Ep. 145 | One Big Beautiful Bill Act: Real Estate Opportunities
Download MP3Hey, everybody, and welcome back to teaching tax flow, the podcast episode 145. Today, we are gonna jump into the one big, beautiful bill act. But this time, we're gonna focus on real estate with a great guest. But before we do that, as always, let's take a brief moment and thank our episode sponsor.
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John Tripolsky:Hey, everybody, and welcome back to the podcast. Obviously, as I always say at the beginning of these and, again, if you're an avid listener of this, you know these little, mannerisms, I guess, is what is what I'm saying here. But at the beginning, I always say, don't be lazy and look at the show title and the description because it tells you what we're gonna talk about. But what it may not tell you is that our guest back on this one, he's been here before. You know, he's he's been around here a couple times.
John Tripolsky:He's been in the industry even longer. So is, and I'll let Chris introduce him here in a minute. But, obviously, this topic, we touched on one last week. Right? So we're looking at the one big beautiful bill act.
John Tripolsky:Last week, we talked about individuals. This week, we're gonna make the little trek into real estate specifics. So as we get through this discussion, you're gonna notice a few things here that really are specific to real estate, but then also, I believe that our guest is gonna talk about something that kinda goes beyond it, but then brings it back in, and you'll see how it impacts real estate specifics. So before we get into the guest part and the topic, Chris Pacquero, welcome back, sir. We open the gates.
John Tripolsky:We let you come back into your own show. So here you are. Welcome.
Chris Picciurro, CPA:John, I would say I did my hair because I'm so excited about our the return of our special guest. But, you know, I don't have a great hairdo. But I think I think bald is the new mullet, and, I think our guests would agree. But I wore my favorite color shirt. So if you're not watching on YouTube and you're listening, first of all, thanks for listening.
Chris Picciurro, CPA:Second of all, go check out our u the YouTube, video of this. I'm so excited, to welcome Scott Saunders back to the Teaching Tax Flow podcast. We are gonna dive into some of the, real estate provisions in 0 B 3. Scott's someone that our firm has worked with for many years. Him and his team do an amazing job.
Chris Picciurro, CPA:They've helped me out personally, saved my butt in a pinch personally once, and I'll be forever grateful. But Scott, you're it's a treat to have him on the show because he has a senior vice president of at API, which is Asset Preservation Inc, and he is a nationally recognized speaker. He's speaking tons of I don't know how many engagements to do a year. I've gotta imagine at least 50. So instead of of course, in person events are amazing, but if if you were listening or watching, you're in for a treat because you didn't have to buy the airfare, buy the admission seat ticket, and pay all the costs that you would usually need to pay to listen to Scott speak.
Chris Picciurro, CPA:So, Scott, welcome back to the Teaching Tax Flow podcast post OB three.
Scott Saunders:Yeah. Chris, great to be with you. You're right. Post, we got some certainty, and I'm happy to kind of unpack why this particular, these new tax laws are good for real estate investors and some of the implications. So looking forward to digging into that and flushing out some of those details.
Chris Picciurro, CPA:Well, let's yeah. We are excited also. We did like John said, we did mention, you know, some of the provisions that for that help individuals. We're gonna do one on business owners. We're gonna do one on the state.
Chris Picciurro, CPA:There's gonna be some overlap, no doubt about it, but you cannot be too informed about this tax bill. This is a major overhaul. But let's jump into an area, that you intimately know and you are involved on a daily basis managing an amazing team. The ten thirty one exchange, was that affected by OB three? And and and then let's maybe we can run down some of the other provisions that touches real estate.
Scott Saunders:Yeah. The ten thirty one exchanges were not touched at all with this new tax bill, is great news. So a little bit of context for that. Over the last few years, with the previous administration, they were attempting to cap ten thirty one exchanges at half a million per taxpayer. So married couple, a million dollars, which, you know, when you think about it, some people go, Well, that sounds like a lot.
