The home has to be more than 50 miles away from where your house is. If you buy a second home, you can qualify for 10% down.

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00:09:54:02 - 00:10:18:10

Mike

And we've seen a lot of physicians do this. They buy 100, they put $100,000 down, save 130 to 170,000 in taxes, meaning the IRS completely subsidized their down payment. They got some cash to boot. And you own the equity in that property. The bank is financing most of it, but you get 100% of the fair market value increase in it.

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00:10:18:15 - 00:10:43:22

Mike

Now, physicians, you guys work hard. And the way the world's changing and private equity is changing, you are seriously stuck. Trading your time for money. And time is a very finite resource. But consider this if you can start to grow a portfolio that can make you money, it can be passive in the future. To be real estate professional, you gotta have some active material participation, but it can be passive in the future.

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00:10:43:22 - 00:11:03:02

Mike

You can turn it into once you get ten properties, higher management company handle all of them. You can replace a significant portion of your salary and then only work when you want to work. If you want to work, just imagine the freedom to say no, I am not taking those weekend shifts. No, I'm not going to be on call.

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00:11:03:03 - 00:11:11:39

Mike

But once a year you could have that freedom without hurting your financial freedom if you do something like this. Yeah.

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00:11:11:39 - 00:11:16:09

Kevin

And that that's an amazing kind of weight off

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00:11:16:09 - 00:11:17:53

Speaker 3

your shoulders. If

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00:11:17:53 - 00:11:36:57

Kevin

you if you can get out of the hamster wheel for a little bit and slowly buying 2 or 3 rental properties a year, and if your spouse can manage those, we're saving taxes. We're doing we're, we're, we're, we're exponentially driving our net worth up to where you're going to be feeling in your pocketbook,

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00:11:36:59 - 00:11:39:03

Speaker 3

The difference.

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00:11:39:03 - 00:11:40:28

Kevin

what you're doing with your cash.

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00:11:40:28 - 00:11:43:19

Kevin

And you can have that freedom. I'm saying to say no. The

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00:11:43:19 - 00:11:44:19

Speaker 3

yes. No,

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00:11:44:19 - 00:11:52:24

Kevin

I'm not working anymore. This weekends, on weekends, I'm gonna spend time with my kids. No, I am not going to be working, when I should be on vacation. No,

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00:11:52:24 - 00:11:53:33

Speaker 3

yeah I am,

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00:11:53:33 - 00:11:59:54

Kevin

I am secure enough with my financial future, with the investments we've made with the tax plan that I can say no.

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00:12:00:25 - 00:12:22:35

Mike

If you were a younger physician with family, I'm just going to go back to my father, the physician. He's retired now, live in a pretty decent a really good life, actually. He his biggest regret in life is not that he didn't put in more time at the clinic, or he didn't win more teaching awards. His biggest regret is not spending more time with myself and my sister growing up.

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00:12:22:40 - 00:12:44:49

Mike

You have a chance to change that, but it's going to take doing things differently. Don't be. Don't follow Einstein's definition of insanity and continue to do the same thing over and over again and expect a different result. Change it up now. Change it up while you still have time. Don't miss out on your kids ball games. Don't miss out on their graduation parties.

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00:12:44:54 - 00:13:08:39

Mike

You can change that, but you gotta learn to change your facts. And honestly, this is what our podcast is all about. It hidden money. Change the way you consider tax. It is not something to hurt you. It shouldn't be considered a painful burden every year. It should be considered an amazing power that you can leverage, a tool that you can leverage to grow in your financial freedom.

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00:13:08:43 - 00:13:16:13

Mike

If you don't have kids and you want to keep working 3000 hours a year, go for it. But continue to grow your financial freedom by leveraging off the tax code.

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00:13:16:13 - 00:13:32:16

Kevin

Yeah. Then the last detail, I think on the long term, there's well, there's two major things I want to hit on real quick. One, let's say your stay at home spouse gets a real estate license and then brokers and buy sell some real estate on behalf of clients. They get some income off that. Yeah we need a tax plan off

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00:13:32:16 - 00:13:32:59

Speaker 3

that.

