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We educate investors and potential investors on the in's and out's of investing in rental property. We focus on residential and multifamily investing, but include commerical, storage, mobile home parks, and more. We interview industry experts on tax strategies, property management, vendor selection, syndications, capex, and more.
There is enough opportunity everywhere for all of us. Yeah. Whether it be in real estate and tax strategy or whatever it is, opportunities are there. And so if we support each other, if we're kind to each other, if we're collaborative, opportunities are gonna us.
Nicholas Cook:Hey, investors. Welcome to the Retire on Rentals podcast. I'm your host, Nicholas Cook. And in this show, we explore how to optimize real estate investing, create passive income, discuss operational tactics, and ways you and your family can retire on rental income. If you wanna invest in real estate or currently do, then this podcast is for you.
Nicholas Cook:Alright. Today, our guest is Justin Rupple, and he is with Elevated Tax Strategies. He's the founder. Justin, I'm super excited to have you with us. There's a ton of ground to cover.
Nicholas Cook:You obviously offer a wide variety of opportunities for people to lower their taxable income. And this is a fascinating topic. I saw you speak previously and just had to bring you in so you could share some of your knowledge with the audience. But before we jump into, you know, the strategies and all the different things that that you offer and how people can lower essentially their what what they pay in tax, maybe you could tell me a little bit about your background, how you got here. Obviously, I imagine you didn't grow up as a little kid wanting to lower people's taxes.
Nicholas Cook:So maybe you can just explain, like, maybe it's just your journey to this place and how you ended up where you
Justin Rupple:are. Sure. Well, first of all, I appreciate the invite to be on the podcast with you. It's great to be here. So thank you so much.
Justin Rupple:Yeah. I'm happy to do this. Love opportunities to educate business owners, real estate investors, people paying taxes of how they keep more money in their pockets. You know, I didn't go to accounting school. I didn't I'm not a CPA.
Justin Rupple:We make it really clear because what we do is we work with business owners and real estate investors partnering with their CPAs to help them take advantage of advanced tax strategies that CPAs do not specialize in. And so the way that I got into this is unique. I actually, about fifteen years ago, was a health insurance and life insurance broker. I did group benefits, worked a lot of small business owners, helped them set up benefits packages. There's elements to that that provide tax benefits for the organization.
Justin Rupple:And so we're basically consulting with business owners on ways that they can be strategic about how they offer benefits that actually reduce costs through the most tax advantaged way. So that's what we were doing. Really enjoy what we're doing, taking a more kind of a creative strategic approach. Because even in every industry, you're gonna have people that are more transactional and there are more that have a consultative, strategic, kind of proactive approach to what they do, whatever it is. And that's how we like to do business with our clients.
Justin Rupple:Well, after doing that a number of years, I think now or probably ten years ago, we got connected with a specialty tax firm that we were so intrigued what they do because their value proposition was business owners are leaving money on the table because of tax credits they don't know anything about because their CPAs aren't bringing it to the table because it requires kind of a specialized service to take advantage of.
Nicholas Cook:Got
Justin Rupple:it. And as we were learning what they're doing, we were intrigued because so many of our clients fit the description of eligible businesses. So we're like, wait a minute, tons of our clients are leaving money on the table all because of tax incentives and tax credits that their CPAs aren't telling them about. So it's one of those things when you know a good friend is leaving opportunity, you almost feel morally obligated to tell them about it. Right?
Nicholas Cook:Absolutely.
Justin Rupple:Yeah. And so that was a big part of what we're doing. We're like, hey. There's so much opportunity here. Our clients are leaving this money.
Justin Rupple:What if we can bring this opportunity to them? And so we basically became the marketing arm of specialty tax firm. We're saying, Hey, the tax specialists, they were CPAs and engineers mostly helping businesses take advantage of the research and development tax credit.
Nicholas Cook:Oh, interesting.
Justin Rupple:The R and D tax credit is a lucrative tax credit. Been around since 1981. It's nothing new. And yet most tax preparers, CPAs or EAs that do tax preparation for small, medium businesses, you were to ask them about it, they would admit they know little to nothing about the R and D tax credit.
Justin Rupple:And I've yet to ever meet one that actually knows how to do the work thoroughly to take advantage of it. It's a specialized service. Businesses require an annual credit study developed with robust documentation that the IRS requires. The calculations are complicated. And that all needs to get done by a specialist that gets handed to the CPA to incorporate it into the tax return.
Justin Rupple:So it's kind of like an add on specialty service. And there's actually a whole industry called specialized tax services that do these kinds of things. Okay. Well, there's a huge disconnect between the CPA working with the business owner or the real estate investor and these specialists. That's where we come in.
Justin Rupple:We work right in the middle, hands on with the taxpayer, which is the business owner or real estate investor, connecting them to the specialty services that make sense to them, that are gonna bring value, that are gonna take advantage of things like a tax credit or a strategy, and that all is complementary towards what their CPA does. So we saw ten years ago this opportunity of there's a gap here. The CPAs are the main one that taxpayers are looking to to say, Hey, my CPA, what opportunities to take advantage of? They're dropping the ball here, and a lot of it is not to fault them. Tax preparation is generally low margin, high volume business, you know?