Scott Saunders:Yet, if you're in a market that's appreciated, you know, coasts, California, you know, New York, Florida, you could have bought an asset twenty, thirty years ago and had that much appreciation in just one single family rental. You know, there was a concern, and we spent to give you a little background, Chris I help lobby for the industry along with National Association of Realtors, and I probably meet once a week with somebody on the Senate Finance Committee or House Ways and Means, so on the tax committees. We educate them just on the economic benefits of Section ten thirty one, how it creates close to a million jobs and how it stimulates transactions. So, to answer your question, ten thirty one not affected, and to me, we've got a lot of certainty. What's kind of nice about having this bill done and let's take, you know, not look at the political side and all the other applications, but we have what we have.
Scott Saunders:One of the big things that's a nice takeaway is we now have certainty, and I think there's a lot of value in that for business owners, investors, and taxpayers. When we had the Tax Cuts and Jobs Act, you know, we had different provisions like bonus depreciation that phased out, and we had a bunch of things that were going to end at the end of this year. And what that does to investors is it creates a sense of uncertainty, and they don't know how to move forward, or they're at least tentative. And having tentativeness in the economy, it's not good for anybody. So, what I like about this bill is that so many of the features are permanent, so as real estate investors, we know what it looks like.
Scott Saunders:Now, when we say permanent, I'll do that in air quotes, right? Things are like this until we get another administration with, you know, that maybe changes things down the road. But for the foreseeable future, what we have now doesn't have a sunset provision where it expires. And so to me, when it comes to 10/31, capital gain taxes wasn't changed, carried interest wasn't changed, the net investment income tax stayed the same. So a lot of those things stayed the same, and now we've got certainty there.
Scott Saunders:But we did get changes on other areas too, so that a lot of those are very positive for real estate.
John Tripolsky:So Scott, here's a question for you. Did you read 1,000 something pages?
Scott Saunders:Oh, that's a good question. And scout's honor, no. I did not read the entire bill. I did not.
John Tripolsky:I wanna find the person or people that did and basically say, man, I wish I had that much time and focus to do that. I don't know if I don't know if that's a positive or negative if they did it, but you you did bring up a good point here too, certainty. Right? So that's something that we don't see a lot. But as you kind of alluded to, I mean, what a great thing to have.
John Tripolsky:I mean, Chris, even, you know, kind of crossing a little bit of a bridge. Right? You guys have really built that into your private practice, price certainty, and and with clients there. So, I mean, Scott, you're talking about this as a market as a or in the market as a whole. Right?
John Tripolsky:Like, what a beautiful thing. Right? Like, what? Even down to, I mean, the total extreme. What if we knew that gas prices were gonna stay the same every day?
John Tripolsky:Right? It might be good. It might be bad, but you can plan for it. Right? So that's a huge thing.
John Tripolsky:Right?
Scott Saunders:Yeah. You know, John, that's great you brought that up. Planning for it. An investor, if you just think about what we do as an investor, we take capital today, we part with it, right, with the expectation that in the future we're going to get a return of some sort, whether that's appreciation, dividends, income, but we're parted with capital that we can use today to put it aside in the future to have it grow and multiply in some fashion. And now we've got laws that at least we know the rules are fixed, and so it makes it easier to make decisions.
Scott Saunders:It's very tough when you're presented with all these different investment options to make a decision when you don't know exactly what's going to happen and you're just wondering. So I think the marketplace, as they begin to digest this, I think this is going to be net positive for people, knowing what the rules are and then being able to start to execute and then weigh the pros and cons of different investments, you know, real estate or other investments, knowing that. So that's a big factor. I call it the power of certainty. And I think it's going to be a little bit of a relief, you know, not only to tax preparers, but to investors, to say, Okay, we know the rules.
Scott Saunders:Now we can operate in this sandbox knowing what the rules are.
John Tripolsky:Yeah. Talk about planning. Right? It's the same with gas prices. Dumb analogy, but it's very related.