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00:13:33:04 - 00:13:33:25

Speaker 3

But

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00:13:33:25 - 00:13:53:19

Kevin

just becoming a real estate professional does not allow the investments you make with the position, income or wherever the income the to buy these rental properties, just because you have maybe a couple long term rental properties and your spouse is a realtor, does not still make those rental properties. You have the tax deductible against the doctor's income.

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00:13:53:19 - 00:13:55:05

Kevin

There's still more steps. That's the material

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00:13:55:05 - 00:13:56:44

Speaker 3

participation. That

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00:13:56:44 - 00:14:08:16

Kevin

estate professional has to manage those rental properties in order to tax plan with it. So you can't be passive in the real estate as well. On top of rap, you have to do both. You have to be a rep and be and materially

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00:14:08:44 - 00:14:30:04

Mike

But you don't have to materially participate in every property. You got to at least materially participate in one. And there's one more beautiful thing here. So let's say you try this. Your spouse's doing it after two years. They're managing your two properties. And and they're just tired and they're like, I don't want to buy more properties because it's just adding to my to to my time requirements.

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00:14:30:04 - 00:14:58:59

Mike

It's not right. I don't want to keep doing this. Once you're a real estate professional, once you materially participate in one property, not only do you get the deductions from your individually owned properties, now you can invest in like an apartment complex syndication and utilize that rep status. If your tax preparer knows what they're doing to group it correctly, the material participation grouping for real estate professionals, and get the depreciation from those investments that you are 100% passive in.

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00:14:59:14 - 00:15:25:40

Mike

This is completely legit, completely illegal. Get those investments to spin off depreciation to offset your active income. And you can do that over and over again. And just consider the power of compounding. You might only be able to buy one property or maybe one property every two years when you start off. But as they start making more money and they got cash flow, you can get to where you buy one a year, then two year, then three a year, and before ten years is past.

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00:15:25:40 - 00:15:51:14

Mike

You've got 20, 25 properties or syndications that are all spinning out. Hopefully not. Hopefully most of them, if not all of them, are all spinning off cash flow to you. And once you've gotten that snowball compounding effect, man, you are off to the races. And we've seen physicians do this. One of our good friends and some we've worked with for a long time, I even helped work on a book, read the Tax Cure, check it out on Amazon.com.

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00:15:51:19 - 00:16:06:34

Mike

Doctor black, he did this in about seven years, got off of that hamster wheel, and now only works where he wants to work. How much he wants to work. And he's increased his quality of life a lot and got to spend time with his kids before they all went off to college.

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00:16:06:34 - 00:16:12:24

Kevin

And that's Mike. I love that picture you painted. It's very rosy. But

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00:16:12:24 - 00:16:12:34

Speaker 3

I.

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00:16:12:34 - 00:16:13:48

Mike

Think it takes hard work.

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00:16:13:49 - 00:16:17:02

Speaker 3

It takes a lot of hard work. And there's market risks. Yes. That

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00:16:17:02 - 00:16:26:25

Kevin

level, you have a team and it's expensive. You got a team of an accountants attorneys, you got other people involved. When you're at that level, you have your professional fees are going to go up.

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00:16:26:25 - 00:16:28:57

Kevin

But also you got to watch your overhead, make sure you're cash

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00:16:28:57 - 00:16:30:16

Speaker 3

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00:16:30:16 - 00:16:43:44

Kevin

risk, market risk, interest rate risk. You might want to refi pull some cash out. That's tax free by the way. But can you still cover the debt the, the the debt on the property on a monthly basis. So we want to make sure we're cash flow

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00:16:43:44 - 00:16:44:39

Speaker 3

Yes.

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00:16:44:52 - 00:16:57:35

Kevin

But hopefully you're you're also diversifying your properties. You're not all in one neighborhood. And then a storm comes in wipes your whole portfolio out. Hopefully you're kind of spread out, amongst different, geo geography,

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00:16:57:49 - 00:16:58:29

Speaker 3

Yeah.