Justin Rupple:And so it's competitive, which means they've gotta have a lot of clients. They're busy doing tax prep, doing compliance work, and that's fine. They can keep doing that. We can come and work with the client and say, Hey, what opportunities are being overlooked? Maybe it's a tax credit.
Justin Rupple:Maybe it's a tax incentive. Maybe it's how you're structured with your investments or your business. Maybe it's how your employee benefit programs are set up. There's tax savings opportunities there. Maybe it's a big liquidation event, like selling a business or selling real estate.
Justin Rupple:What opportunities and strategies can be brought to the table that can significantly reduce their taxes?
Nicholas Cook:Got it.
Justin Rupple:And the goal is to help keep money in your pocket, not just for the sake of having money in your pocket. Our clients are smart business owners, smart investors. More money in the pocket means more capital to invest and more money to leverage, more way to grow my portfolio, whatever that is. And so we're seeing tax strategies as opportunities. And so that's where, as we got into this and consulting on tax incentives, that slowly grew as we identified so many other opportunities that people are just not aware of.
Justin Rupple:So we're constantly educating, love doing podcasts like this, sharing with people the opportunities to take advantage of ways that they can wisely leverage these different strategies to accelerate towards their goals. And that's what we're after.
Nicholas Cook:Perfect. Perfect. Well, you're the man to talk to. So, you know, you mentioned, you know, this r and d tax credit. But what are some of the more, like, common and and maybe that is common, obviously.
Nicholas Cook:But what are some of the more common misunderstood or, I would say, overlooked tax credits that are kinda just, like, you're regularly surprised people don't know about?
Justin Rupple:Yeah. Yeah. There's some of these things that I I consider kinda the low hanging fruit. It's just it's just money being left that can be taken that can be grabbed at if if you knew about it. R r and d was one major one.
Justin Rupple:Mhmm. And and I'll just bring this up because this new tax bill just passed, the one big,
Nicholas Cook:beautiful bill. I do wanna ask you about that
Justin Rupple:as well. And so this leads us into that a little bit because, you know, we got into this by helping businesses take advantage of the R and D tax rate. That was kind of what got our feet wet in tax strategy consulting. And that's enormous benefit because we're talking to business owners saying, Hey, some of the work you're doing automatically already qualifies you for this tax credit. You just didn't even know to claim it.
Justin Rupple:And we can help you do proper documentation and calculations, which literally just means money back in your pocket. With that tax credit, you can go back three years and retroactively claim refunds. So usually I'm telling business centers, Hey, I got good news for you. We can go back, claim three years. The bad news is I can't go back the last twenty years of in existence, we but can start now because it's things you're already doing.
Justin Rupple:A lot of business owners, I have to help them understand what qualifies as R and D is actually much broader according to the tax code than what we usually think about in our minds. We usually think high-tech. We think creating some new innovation, some, you know, new discovery. Now that certainly is R and D. But I'm working with a lot of, I would say, kind of blue collar kind of work, you know, dirty manufacturing fabricators.
Justin Rupple:You know, I tell business owners, look, if there's some work you're doing where you're having to figure it out, like you're not totally sure how we're gonna accomplish this, and it's scientific or technical in nature, whether it be architectural engineering, it could be, you know, there's a lot of different types of manufacturing. I mean, I'm working with a company right now that basically soups up hot rods, but they actually do a lot of fabricating because they're custom making parts for these phenomenal high performance cars. And there's actually a lot of R and D going on there. It's grunt work. It's messy.
Justin Rupple:And yet it qualifies. And so we're helping them take advantage of that tax credit. It's just money being left on the table. So we're looking at that. Part of it is just how a business is structured, that the CPA kind of is their go to.
Justin Rupple:Like, hey, if you're a profitable business, this is how you need to be structured. And CBs are also mindful that they're not attorneys. They can't give entity structure advice. And that's smart. You go to your attorney for that.
Justin Rupple:Well, let your attorney, your business attorney that sets up your entity, write your operating agreements or bylaws or however that is, they're not well versed in tax strategy. And so they'll defer to a CPA for tax advice. And then you're getting stuck between these two advisors that won't talk to each other. They're pointing at each other. We come in the middle, one of our key specialists is a tax attorney who's also a CPA.
Justin Rupple:And his specialty is business tax strategy. And so he'll help develop sometimes a more robust entity structure where you're leveraging a dual entity structure with different types of entities to leverage different kinds of rules. And that's the way that you're just you know, when you're an s corp, you're excluded from taking advantage of c corp tax rules. And when you're a C Corp, you're excluded from taking advantage of S Corp tax rules. Well, there's actually ways you can implement a dual entity structure to be more tax efficient every single year, and you just systematize.
Justin Rupple:And now a lot of our business owners, we're saving 50,000 to $80,000 a year Yeah. It's massive. With a structure like that. And it's not just a tax credit. It's it's just a structure that lets you take advantage of different kinds of rules that you can't as a single entity.
Justin Rupple:Yeah. Things like that we're seeing constantly.