John Tripolsky:If you knew that it was the same price from here to Florida, and I'm in Michigan, you know, you might not have to swerve off the road at at Buc ee's, and, you know, Chris loves going there. So, you know, trying to get the the best deal on fuel. If anybody's watching this, he's shaking his head drastically.
Scott Saunders:Alright. Alright. Alright. You had to bring up Buc ee's. I'm gonna give you a little tangent.
Scott Saunders:The Wall Street Journal's lead article this weekend was about Buc ee's in my little town, pal Palmer Lake, Colorado. If you see it. So there's a Buc ee's trying to come in, and they want to go in this beautiful rural spot pine trees, beautiful views next to open space, and the local community is not happy, and they're fighting back. Now, I don't know who wins. I think the big corporations have a little bit more horsepower.
Scott Saunders:But, anyway, Buc ee's and my little town, Palmer Lake, Colorado, was featured on the Wall Street Journalist. Wow. Big article about that.
Chris Picciurro, CPA:Wow. I don't, yeah. I'm not gonna talk about Buc ee's today because I'm gonna stay in a good mood. And, couple things on Scott, can you talk about, you know, I mean, as as simple as possible, you mentioned carried interest in that part of what o b three kept alive.
Scott Saunders:It it is. Yeah. There there was talk. The president said maybe we need to modify that. And in the final bill that was passed, that stayed the same.
Scott Saunders:So that is a net positive for real estate. People invest in projects, and having a lower tax rate makes it so that they're gonna invest more. If we had a higher rate, that would have dissuaded investment. So I think that's a positive for development and for real estate.
Chris Picciurro, CPA:There's something else I that I think, you know, sticking with real estate. You might not think that this has an effect on real estate, but I actually think it it allows people to potentially consider ten thirty one exchanges. And and what I wanna talk about also is opportunity zones, which I I call that the cousin of a ten thirty one exchange. But the change in permanence to a state tax, I think that's a numb probably the number one permanent like, I'll give you an example. I know John likes his gas example.
Chris Picciurro, CPA:My example is, sir, you know, in our private CPA practice, we're a membership based, and we're very transparent with pricing. You can you imagine going to a restaurant where there's no prices on the menu? You might order something. You might eat it. You might kind of enjoy it, and then it might be a price less than you thought.
Chris Picciurro, CPA:Wouldn't it have been nice to know it was less while you're eating the meal and thinking to myself, I wonder how much is this is gonna cost me? So so I like that certainty, but, yeah, can you talk about the estate tax and what what you think that's gonna play a role with ten thirty one exchanges because I feel like a lower estate tax drives people to have a little more liquidity and less less amount put into real estate.
Scott Saunders:Yeah. So the estate tax has now increased to 15,000,000 per taxpayer. So if you're a married couple, you're talking a $30,000,000 cap. Anything above that then faces estate tax. When you look at, you know, in terms of just doing long term planning, that's a pretty high threshold.
Scott Saunders:30,000,000 is a fair So amount of what it means is from an exchange perspective, people can continue to exchange from one asset to the next and the next and continue to do that and build up a larger portfolio and be able to hand that off to their heirs who get, again, as you as everybody knows, a full step up in basis to the fair market value at the time they pass away. That's a lot. You know? I I think something like 99.7% of the of America is gonna be beneath that threshold. That's a really small group that's above 30,000,000.
Scott Saunders:So, again, that's a big benefit. That's a win for rural America, for farmers and ranchers. It's a win for the average American that maybe has a few assets, and they want to go ahead and continue building their portfolio to pass on. So huge. I think that's a great thing.
Scott Saunders:I'm really glad it came out that way, and I think a lot of taxpayers should be really fortunate. And again, for planning, if you're beneath those thresholds, it makes planning a lot easier. You don't need to go through all of the complicated mechanisms that you need to do if you're a really high net worth individual. There's always going to be a little niche market for that, but the average American is probably gonna do quite well at that $30,000,000 threshold.