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00:16:58:29 - 00:16:59:42

Kevin

of the country and all this stuff.

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00:16:59:42 - 00:17:20:24

Mike

great point to bring up. I mean, we've seen this happen. We had a lot of physicians getting into apartment complexes in the late, 2018, 2019, 2020, 2021. They're doing pretty good. And interest rates went up and insurance rates went up. And suddenly more than half of these apartment complex syndications were negative cash flow. And that was bad.

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00:17:20:24 - 00:17:38:05

Mike

So it isn't all rosy. You got to be careful. And we say constantly over and over again, don't let your tax tail wag your business dog or your investment dog. Make sure you're underwriting well, make sure you're doing your due diligence, but it can happen. We've seen it happen and it's a beautiful thing when it happens.

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00:17:38:05 - 00:17:59:44

Kevin

Yeah. So now that we've hit on the long term rental, how to utilize a spouse to offset your your physician income, how to utilize long term rental properties to offset your physician income. And there's there's that was just scratching the surface. There's so many details how to document it, how to defend it, how to do, how to actually get the deductions that you're owed.

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00:17:59:49 - 00:18:00:27

Kevin

There's so

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00:18:00:27 - 00:18:02:14

Speaker 3

many things. Yes, here.

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00:18:02:14 - 00:18:16:20

Kevin

but now let's transition to vacation rentals, because now you can see the work involved to get the long term real estate against physician income. Now let's kind of come with a little softer, easier mandate to get short term

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00:18:16:20 - 00:18:17:32

Speaker 3

real estate right.

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00:18:17:32 - 00:18:19:13

Kevin

to offset the physician income.

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00:18:19:13 - 00:18:26:40

Mike

Let's say both spouses are working I mean we know a lot of multi we're both spouses are physicians. They don't have time to become a real estate professional.

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00:18:26:40 - 00:18:28:42

Kevin

hitched, and now they're both working. And

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00:18:28:52 - 00:18:52:56

Mike

Yeah. My my stepmom was a doctor as well as my dad. And and I feel sorry for their kids because the conversations we had at the dinner table, man was so over my head. They're talking about different drugs and different cancers. And my dad found it. But anyways, in those cases, or let's say you're similar to me, where my spouse, she works way too hard already taking care of the kids, and doing home schooling.

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00:18:53:08 - 00:19:17:28

Mike

She doesn't have the time or any interest in being a real estate professional. There's still an option in real estate. It's the short term rental. It's become known as a short term rental loophole. I hate the term loophole. It's an incentive, man. It's an incentive purposely put into the tax code so that people will be incentivized to buy property and make it available to improve affordable housing.

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00:19:17:28 - 00:19:42:50

Mike

We have a housing housing shortage. That's an incentive. But I understand it's normally generally called now the short term rental loophole. No one has to be a real estate professional, not one less hour requirements you need. One person needs to do 750 hours in to become a real estate professional. If you want to hit the gold standard, the guarantee that the IRS cannot cannot question whether you can take this deduction.

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00:19:43:00 - 00:20:06:01

Mike

You only got to hit 500 and spouses can combine their time 250 each. And if you're working on the same thing together for an hour, that's an hour for you, an hour for your spouse. You can get that 500 hours. You don't have to have the 500 hours. There's if you look up and Google IRS material participation, they list seven different ways to do it.

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00:20:06:01 - 00:20:32:37

Mike

Any one of those count? The second one is you do substantially all the work at once. Nebulous. I have not enjoyed having to defend clients in an audit with that one, because there's too many question marks. And what's substantially all. I disagree with the IRS agents on that multiple times. The third one's my second favorite. I called the bronze standard, and that is 100 hours, at least 100 hours and more than anyone else.

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00:20:32:42 - 00:20:53:39

Mike

So spouse can put in 50 hours husband. The other spouse can put in 51 hours. You got 101 hours. As long as no individual working on that business out works you. If you have a management company and they're spending 200 hours a year, or if you're self managing and your cleaners are spending 200 hours a year, you and your spouse better have 201.