Nicholas Cook:Yeah. And, you know, entities are a popular topic in real estate because there's always this kind of like, do I have corporation, an s corporation, an LLC? And, you know, obviously, it really comes down to the type of activity you're conducting. Absolutely. But, you know, that's obviously, like you just mentioned, is a tax strategy.
Nicholas Cook:And and people, I think, lot of times are just thinking, you s corp or LLC, maybe trust, but they don't think about what you kind of alluded to, which is, like, depending on your business and how you operate in real estate. And if it's like a full time thing versus not, you know, having a c corp might render some benefits for you. So, no, that's definitely interesting. And so you guys help advise on entity kind of structure or restructuring potentially with your group?
Justin Rupple:Yeah. That's a big part of what our tax attorney brings to the table is because his specialty is tax strategy. And so he looks at how things are structured, what's actually happening. Because it's one of those things where everyone's situation is different. And so there's no one size fits all.
Justin Rupple:We look at, oh, yeah, when you have held for investment real estate, that's a passive activity. The go to is LLC for that. Moving a property in and out of an LLC is not typically a taxable event. Moving a property in and out of an S Corp causes lots of problems. So generally speaking, you don't put your property in an S corp.
Justin Rupple:But I even say this with the disclaimer of, if you're listening to this today, this is not tax advice. Everyone's situation's different. We need to have a conversation about your particular circumstance to determine what the right advice is for you. But generally speaking, yeah, your property in an LLC makes sense because that's a passive activity. But then you have circumstances where someone's full time or majority time dealing with managing their properties or investing in real estate or brokering real estate.
Justin Rupple:Well, now we're getting to things like real estate professional status.
Nicholas Cook:Yeah.
Justin Rupple:You know? And then there's an actual business side to that that maybe should be carved out and put in an S Corp, you know? And so that's all part of what does that look like and what's the most tax advantaged way to do that? You know? And then that becomes more robust to where in a C Corp, they have better rules when it comes to compensation, fringe benefits, payroll deductions.
Justin Rupple:So there comes a point where that makes sense to pull out and put into a C Corp because of more tax advantage rules that we can take advantage of that owners of S corps. If you own 2% or more of an S corp, you can't take advantage of all sorts of preferred kind of tax advantage Yeah. Compensation say I mean, there's a whole litany of them. Yeah. And so everyone's situation is different where we can look at what's the best strategy to leverage the best rules to accelerate you towards your growth, which ultimately means more money in your pocket, which means more money you can leverage to accelerate your investment, whether it be investing in your business, investing in your real estate portfolio, investing in real estate funds, or whatever that might be.
Nicholas Cook:Yeah. Cool. Well, that's great. So why you know, you kinda touched on this a little bit, but, like, the question is is, you know and I learned this early on. It's like I would go to my CPA and not my current CPA, if you're listening, but earlier on.
Justin Rupple:Good catch right there.
Nicholas Cook:Yeah. Exactly.
Justin Rupple:You gotta stay friends. Yeah.
Nicholas Cook:Yeah. Exactly. Yeah. But, you know, I would go and be like, hey. You know, I'd be introducing them to ideas that I had heard about or read about.
Nicholas Cook:And I wasn't an expert, I was just bringing it to them. Oh, yeah. And either it was news to them or they were kinda dismissive of it or, you know, whatever it happened to be. And why do you think CPAs I mean, you alluded to the fact that it's a volume based business. But, you know, in some ways, like, if I'm a CPA and I'm saving my clients more money, that's gonna help accelerate word-of-mouth, and it's gonna help build my book.
Nicholas Cook:So you think like, what do you what do you think you know, why do why are they missing this?
Justin Rupple:Yeah. You know, you you're you're talking like an entrepreneur who's looking for opportunities and all that kind of stuff, long term thinking.
Nicholas Cook:Got it.
Justin Rupple:Not all CPAs are wired that way. Certainly, if you're a CPA listener today, it's certainly not meaning to slam the CPA community at all. But I've seen time and time again that it's a bit of a trap that CPAs sometimes find themselves in, in creating a book of business, relying on compliance work, doing tax returns. It's a low margin, high volume business, so you're so busy. I don't know if you were to kind of focus on the humanity side of things, put the CPA side.
Justin Rupple:As a human, life gets busy and when you're stressed and you got a lot on your plate and you're feeling overwhelmed, you shift into survival mode. Yeah. That's human nature. We all do it in different I mean, I got four kids. I I have been in survival mode for the last fourteen freaking I can imagine.
Justin Rupple:You know? I love my kids, but my gosh, my wife and I time are are freaking out, and and we need a vacation, and we need a break, and we need support from friends and family Yeah. So that we can take a deep breath and come out of survival mode because you think differently when you're in survival
Nicholas Cook:mode. Yeah.
Justin Rupple:Well, the the the kind of rat race of the tax deadlines that pepper throughout the year and the busyness that creates and the survival mode it can sometimes put people in, it cause you to be significantly risk adverse, where you actually see opportunities as risk. You see opportunities as threatening. And so you move into a kind of a mindset that is, I just need everything to be simple and easy autopilot. So then you get, you know, you're busy, you're trying to get everything done before deadlines, and then you have a client who's taken more of your time saying, I saw something on TikTok. They're talking about cost segregation and bonus depreciation.
