This New Tax Bill Changes Real Estate Forever

What are you seeing now? We got this big, beautiful bill that just rolled out, right? And I know you have thousands of clients and you're very, very busy, so we do appreciate your time. What are you telling your clients to do and what are some of the moves they're making? It's pretty interesting. Of course, as you know, real estate was probably the biggest beneficiary of this bill with the bonus depreciation being made permanent. That was a big deal. Some other things in this bill that I think are really interesting. One, of course, is the opportunity zones and the idea that you can take, and they made it so much more clear. It was so fuzzy after 2017 and it was great. It worked, but the idea that you can take any capital gain, go out to an area that is kind of on the verge of development, develop something, postpone your capital gains for five years. When you do pay tax, only pay tax on 90% of it. And then eventually when you sell the project, don't buy any tax on the gain on that project. I mean, to me, that's like, it takes a lot of boxes, right? Checks a lot of boxes because I get to defer my capital gains. I get into a good project. I don't pay tax when I sell the project and I reduce my taxes. And on top of it, you're developing areas of town that really need the development and that without a good incentive probably wouldn't happen. So I think that that's a really big one. The other thing that I'm seeing more and more discussions about is this great manufacturing building provision where new manufacturing buildings don't just get the bonus depreciation on the contents of the building and also the improvements, but they also get bonus depreciation on the building itself. So you're talking about, you're building a new manufacturing building, even if it's a small one, and you're writing off 85%, 90% of the entire project and you can build a manufacturing plant and write off 80 and 90% of the construction costs, everything but the land, everything but the land the first year. So it's like, I mean, it like blows out of the water, anything else we've ever seen. And just to be clear that that could be financed too, right? Yeah, it can be financed. You could set it up so that you lease it to your company, right? So that you own it, you lease it to your company. We're just getting new regulations every day on things like this, some of the new provisions, but everything that was talked about, all the big discussion was, oh, we're not going to pay tax on tips and we're not going to pay tax on overtime. And those actually have become pretty small items in here, but the deducting your research and development expense, huge one. And one thing that we're seeing right now is of course, people can go and actually that research and development expense that they capitalized over the last couple of years, now they get to deduct it and they can do it retroactively. And so there's some pretty cool plays there in that. And then on top of, of course, we have all the old stuff that is still going. Oil and gas is now in everybody's thought process right now because we got oil at $95 a barrel. And so everybody's thinking about, oh, maybe I should be invested in oil and gas. Of course, I'm sure Mike Miscellany was talking about all of those great tax benefits there. I mean, but those tax benefits have been around since the seventies and eighties. So I just think, you know, there's never been a better time for reducing your taxes legally and doing it in such a way that you're building wealth so that you're not doing it. You're not just looking at tricks and tips, but you're actually looking at ways to seriously build wealth. And at the same time, seriously reduce your taxes. Now, I know we probably should say this, whoever is in office, the administration has a massive, massive effect on what we're able to do. So what we're talking about today, you know, could only be maybe a little bit, you know, three years of a window here. Right. And then, then the window can shut again, just like, just like we saw before. Right. So just be clear that some of these, some of these things are available, but they might not be available. Right. Right. So even when we say it's permanent, I mean, the nice thing about making it permanent is that, you know, then a new administration would actually have to do something affirmatively to eliminate that. So where bonus depreciation was originally scheduled to phase out this year, and now it's there until, you know, the, the Democrats would have to come in and say, Hey, we're not going to do bonus depreciation. Well, the good news about bonus depreciation is they wanted it in the first place. They were never against bonus depreciation. And so that's one of those things. I don't expect that to change. I think that's a long-term opportunity. I think the things you're going to see changes are, I think you're going to see new tax rates on a high income earners. I think absolutely. If you had Democrats in office, again, you're going to see massive increases in tax rates