Chris Picciurro, CPA:Absolutely. And you think that like, I think a lot of big misconception when we look at estate tax is that people assume that if I you know, someone has $5,000,000 worth of assets that it's all liquid, and that could be very not not the case at all. Right? It could be all in their business, which isn't a lot of you know, maybe it's a lot of IP. Maybe it's maybe they have a lot of real estate that's producing income, but it's not liquid.
Chris Picciurro, CPA:So, you know, that's that's there's a big difference between liquidity and your gross estate. There's no doubt
Scott Saunders:about Hey. Absolutely. I've I've got a friend of mine actually in Tennessee, very successful investor and he always just, as soon as he gets money, replows it into another project. So his net worth is very solid, but his liquidity is really not that much because he keeps putting it back in and growing his investments. So I think that's real common.
Scott Saunders:You know, even in rural America, you have people that are land rich, but they're operating their business with kind of tight margins, but yet the value of the land is worth a lot. But they can't really capitalize on that in a lot of cases.
Chris Picciurro, CPA:Right. And you mentioned capital gains remained unchanged, so we know that we have some lower capital gain rates in Yep, the long we
Scott Saunders:do. Yeah, we've got the lower rates. Those two thresholds just continued on at the 1520%. So again, those are good. Now, in my world of ten thirty one on real estate, I think people are better off, you know, doing that.
Scott Saunders:And the other thing you kind of alluded to, we've got the opportunity zones. These came about. Senator Scott proposed these, and they became part of the Tax Cuts and Jobs Act. And the whole purpose of an opportunity zone was to take capital, draw it into these distressed areas where they needed some refurbishment, redevelopment, and to try and improve them. And it was a massive success.
Scott Saunders:I forget the last data it was a huge number many, many billions went into these. So opportunity zones, which are kind of related, they're a different strategy than ten thirty one, they're broader. You can use them for any capital gain. Sell a business, sell crypto, sell an art collection, your gold, whatever it is with massive gain, you can invest these Opportunity Zones. So the way they were before is they capped out, they ended.
Scott Saunders:Now they're around in perpetuity, so we can invest in them. They were expanded. It's a great one, and as you know, I don't know how much you've gone to do it on other broadcasts, but any gain that you have after the tenth year is tax free, so there's an incentive to invest long term in these communities. What a benefit, literally a tax free We
Chris Picciurro, CPA:used Opportunity Zones significantly in '9 in eighteen, nineteen, twenty, twenty one because they were set to expire here in '26, I believe. We we didn't see as much going on with qualified opportunity zone funds. I love it because you can yeah. As you nailed it, just invest all your capital gain or a portion of it. And I wanna think about, like, you know, we're all from different parts of the country.
Chris Picciurro, CPA:Here in Nashville, The Gulch was an area that was part of an have you been to have you been to The Gulch in Nashville recently? You see it's it's amazing. You know? Yeah. There's some pockets, but that was an part of an opportunity zone fund.
Chris Picciurro, CPA:I was just in Atlanta. You know, Buckhead's a nice area, but there are some really rough parts there that have been redeveloped. In Detroit, Midtown. Midtown looks fabulous now in the right north of Downtown Detroit. I know that's where John's at.
Chris Picciurro, CPA:So I think it's it's been a swoon for people because ultimately, that money is still staying in the economy, and they're still paying labor. Labor is paying payroll taxes. You know, I I would be interested. We'd have to look at our friends from the tax foundation. They break down the economic impact on the job gainer loss on all these provisions.
Chris Picciurro, CPA:We haven't hit that part yet. But that's that's phenomenal. And the other thing, Scott, I don't know if you've seen this. You can you know, we always talk about and and you meant, I know you kindly mentioned before the show our our quick quick tips, quick reels. We have a whole on the YouTube channel, a whole, quick tips, playlist that tax strategies like to play together, like to be stacked.
Chris Picciurro, CPA:So let's say you have a business owner that's selling his commercial building or her commercial building and could do a $10.31 exchange with that, but then the stock in their company, they could do a qualified opportunities on fund. So they could do both. It's not one or the other.