Justin Rupple:Why am I not doing that at short term rentals? And all this sudden, the CB is like, don't got time for this. Yeah. You know? And and It's
Nicholas Cook:not part of the package.
Justin Rupple:Yeah. And and and every tax return I'm putting my name on
Nicholas Cook:Yeah.
Justin Rupple:Which is a liability.
Nicholas Cook:Sure.
Justin Rupple:So I need to know that everything I'm signing that tax return, everything that we're doing, I have thoroughly researched and vetted it. I know we're doing it right. Now there's nothing wrong with vetting what we're doing. Absolutely. Because we wanna make sure that anything that we're helping our clients explore are still well within the guardrails of compliance.
Justin Rupple:That is absolutely, and there are bad players out there that are pushing fraudulent tax schemes that are giving people I mean, it's like when you watch a TikTok video or an Instagram video all about how I did this and I'm not paying any taxes, if they're telling the truth what days it might be like, if they're telling the truth, there's always more to it that they're not saying in a thirty second reel. And so that's why Instagram and TikTok are great for introducing concepts and ideas, not great for taking action. And so I can see CPAs are seeing that dynamic play out, getting frustrated, going, I don't have the time or energy because a lot of times their billing structure is set up in a way that I'm not getting paid to bring more value. And therefore, effectively de incentivized putting more time into figuring out how to help your specific situation. Now not all CPAs are set up that way.
Justin Rupple:I I've seen some CPAs that are really trying to revolutionize the tax prep industry shifting from tax prep to tax advisory where they're saying, hey. We're charging more, but we're also bringing more value. That's not the norm I'm finding, but there's some that are making that shift. And applaud it because they're spending more time and energy staying current on things like this new tax bill that we referenced a minute ago. Because like I was saying about the R and D tax credit, I had a lot of CPAs, even this is five, ten years ago when we were first starting to bring this to our businesses that are like, oh, you're freaking out.
Justin Rupple:You're gonna get audited. I don't have enough time to figure out if what you're claiming is legitimate, so don't do it.
Nicholas Cook:Yeah.
Justin Rupple:Well, the problem is your unwillingness to do the work, be able to kinda be on board, to support a viable opportunity for your client. I've seen times it's costing a client hundreds of thousands of dollars being left on the table that they legitimately can claim. And then this new tax bill comes around and significantly changed the rules of the R and D tax credit, which made it much more lucrative than it's been the last few years to take advantage of, which I'm really grateful for. We have a ton of clients working right now to claim a ton of money being left on the table. And if their CP is standing in the way of that, not because they don't wanna support their clients, it's just because they're too stressed, don't have the time or energy to do the work, and it puts them against us.
Justin Rupple:And that's not what we're trying to do or we're coming at, but it's just unfortunately part of the nature of the dynamic that currently exists. And I'm glad I see glimmers of hope of ways that's shifting. Yeah. And so that's good. And we're here to help support that shift because we don't replace someone's CPA.
Justin Rupple:We're here to help support them through the process of making sure their clients are running more tax efficient, take advantage of every strategy that could benefit them.
Nicholas Cook:Yeah. That's great. And, you know, and I get it, like, to know, you bring up a good point. Like, when you're dealing with volume and you're in survival mode, I mean, it's also just, you know, you're putting your name on something and you're like, gosh. You know, if I have to go testify and deal with this and, you know, it could be problematic.
Nicholas Cook:And, you know, in in real estate, we're a fiduciary when we, you know, manage or broker transactions.
Justin Rupple:That's right.
Nicholas Cook:Yeah. And we have to take all kinds of things into account and handle things, you know, more conservatively than we would if it was our own property just because unless that client is fully informed about what that activity is gonna look like and they can fully appreciate that, which very few people are willing to put in the time to do that.
Justin Rupple:Yes.
Nicholas Cook:Kinda like, this is the this is how we're gonna do it because this is what scales. This is what you can do consistently. If you wanna do these one off things or go down these, you know, roads where you could maybe, you know, hit a home run, that's great, but there's also a lot of risk. Mhmm. Right?
Nicholas Cook:And so, you know, our kind of general advice to a lot of people, because their appetite for risk is really not that high. People romanticize the idea of taking risk and making a lot of money, but when you lose money Exactly. Totally different conversation and a big deal. So I can kind of appreciate that. Before we go into the future, I I do wanna kind of just talk about maybe how your business worked with people over the last five years, especially because this is kind of the COVID era.
Nicholas Cook:We had, like, the PPP loans. We had the ERC loans. Yeah. Is that stuff that you guys got involved with at all, or does your kind of expertise focus on, you know, things a little bit differently? Maybe you can kind of just kind of explain how you guys have helped people in the last five years.
Justin Rupple:Yeah. And and even this particular issue with some of the COVID relief funding was a place that some of the dynamic of some tax professionals taking the position of, We're just gonna stay away from anything that seems too good to be true. And their mind defined too good to be true as in there's money for you. Sure. Which is unfortunate because government creates tax incentives to businesses to do business and grow and stay viable.