on, on the high income earners. But the good news is, is that if you're investing in real estate, oil and gas things, we talk about a limitless, right? If you're investing in those things, your income is never high anyway. So you're never in those tax brackets. So the, you know, I always tell people if the target, if the administration's target, because remember last administration's target was $400,000, right? If you didn't make over $400,000, we weren't going to increase your taxes. Well then don't make over $400,000 from a tax standpoint. Right? So that's just, to me, it's just a target. It's kind of like, Kenny, when you were talking to, I remember you talking to Robert one time about the size of his boat and it was like, what, 52 feet. And you go, Oh, so I need a 53 foot boat. Right? It's the same kind of thing. Right? I mean, if it's 400,000, then all you do is you just make sure that you're investing in such a way that you keep your income down below 400,000. I mean, to me, it's, you know, what's really interesting is we're starting to see this wealth tax and some stuff going on, you know, Washington and California and we're seeing people move around. Um, and so, uh, there are the, the Dems are already going after what they want to go after on a state level. Right? So what do you see here? Well, well, so we, so, so just yesterday there were two proposals, uh, King Jeffries, um, the minority leader in the house, uh, had one proposal where the standard deduction would be increased to 75,000 and another Democrat proposed 92,000 for the standard deduction. What they're trying to do is take people off the tax rolls and put even more of the burden on the high income earners. And so that's actually what they want to do that. They're not really looking for a tax decrease there. They literally just want to soak the rich. That is literally that's their, their mantra, right? Tax the rich. I mean, we saw it on AOC evening gown, right? That is their mantra. So, um, you know, we see it in, in Washington state, 9.9% tax on people making over a million dollars. We know that's going to come down pretty rapidly over the next couple of years because politicians never saw a dollar. They didn't want to spend. And so what that means is, is that, and that was, by the way, that's unconstitutional under, under the, under the Washington state constitution, it's unconstitutional to have an income tax. And yet now they have a capital gains tax and an income tax. And you know, who knows what the courts are going to do? The court blessed the capital gains tax say, wow, it's still okay. And so the challenge is you said that people can move around from state. So they moved from California because the billionaire tax, they can move from the wealth tax. They can move from, from Washington state. But what happens when it's a federal tax? You can't move because your tax on worldwide income as citizen or resident of the United States. And if you're a citizen, even if you revoke your citizenship, you've got 10 years of paying tax to the U S before you stop paying tax to the U S. But we're going to see, I think we're going to see rate increases. I don't think we'll see a wealth tax. I think that's totally unconstitutional. I don't think there's any way we, I just don't see a Supreme court. Of course, if the, if the Democrats were to stack the Supreme court, you might see that change, right? If we had 13 justices. And so we had liberal justices on the Supreme court controlling the Supreme court. They might come up with an argument that we could have a wealth tax, which would be a horrible idea, but you know, those things happen. I think more and more likely, we're going to see major rate increases when the Democrats take office, because remember, we barely got past that in during the Biden administration, because we had two senators mansion and cinema no longer there who voted against it, but had it not been for them, not voting against it, we'd have, we'd have had a $6 trillion tax increase during the Biden administration. So as it was, we had a major tax increase, which then of course Trump undid. So you're right. I mean, different administrations. And when you only have to have a 50% vote in the Senate or the house 50 plus one, then, um, for tax increases, I think surely if the Democrats control all three houses in, you know, four years from now, we're going to see major tax increases. Most of the real estate playbooks from 2023 and 2024 are breaking apart right now. The debt structures that made sense back then are aging in a different rate environment. Bridge loans are coming to refinances. Do not pencil. And there's no equity. I had a deal that was sent to me just a few weeks ago. It was lender owned and went back to the bank. It was a 300 unit property in Texas and that property only had 5% occupancy. And so we haven't seen deals like this since 2008, 2009. During the GFC, Tarle Yarber and I are doing a free breakdown on many investments on May 20th of exactly what we're seeing right now. If you'd like to sign up, just register on the link below.