Scott Saunders:Yeah. That's isn't that great that the tax code has all these options? So you you've got all these tools now at your disposal as an investor, and you're right. Use a ten thirty one on your real property, defer the taxes, reinvest, redeploy it as something other. Use something like an opportunity zone now for the other gain with the business and other things.
Scott Saunders:So honestly, we're probably, you know, from an excitement standpoint, we're at the most exciting time to be a business owner and investor. We've got all these great tools now at our disposal that we can use, and so I think it's really incumbent on people. Get with their tax advisers and find out all that's in this and take advantage of some of these new provisions. There's a lot going on. Absolutely.
Chris Picciurro, CPA:Well, know there was a couple two things I wanted to I mean, there's so many things, and and we're gonna probably harass you to get some content from you down down the road in the teaching textual YouTube channel. But two things I wanna touch on before I forget the actually, maybe three things. But the I just had a meeting with a private CPA firm client. He's a resident of New York City. He's a doctor, and he now will be able to deduct $40,000 of state and local income tax instead of 10,000.
Chris Picciurro, CPA:Salt I mean, so we you know, what do we see with the salt tax deduction? That's not what you put on your eggs.
Scott Saunders:Now salt's important. You know? I mean, think about it. For your average person, if you're in a market, and I know the Long Island market pretty well, we've got an office out there, those property taxes are enormous. If you were capped at 10,000, now you go up to 40,000, and I believe it adjusts up by 1% every year, so a little index, That means you're going to have more take home.
Scott Saunders:You're going to have more in your pocket. That's good for everything. It's good for all investments. It's good for real estate. If you want to save up for a down payment on your first rental property, you're going to have more cash to do it.
Scott Saunders:So I I think that was a a great outcome, and I know people in those states that we're having those higher property taxes are probably excited to finally see some relief in that area. So that'll be you know, that that one's not permanent. I think it sunsets out at 2,030, I believe. But, hey, there's a time window now to take advantage of that, and it I'll tell you, lot of people fought hard to bump that up. So that's a great provision for sure.
Scott Saunders:Yeah. Absolutely.
Chris Picciurro, CPA:I know bonus depreciation got favorable treatment, which is which sounds good. Favorable. It's great. It's being friendly. Right?
Chris Picciurro, CPA:That's Let's talk
Scott Saunders:a little bit about bonus.
Chris Picciurro, CPA:So let's talk about because bonus
Scott Saunders:to $10.31, those two concepts kind of link together. So bonus depreciation now, we get a 100% bonus depreciation with no sunset. This is gonna be a game changer on real estate. Commercial, I think it's gonna get things moving. I think people are gonna trade up.
Scott Saunders:For those who qualify, and, you know, I'm sure you unpack that. It's a little complicated on the different types of income and all that, but bonus depreciation is a great strategy to take advantage of in the year of acquisition. So we're going to see that. Now the downside with bonus is that you've taken all that depreciation up front, so if you sell it in a taxable sale, you're now going to have to recapture that. So lo and behold, what do we have as a solution?
Scott Saunders:The ten thirty one exchange, right? So then ten thirty one gives you a way on the back end when you're exiting the asset, and now it's time to sell out of it, do a ten thirty one exchange and redeploy it. So really, the the perfect strategy is to marry those two concepts. Number one, take advantage of bonus when you acquire the asset to the extent that you can, hold it, and then when you're now, it's time to exit out of that, take advantage of a ten thirty one exchange and defer your gain, and you can do that indefinitely over and over. So combine those two concepts, this is a big deal, and and I'll tell you, this affects the whole real estate industry.
Scott Saunders:Commercial real estate has bigger numbers, so certainly it's going to have an impact on that. REITs, you know, a lot of entities will do that, so commercial. The residential market, which I know well, and I'm a residential investor, you can take advantage of that buying a little $203,100,000 dollars residential property. Same way as commercial, it's just the zeros are a few less. And then the third one, which is a great opportunity, is the short term rentals.