Justin Rupple:And they're doing it on purpose. Like whether it be the R and D tax rate or the employee retention credit or the PPP loans, those are created by Congress to incentivize businesses. So they're created so that you can take advantage of it. And I've seen a lot of tax professionals push their clients saying, Don't do it. You're gonna get audited.
Justin Rupple:The government's gonna take it all back away from you. Well, first of that would be illegal for them to do that because it's literally created by the government. Sure. Second of all, for the business down the street to take advantage of it and you not to is unfortunately puts you at a disadvantage.
Nicholas Cook:Oh, yeah.
Justin Rupple:It's huge disadvantage. We work with a lot of our clients now. You know, PPP loans came through a lot of banks, things like that. Yeah. That was just great opportunities, and many took advantage of it and were able to get the loan forgiveness and all of that.
Justin Rupple:We didn't because that was from a different provider. That was mainly through funding sources and banks and all that kind of stuff. Then the employee retention credit was a tax credit. It was a payroll tax credit. We helped a lot of organizations, nonprofits, and businesses take advantage of that.
Justin Rupple:The window expired 04/15/2025 to be able to claim that. But even those weeks preceding that, we had a number of clients that we, I mean, it's kind of the eleventh hour, more like the last ten minutes, you know? Getting those filings that will number them are starting to get paid out right now. And in some cases, they had people telling them, you know, don't do this, you know, all this kind of stuff. And they're getting checks right now from the government because they took on risk weathering COVID, putting So the time that was a great example of ways in which we're seeing businesses significantly benefit from taking advantage of these incentives.
Justin Rupple:And part of what I tell people is we're helping businesses and real estate investors take advantage of the strategies and incentives that the big corporations and the ultra wealthy, they're doing all day long.
Nicholas Cook:Yeah.
Justin Rupple:And so these aren't risky things. Whenever you take advantage of a tax strategy or apply for a tax credit, you gotta know that you have the proper documentation to support your eligibility of it or that it's structured in the right way? Absolutely. And that's what our specialists that are CPAs or attorneys that are helping do these different strategies, big part of it, all of our specialists fully support their work. So if there ever is an audit, they will support that audit at no additional cost because our key thing is you have to back up your work.
Justin Rupple:And that's a non negotiable with any of our specialists working with our clients is that if anything ever gets scrutinized, they'll support it. But everything we're doing is built into the tax code. It's leveraged to the tax code in the same way that the big corporations are. They're not leaving a dollar on the table. There's a reason why you've seen things in the news last several years where an Elon Musk or Donald Trump is paying almost no taxes.
Justin Rupple:And people get frustrated. How are they doing that? The billionaires are not paying anything. Well, first of all, it's a bit of misunderstanding to say they're not paying any taxes. But they understand how to leverage the tax code in a way that helps fuel their investments, fuel their business endeavors.
Justin Rupple:And a lot of it is especially different kinds of tax deferral strategies, ways they can leverage this asset to offset taxes with this asset, which helps accelerate their investment in that asset. Mean, there are different moving parts to it. And what it is is small, medium business owners and real estate investors often just don't have the consulting and the advisory to help them understand those kind of moves that you can make. And Congress is smart. The tax code is enormous, but they've created it.
Justin Rupple:They've created it to incentivize business and real estate development because that's what builds cities. That's what drives the economy. That's what creates jobs, which ultimately creates more of a tax base. So they they've done this on purpose. And so we we need to take advantage of it in a strategic way.
Justin Rupple:I I've also heard it said that the tax code is really written like a game of chess. Mhmm. But most people are playing checkers.
Nicholas Cook:Sure.
Justin Rupple:Yeah. You know? And if you had someone come along and say, hey. That rook can make this move, and, you know, and you never heard that before, and your advisers have never told you it can Yeah. You think they're crazy.
Justin Rupple:Yeah. You know? I'm gonna get in trouble if I make no. Literally, it's designed to make these unique moves that can give you an advantage on the competition. Well, let's start making the moves the tax code is written to make.
Justin Rupple:Yeah. Nothing wrong with that, and it's actually smart business.
Nicholas Cook:Well, yeah, and I think chess is a great analogy because chess is a game of skill, but it's also about understanding patterns and also understanding the different plays. That's why there's literally chess books that it's just 500 pages of different board moves. Yep. And, you know, it's like you can play against somebody who just mastered the game really well. And, like, in some level, you're like, wow.
Nicholas Cook:They're, you know, smarter than me maybe, but in reality, it's like they just know all the rules. Right? And they know the strategy. And so there's just tried and tested, you know, moves that you can make in response to someone else's, obviously, and that's gonna give you a major advantage. That's that's a good analogy.
Justin Rupple:Do you mind if I give you an example of something like that, getting into specific
Nicholas Cook:tax strategy? Yeah. We love examples.
Justin Rupple:For for example, so, you know, a lot of our clients are business owners who also own real estate. Yeah. For a lot of business owners, they're developing a business. They get profitable, and they start buying real estate as an investment as well. And so many of our clients have both of them.