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00:20:53:39 - 00:21:14:51

Mike

And in all honesty, the way it works in an IRS audit, there's a chance IRS is going to disallow some of your time. So give it a lot more padding than just one hour if you can. But then your material participant not real estate professional. Again, it has the property you're renting has to average seven days or less during the year in the lease length.

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00:21:14:55 - 00:21:41:37

Mike

There's a lot of different details can go into that. A lot of questions we could answer, but we don't have time in this episode. If you do that, if you don't use it for personal use, according to what the IRS considers personal use, generally it's 14 days are more than 14 days, actually, for personal leisure use, where you or you're sending your family or your friends for free to this property for more than 14 days, that would be considered personal use.

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00:21:41:41 - 00:22:04:02

Mike

And then you have a mixed use property. Can't take a net loss if you are at that property and you go for a month to work on that property to do market research out for that property. And you're spending the majority of your day at that property each of those days. That's not personal use. You have those two roles, and there's a lot of other caveats and rules, that it's too detailed, I think, for this podcast.

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00:22:04:06 - 00:22:12:57

Mike

But if you do that, you buy $1 million property, so you get the same benefit as a real estate professional would with $1 million, a long term property. So it's beautiful.

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00:22:13:02 - 00:22:13:28

Speaker 3

You can save

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00:22:13:28 - 00:22:37:37

Kevin

that. Still that for example, a little earlier the the million dollar physician buying $1 million long term rental, the spouse getting the stay at home spouse getting wrap and saving $150,000, that's that spouse's quote unquote job is 150 grand a year. That's a great job. You could do the same strategy, the million dollar doc buying $1 million vacation rental average less time seven days or less.

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00:22:37:42 - 00:22:48:11

Kevin

Both of you don't need to wrap both the y'all work together to the same goal to hit those our requirements. My kind of sped out with the material participation. You save the same

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00:22:48:11 - 00:22:50:57

Speaker 3

$150,000 here tax

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00:22:50:57 - 00:23:03:22

Kevin

benefit, just a different classification of real estate, which means different classification of tax law. Generally speaking. Also, I've just noticed vacation rentals tend to be more profitable more, but they're also

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00:23:03:38 - 00:23:04:44

Mike

More work.

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00:23:04:44 - 00:23:06:30

Kevin

because you got tenants coming in and out.

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00:23:06:30 - 00:23:15:02

Kevin

Member. Your average lease time is seven days or less. So you got tenants staying two days, three days. What am I doing about the wear and tear on the property? What am I doing about security

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00:23:15:02 - 00:23:16:31

Speaker 3

A

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00:23:16:31 - 00:23:24:19

Kevin

lot of people coming in there, so you got to make sure you're okay with the amount of work it it is to actually get that threshold.

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00:23:24:24 - 00:23:24:50

Kevin

Met.

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00:23:24:50 - 00:23:42:55

Mike

But you only have to material participate in the year that you're taking the deduction. The IRS says clearly, material participation is a year by year test. So you can materially participate that first year, get the deduction and say I want to do this again on a second property, but I don't have the time to keep self-managing this first property.

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00:23:42:55 - 00:24:05:53

Mike

Fine. Turn it over to a full service management company and just go spend less than two weeks the next year. And actually, you could probably spend more, again, that to get detailed, go do it again on another property. We had a physician that did this for for properties, for years. And by the time they were done and it started in 2017, by 2021, they were receiving enough income.

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00:24:05:53 - 00:24:24:22

Mike

It replaced 40% of his salary just in four years. Again, it's not normally like that, but it worked well. And now they don't manage the properties at all. I want to kill one more myth that I've heard a lot. People say, if you have a if you have a property manager on your vacation rental, you can't qualify as a material participant.

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00:24:24:35 - 00:24:46:17

Mike

There's a lot of well known podcasters out here that have said that that is not technically true. It's not. We have had people under audit who had a management company run on their property. As long as they qualified as a material participant, if you had 500 hours, they qualified. If they had more than 100 hours, they better be outworking that management company.