Scott Saunders:Taking advantage of the short term rental loophole where you only need over one hundred hours and more than anybody else. So, commercial market's affected, residential market, and short term rentals, that's pretty much the whole real estate industry, except for new construction. That's big component. Right. So you've the bonus
Chris Picciurro, CPA:depreciation as your appetizer, and then you've got your $10.31 as a marvelous dessert, and then you could maybe we're all hungry today. I don't know. Maybe it's me. But, you know, then you've got owning that property. Well, as we wrap it wrap up, is there are there any final nuggets?
Chris Picciurro, CPA:I know there's some that you wanna leave us with. I know there's some different credits. There's some new rules of factory building.
Scott Saunders:Let me give you two of them, Margaret. Two separate ones. So I'll give them to you kind of in rapid fire. One, I think this tax bill really rewarded work. So that's important to remember.
Scott Saunders:First 25,000 of tips, not taxable. Over time, up to 12,500. So that means there's a reward for work, and the impact is going to be twofold. Number one, people can save up more for their down payment. They'll have more disposable income after tax income.
Scott Saunders:Number two, if you're a renter and a tenant in those types of things, you're going to have more money. And so I think some of these markets where you've got a lot of, let's say, healthcare workers, first responders, people like that, you might have some of them with more money. A market like Las Vegas might do very well because they've got all the casinos. So that's one takeaway. The other one on kind of the other side, pulling it back to a macro perspective, in this bill were all sorts of incentives to encourage real estate.
Scott Saunders:Condos, a condo development, they're going to get an additional tax provision. Low income housing gets some additional credits. The list goes on and on, and you know, there's something called the QBI deduction, which is now permanent, right, that 20%. That affects 2,000,000 real estate partnerships. So overall, there were many things that were included in this bill that are going to be very positive for real estate.
Scott Saunders:It's going to take a while for that to trickle into the economy. It may take a year or two or three. You mentioned factories new factories get a special expensing component if you're an owneruser. That's a huge one to bring manufacturing back to America, which brings in not only manufacturing, but it brings in jobs and the incomes with that. So, so many positives there.
Scott Saunders:I'm really excited about the, you know, the next few years. I think economically, this is going to be very, very, very positive, and those people that take advantage of these provisions are going to win big time. So those are a few takeaways.
John Tripolsky:Awesome. Well, wait. Wait, Scott. That's actually a great spot to even wrap this one up because as Chris, I believe, threatened everybody in a good way at the beginning of this, we're gonna have to have you back on as always. It's it's this is great.
John Tripolsky:It's kinda like reverse fishing, but, like, we keep you know, you keep trying to get away, and, nope, we're bringing you back in. So good luck. And, yeah, I mean, this is this is a great topic. Right? So we're wrapping this up.
John Tripolsky:We did last week's. We did this one more specific on real estate. So as we dive into this a little bit more, we, we keep guys like this in our proverbial Rolodex, like Scott, because that way we can just pull them in, grab a grab a nugget from it, and we can save everybody else the, you know, the paper cuts by a thousand pages of having to read the entire bill. So I I look forward to it. And, Scott, you know, you're you're always welcome back, man.
John Tripolsky:We love having you.
Chris Picciurro, CPA:Thank you so much, and we appreciate it.
Scott Saunders:Hey. It's always great busy with you guys. Always fun to talk tax and economics, so thanks a bunch.
John Tripolsky:Absolutely. Absolutely. And, again, everybody, we'll dive into this more along with other topics. Be sure don't be lazy. As I said before, show notes, if you're watching, it's probably below you.
John Tripolsky:Depends on what screen. It might be off on the other side there. Follow some of these links. Reach out to Scott. Reach out to anybody from our team.
John Tripolsky:There is that curated YouTube playlist specific on the one big, beautiful Bill Act. So check that out. Subscribe to the YouTube channel. Tons of content. See you back here again next week on the teaching flow podcast.
John Tripolsky:Different day. Different date. Same day of the week, completely different topic. We'll see everybody soon. Bye now.
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