Justin Rupple:And so a big part of what we're looking at, hey, how do we leverage your real estate holdings and the depreciation that's trapped in long term depreciation through cost segregation? So that's restructuring that's depreciated. Take advantage of bonus depreciation, which just got renewed by this tax bill back at 100%, which makes it more, know, even greater benefit for how we can leverage that. And what are the pathways that we can effectively extract tax deductions that are trapped in your properties to offset taxes from the business side, which means keep more money in your business, which helps you grow your business? So we're looking at how do we can leverage one for the other.
Justin Rupple:And there's barriers like real estate's a passive investment. Your business is active or your W-two earnings is active. There are ways that we can cross from passive active through things like short term rental or real estate professional status. And there's parameters around those. We gotta talk through what's legitimate, what fits the actual circumstances.
Justin Rupple:Sometimes there's changes they can make in their lifestyle or how they run their business that can open up to those opportunities. Either way, they're strategic moves. I've had some people challenge some of that thinking. They go like, well, why would you do that? Because there's things called depreciation recapture.
Justin Rupple:If you take these deductions off your property today, when you go to sell some point down the road, gotta repay that. That's valid. Absolutely true. But say, hey, you're not thinking strategically. Taxes are often done looking backwards, just what makes the most sense, how everything gets filed.
Justin Rupple:It's a reactive, retroactive look back.
Nicholas Cook:Yeah. That's what I've spent most of my
Justin Rupple:life. Yeah. And there's very little you could do. There's some things, but very little you could still do that's meaningful from a strategic standpoint looking backwards. But if we look forward towards what are your goals here?
Justin Rupple:Kind of are you trying to develop a real estate portfolio, diversify? And most business owners, all their wealth is trapped in their business. And that's still maybe giving them a meaningful return. So it's not even bad with that, but it's not diverse. And so they see the need to start, hey, I need to start building wealth in other areas as well, so real estate becomes a meaningful way to do that.
Justin Rupple:Well, if you could do that in a tax advantaged way where we can borrow deductions here, aware that it's not a tax elimination strategy. It's a tax deferral strategy. It's basically saying, hey, government, I'd rather pay you later. I wanna use this capital today to build wealth. Yeah.
Justin Rupple:Knowing that I'll have to repay that down the road. But a smart investor, they'll take that all day long. True. You know, it's like a zero interest loan from the government. I'll capitalize on tax savings aid that I can redeploy my business or in real estate investment or other kind of investment opportunities knowing it will come new down the road.
Justin Rupple:No big deal. I can have that all in mind. It's all part of the plays I'm making. Mhmm. Because I'm playing chess here.
Justin Rupple:You know? And I can realize I can move this here to do that, and that further gets me across the board to win the game. And that's what we're trying to do to be smart about these things. Some of the things you see on TikTok and Instagram, all that kind of stuff, you know, they're not all bad or wrong, but they give the wrong impressions that I can just eliminate taxes by just doing this or that. Well, no, it is more complicated than that, but that doesn't mean we should just throw it all out.
Justin Rupple:Sure. These are still great moves to make in the right circumstances with understanding the long term implications of them. And, you know, it still provides great advantage for me today to be able to make better decisions in how I'm running my business or how I'm investing in real estate.
Nicholas Cook:Yeah. No. I think that makes a lot of sense, and, you know, it's moving towards the strategic approach, you said. You know? And so it's basically thinking about, like, what are my goals?
Nicholas Cook:Because you talked about, obviously, the depreciation component. There's different ways, obviously, that can be tackled. But then you can exchange, right, you know, down the line. So, you know, like and then you exchange long enough, then it moves off to, you know, your maybe kids someday, right, from the estate planning standpoint, and they get a stepped up basis. So it kind of
Justin Rupple:changes the thing. We've brought that same thing up. It's like, yeah. When then you you know, you're borrowing these deductions, doing, you know, doing things like cost segregation and bonus depreciation to take advantage of it today. Well, there's great benefit to that because if I can have capital today that I can free up to reinvest Yeah.
Justin Rupple:In something that provides a return and pay that later. Even if you do sell and pay the tax when you sell your property, you still end up on top because your ability to redeploy that capital today and whatever means you desire to. But also down at that point, there's opportunities like a ten thirty one exchange that can further defer. And then even part of what we're trying to do is even what's the best way to do a ten thirty one exchange? And that's where people think there's only one type.
Justin Rupple:Well, there's actually, we have a partner that we partner with that does ten thirty Go Shenz that do free ten thirty one exchanges. No cost. And then because ten thirty one exchange companies, I don't know if you knew this, but they make all their money not from their fees because most ten thirty ones are thousand bucks, $1,200.
Nicholas Cook:Inexpensive and expensive. Yeah.
Justin Rupple:So, you know, how are these ten thirty one companies have all these sales reps and all this kind of stuff? Well, it's because they're sitting on millions of dollars of capital, and and they're investing it short term. Sure. You know? Because they're holding onto it up to a hundred and eighty days.
Justin Rupple:Yeah. Well, mostly, they're sitting on tens of millions of dollars and these these intermediaries. You already realize that. That's where they're making their money.
Nicholas Cook:That's wild.
Justin Rupple:Yeah. It's like a bank. Yes. Exactly. They are a bank.
