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How to Qualify for Accelerated Depreciation, Tax Strategies, Tax Deductions, Taxes 2021! - YouTube
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now what would be some of the
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classifications in order for somebody to
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qualify for this because i think you
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have to
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qualify as a as a real estate
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professional
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um and can anybody in any business do it
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like if i'm
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a doctor can i use uh
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accelerated depreciation uh if i'm a
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uh restaurant owner could i use this as
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well too
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yeah great great question uh this is one
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of the my favorite things to talk about
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during our workshop
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is to break down real estate
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professional status we call it reps
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so the the backdrop in the rules real
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estate is inherently considered
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passive in nature by the irs by default
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its passive income
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and the losses that are generated from
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depreciation and
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operating this real estate are
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considered passive losses
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only passive losses can offset passive
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income
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right so those two things have to match
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up many people
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don't fall into that category because
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they have a ton of other things going on
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they have either a regular
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uh w-2 job or substantial involvement in
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another business
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tons of things right so they have a lot
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of active income
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and then if they do real estate they
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have a lot of passive losses
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those two things can't immediately
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offset each other unless
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you qualify as you mentioned as a real
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estate professional
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so how do you meet that qualification
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there are three things that you got to
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be aware of
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number one you need to spend at least
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750 hours in real property trader
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business materially participating
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in real property trader business what's
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real property trader business
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real estate sales broker property uh
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management development all these
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different areas that we traditionally
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think of
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so at least 750 hours in the in this
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space
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question does that mean that if you're a
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real estate agent
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and you spend over 750 hours selling
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real estate that you automatically
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qualify
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no you you you meet that first threshold
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of the 750 hours in real property trader
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business
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but then you also have to make sure you
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hit these other two that i'm going to
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talk about
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that you gotta you gotta have this whole
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thing the center and
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i'll tell you also realist real estate
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agents and brokers
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are uh notorious for violating this
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because of that assumption
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so the second thing is more than half of
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your time
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needs to be spent in real property trade
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or business that means more than 50
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so for those as you mentioned that are
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our doctors or
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uh or have a substantial business that
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they operate and different things like
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that
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it's really hard to justify that you're
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spending more than 50 percent of your
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time doing real estate related things
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right
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uh because you got a full-time job yeah
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so
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you got to check the box on those two
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and then the last thing is
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you need to materially participate in
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your
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rental related activity your rental
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related activity not the rental related
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activity of someone else
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so that's material participation in the
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actual properties that you
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own right and we'll have to kind of dig
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into material participation but
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you got to have all those all three of
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those boxes checked
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and that right there opens the door for
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you to use those passive losses from
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real estate to offset active income
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here's where realtors and brokers tend
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to go wrong
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is they make the assumption that because
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i'm selling property
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and that's what i do full-time i
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automatically meet the threshold
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but they forget that last part material
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participation
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in your own rental related activities
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not the real rental related activities
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of someone else
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so as long as those things are true then
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they can um
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they're in a position to use those
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losses to offset their uh
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their active income so let's go back to
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the doctor and the restaurant owner
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what if your wife uh is uh
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a real estate agent and your wife
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uh basically spends more of like let's
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say
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one one spouse is a doctor and the other
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one is a
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uh a real estate agent one of the
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spouses
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would that meet that threshold if
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if it would that be easier to justify
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one of the spouses spending the 750
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hours
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in in that or more than half of your inc
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or more than half of your time
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in that department yeah so that opens
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the door if the primary taxpayer doesn't
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meet the threshold then yes your spouse
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can meet that threshold
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as long as all those same things are
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true that we just walked through
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and you all file a joint tax return
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together if you're filing separate tax
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returns well
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then everything is reported separately
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but if they're joined then it all flows
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through on one 1040 and yes you can use
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that that's
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that's a great way that a lot of a lot
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of our doctor clients use that
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yeah now the last part is material
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participation
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the that so like let's say that uh like
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somebody like me
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uh let's say i own 57 units we
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self-manage all 57 units
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uh approximately 12 million dollars
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worth of real estate right now we
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self-manage everything but let's say
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that i wanted to syndicate i wanted to
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maybe
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uh diversify a little bit and invest
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with like a syndicator
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and let's say there's a syndicator
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offering
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uh for the investors to keep all the
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depreciation almost just for a tax haven
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yeah let's say that i invest a dollar
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they're
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gonna give you two dollars back in
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depreciation
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um would would that cause a problem like
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if i did that would since i have a
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sizable real estate portfolio more than
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750 hours of management
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um would would that cause any problem
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or would i be able to write that off uh
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basically let's say i invested
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300 000 in a year and that i got
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600 000 in depreciation back from that
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investment
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is that something that would be
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allowable
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so that's a great question and i tell
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you tax professionals
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fight about this one all the time uh
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there are a lot that are on the side of
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the aisle of
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no you're considered a limited partner
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you're not actually investing in real
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estate itself so it doesn't meet that
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that threshold and there are some that
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suggest that you can
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aggregate as long as you make the
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election to aggregate all of your rental
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activities uh together and treat them as
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one then you should be okay
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what i'm gonna say i'm not gonna give a
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direct answer because i don't want
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anyone to make assumptions what i'm
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truly gonna say and i think people beat
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up on us when we say this all the time
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specific talk specifically to your
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advisor to see
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if that makes sense for you and if it's
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something that they think
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is defensible in the event of an audit i
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have seen
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where you're a limited partner inside of
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a syndication
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and you meet the qualifications for
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being a real estate professional
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and you elect to aggregate all your
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activity as one
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where some people will then take those
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those losses whether they're
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you know limited excuse me losses from
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that syndication deal that
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like you just mentioned or your actual
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real estate that you own
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um and treat that all at all as one but
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i've seen other people who says nope
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that's not right you're going to get
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audited and you're going to lose so
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talk to the tax professional see if that
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makes sense for you and yeah yeah
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for for your clients what is your
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fun well it depends on their unique
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situation and and what we think
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is defensible if the facts and
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circumstances suggest that
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um that aggregation works and we have
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the code section to back it up
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then we're gonna go for it as long as we
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believe we can reasonably defend it in
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an audit and win
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and of course the client has to be on
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board with this as well so that's the
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one thing that that's important
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they ultimately signed the tax return
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saying i agree with everything that's on
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here so
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as long as those two things marry up
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then uh then we'd go for it
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it's funny because i when i first
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reached out to my accountant about it he
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said
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uh no and then he did some more research
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and then he said yes
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and i think that's what you were
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referring to in regards to
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is it a coin toss but these are like
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more advanced tax strategies well now
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let's say that
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somebody didn't have a sizable real
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estate portfolio and just wanted to
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invest with a syndicator and they were
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a limited partner versus a general
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partner in that case
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is it less likely that it would be
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defensible
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defensible yeah it's going to be less
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likely in that regard because
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you have the burden of material
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participation when you're a limited
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partner
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it's really hard to meet uh material
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participation
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now there are some unique ways to do so
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um they're they're not
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easy or or can be done without
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proper guidance but it can be done but
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that's that's going to be the big
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drawback there is
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if all you're doing is investing in
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syndications as a limited partner
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it you can't really meet the material
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participation part then none of it falls
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into place
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and then um
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what happens if uh
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i forgot what i was gonna go okay so
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let's go into and i love this topic and
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i'm so grateful
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um i don't know if anybody has ever told
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you this but you have a really good way
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of explaining
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things in a very simple way and it's
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almost like
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i can tell this is not your first time
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explaining some of these things because
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you have like
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perfect examples for everything to make
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it very simple so
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i appreciate that and obviously uh
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interviewing you
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