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00:24:46:17 - 00:25:03:56

Mike

But you can do it. There's a lot of other myths. We should do another episode. This and short term rental, in real estate. But one thing I do we need to cover in this episode more, we've talked about real estate physicians that have multiple income streams. I'm just going to go into one of them, but it's pretty applicable for a lot of things.

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00:25:04:01 - 00:25:32:11

Mike

We have a lot of physicians that invest in the surgery centers that they work at. Right. Or that they're affiliated with. Generally in those they're passive in those surgery center. Someone else is running the property, running the facilities. They get a K-1 from them. I see this over and over again from other tax preparers. They claim those properties or those K-1 that you're receiving, that cash flow you're getting from the surgery center is not eligible for the qualified business income deduction.

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00:25:32:11 - 00:26:00:03

Mike

The Cubii deduction. Beau honky if if you're if you're a CPA or tax preparer tells you that, they're wrong. They're absolutely wrong. Unless you're materially participating in that business and even in a lot of cases, if you are materially participate in the surgery center, you're still eligible for it. And then it's also generally a passive activity. Passive income can be offset by other passive losses.

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00:26:00:07 - 00:26:16:04

Mike

So just to get back full circle with the real estate, let's say you have a surgery center. It's spinning off 500,000 a year, an income to you. No one in the family wants to become a real estate professional. You don't want to go the short term rent around, go buy a long term rental. It's a passive activity.

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00:26:16:04 - 00:26:23:44

Mike

Get the depreciation from it and eliminate your surgery center income for one year. Mitigate mitigated. Anyways, there's so many things you can do, Kevin, but

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00:26:23:44 - 00:26:39:22

Kevin

Let's say you own your own practice and you own the building. You operate out of, that building that you operate out of as a doctor. Your family built the family practice building, your surgery center that maybe you directly own, but you generate income in that building that you own.

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00:26:39:22 - 00:27:03:46

Kevin

Those are probably likely two different LLCs. Hopefully for liability purposes, you might have a property company and an operating company. There's ways to make sure that we can segregate, accelerate depreciation in the practice building that you operate out of, because it's necessary, as an owner occupied building for you to generate income over here. There may be ways to not get this as passive, and we could utilize the losses in the rent.

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00:27:03:57 - 00:27:07:57

Kevin

Not the rental but the self rental to offset your income as a

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00:27:07:57 - 00:27:08:46

Speaker 3

physician too.

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00:27:08:46 - 00:27:30:50

Mike

So sorry, another unit that I have to just add one more and you can also make sure you're not paying more than market rent, but pay market rent if it's passive to you in your building, you're taking money out of one pocket, putting in the other. But that passive activity that's passive to you if you're not a real estate professional, the cost segregation, the depreciation can eliminate some of that income, the same income.

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00:27:30:50 - 00:27:54:11

Mike

If you didn't pay that rent, you'd be paying full tax on. There's so many cool things here. I do want to add one more thing. Kevin and I are not licensed attorneys. We are not licensed attorneys. We're not we're not legally allowed to more much less competent to offer you legal advice whenever you're considering liability issues like do you need LLCs for multiple properties, please consult your attorney.

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00:27:54:15 - 00:27:55:30

Mike

And how shall we wrap this up?

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00:27:55:33 - 00:27:55:44

Speaker 3

I

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00:27:55:44 - 00:28:02:19

Kevin

think, that was very I don't know if you've seen the Pringles, the Pringles commercials, where it's like a bet you just can't eat one. It's like, I feel like we're

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00:28:02:19 - 00:28:05:30

Mike

it's hard. There's so many cool things.

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00:28:05:39 - 00:28:06:35

Speaker 3

One more thing. No, I'm just

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00:28:06:35 - 00:28:08:21

Kevin

kidding. One more thing. Thanks for watching.

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00:28:08:21 - 00:28:22:28

Kevin

Thanks for listening. Thanks. We just give us a like comment, subscribe. We got one more episode coming next week in our physician series, so stay tuned. And, we'll see you all next week

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