Justin Rupple:They're holding onto the money. And so there's a ten thirty one company that I partner with that will do free exchanges. And if your funds are more than a million dollars, they'll actually share interest with you. And so at the very least, you're saving a thousand bucks.
Nicholas Cook:Sure. I mean, that's a win right now.
Justin Rupple:Yeah. And if and if it's a significant exchange, they'll share a percentage of their interest. They shared with me one of their clients is doing a large commercial property, $40,000,000 exchange. While it's sitting there for up to one hundred and eighty days, he's getting paid $90,000 a month in interest. So they're saying, and we'll pay you for letting us hold your money.
Nicholas Cook:That's incredible. I've actually never heard
Justin Rupple:of that. You never heard of that? Okay. So I'm glad it brings up your number. I thought even we came here today.
Justin Rupple:So that's a great strategy. And then also, have a client right now. He's selling a nearly $19,000,000 property, commercial building, and he doesn't wanna do a ten thirty one because he doesn't wanna get stuck in real estate. And I don't say that being in real estate the bad thing.
Nicholas Cook:No. I mean, you got
Justin Rupple:his lifestyle, for his goals, but he feels trapped. Like, there's no way out without taking the massive tax hit because he'll owe about a $12,000,000 gain on that. Mhmm. And federal state capital gains and the net investing income tax, it's looking at 4 to $5,000,000 of taxes right off the top. That's a huge hit.
Nicholas Cook:It is.
Justin Rupple:Well, there's actually ten thirty one alternative strategies. And one of our key specialists, it's using section four fifty three of the tax code instead of ten thirty one, which covers installment note agreements, where they actually can create a structure that can capture the proceeds from the sale tax deferred for up to thirty years.
Nicholas Cook:Oh, interesting.
Justin Rupple:Like a ten thirty one with a deferral, but with unlimited reinvestment options and no time constraints. He So can have his full taxable gain go into the structure, and he can work with his financial advisor to reinvest this in securities, stocks, or other real estate with no time constraints, no like kind requirements. And if he redeploys this funds in another real estate investment, he can actually get the full tax basis or depreciation of the next property purchase. So if people are listening that are in a 1031s, the downside is time constraints. So that eliminates that.
Nicholas Cook:Yeah.
Justin Rupple:And the downside is your diminished tax basis because you you you inherit the depreciation remaining from the previous property into the next. Yeah. So the whole idea of ten thirty one, you're constantly leveraging up, which is a great way to build wealth.
Nicholas Cook:Definitely.
Justin Rupple:But also your deductions and depreciation are diminishing every move.
Nicholas Cook:Yeah. You erode the basis.
Justin Rupple:Yes. You erode it. And so there's, you know, there's people that have been doing that for decades, and now they've got a, you know, maybe a $15,000,000 portfolio with no basis. So it's all gained when they go to sell it. Now, you mentioned with estate planning, you can have this move into your trust.
Justin Rupple:When they pass away, the children get the step up in basis. So that is a way of literally eliminating the tax on that. They get the new step up to the fair market value. That's great. But I've seen other people that that doesn't meet their goals.
Justin Rupple:Yeah. They their or their children I had someone literally tell me yesterday that their client's kids don't want the properties. They're like, plea like, don't give those things to us for whatever reason. That's just where they're at.
Nicholas Cook:Actually more common than you think because actually a lot of people especially, like, sometimes it's the second generation that's more open to it, but, like, once you get past that to the third generation, their level of interest in it is very determined.
Justin Rupple:That's the case. And so these strategies provide a way out of 10/31 with continuing to defer the taxes. And so there's all these ways you keep kicking that tax can down the road, redeploying that capital for wealth building, for legacy planning for your children and for your heirs. There's so many different moves that you can make that are strategic, that keep kind of fueling your move towards your goals. Like I said, these are what the ultra wealthy are doing all day long.
Justin Rupple:This and many other kinds of moves. Our passion is to make their strategies that they're leveraging accessible to the small, medium business owner or real estate investor. I think that's what we're here for. And you'd be blown away at the kinds of opportunities that we're seeing every day that people are overlooking just because they never heard about.
Nicholas Cook:Got it. And so just kind of staying on that thread about generational estate planning. Do you guys help people with estate planning? Like, if somebody wanted to come to you guys know, and they're just trying to think ahead, is that something that you guys help them triangulate and strategize with?
Justin Rupple:Like what we're doing with tax strategy as far as income tax or or or real estate or business tax strategy, our role is that strategic consulting around how things are structured or leveraging the rules the right way. It's not to replace the CPA that's doing tax prep and not to replace the estate planning attorney that's actually writing the estate plan. Because that gets into things like durable power of attorney and your medical proxy, all that kind of stuff. Yeah. Yeah.
Justin Rupple:Very important to really understand, you know, in the event of me being incapacitated or my passing, how that all flows and who makes decisions, that's vital important. But the tax strategy side of estate planning, we're able to partner with an estate planner to make sure that their estate's being structured in the most tax advantaged way. You know, this new tax bill just bumped up the estate plan the federal estate exemption to 15,000,000 per tax player or 30,000,000 for married couple. Wow. So that means you're not paying a state tax unless your estate, if you're married, is is of 30,000,000 of value or more.
Justin Rupple:That's huge.
Nicholas Cook:Yeah. What was it previously? Because I actually
Justin Rupple:didn't know. So I back the back in Trump's first term
Nicholas Cook:Mhmm.
Justin Rupple:It significantly it more than doubled it to and it got to the point where it was around 13,000,000.
Nicholas Cook:Little over the Jobs Act? Is that
Justin Rupple:Tax Jobs Act in 2017. Yes. So that got passed, but that was gonna expire at the 2025. So if that hadn't if the new tax bill didn't get passed, then it would have dropped down to pre 2017 levels, which I forgot. It was somewhere around 6,000,000 per tax
Nicholas Cook:rate.
Justin Rupple:Still significant. But for those that are that are in between those numbers, they're gonna create a because
Nicholas Cook:Huge event.
Justin Rupple:Estate tax is a 40% tax on anything above that threshold. And during the Biden administration, he threatened to drop it to a million per taxpayer. That's a huge drop. That's a low threshold when you think
Nicholas Cook:about that. Especially in this day and age with, like, how much money that is. It's, I mean, it's just Our
Justin Rupple:tax attorney who who helps advise on a lot of these things, you know, he talks about when he first got trained nearly thirty years ago, it was 600,000 per taxpayer. So it was I mean, it was right away, you're immediately having a deal. You start building a real estate portfolio or a profitable business, you've got to address this right away. And so now we have a much higher threshold. But we have clients that are, as they're having successful business endeavors or real estate holdings and doing ten thirty one exchanges, and they're approaching that.
Justin Rupple:Now we have to start talking seriously, Hey, how do we start tackling these issues? Because there are some advanced estate planning strategies that your typical estate planning attorney, it's not their wheelhouse. They need to be involved in writing the proper estate plan, but there's different types of structures that we can introduce and bring to the table that can help proactively mitigate that. Then also you got We're sitting here in Oregon right now. Oregon has a million dollars estate tax exemption.
Justin Rupple:And anything above a million dollars, it starts at a 10% tax. It goes up to 16%. So that becomes real very quickly here in Oregon. The state of Washington, it's just under 3,000,000 or so. Those are meaningful issues that we're looking at.
Justin Rupple:Hey, how do we plan for that? What's the best strategies for wealth transfer? Those are really important conversations. And so we have specialists that can advise on those things to help people consider what's the best strategy for them and their goals and what they wanna leave for their errors and all of that.
Nicholas Cook:Yeah. Because I imagine people are probably coming to you. I mean, obviously, real estate investments is one one vehicle that they're using. But, you know, let's say that, you know, I'm gonna sell my business, and, you know, we're gonna net a considerable amount of money, and I'm living in Oregon. You know, do you guys have conversations with people about, you know, timing, maybe some, you know, recommendations on how to to manage that type of situation.
Justin Rupple:Absolutely. That a very frequent conversation we're having with our business owner clients. Because while they're running a profitable business, there's always money being left on the table. There's ways they're not tax efficient. So we're helping them keep more money in their business and in their pockets while they're running business.
Nicholas Cook:But then
Justin Rupple:eventually they wanna exit. Whether it be passing it to the next generation, whether it be selling it to a buyer, whether it be converting to an ESOP and selling to an employee on cooperative kind of a thing. There's all sorts of different ways they go about this, but there's gonna be some kind of process of liquidating that investment of their business, and that's gonna have a tax impact. And so how do we address that in the most tax advantaged ways? We find that as an area that is grossly being overlooked from a strategic planning standpoint.
Justin Rupple:We partner with a lot of business brokers and M and A advisors who are working with these sellers, and they're not getting much support from their tax professionals on what to do about. If they have a good tax professional, maybe they're getting a good analysis of like, hey, you're selling your business as an asset sale. It's allocated this much goodwill, this much equipment, this much inventory, and understanding those allocations and how it's all taxed differently. Maybe they're getting good analysis of understanding what they're about to face. But often they're being brought very little to no proactive opportunity about what to do about it.
Nicholas Cook:Sure, yeah.
Justin Rupple:But I did just this morning have coffee with a phenomenal wealth manager who is leaning into those conversations with his clients. He's got clients looking to exit and looking at things like opportunity zones, investment, things like turbo So remainder there's a number of different things you can do. And they all have limitations and they all have benefits. So that's a big part of what we look at, of like, okay, here's the different options. Our role is not to tell you what to do and say, hey, we want you to be educated on the types of strategies you can leverage and then figure out what meets your goals.
Justin Rupple:Sometimes this is what it does. Sometimes it's, I'm selling a business for $10,000,000 and I'd like half of it to be in this deferral structure. That gives me a lot of flexibility. That's the one I mentioned earlier that you can do for selling real estate or for selling your business. A lot of flexibility.
Justin Rupple:I can work with my financial advisor to reinvest this in virtually anything. Tons It's of room phenomenal. People love it, and others are more illiquid, like an opportunity zone. Yeah. You know, to get the full tax advantage of that, you need to stay hold that for ten years.
Nicholas Cook:Sure.
Justin Rupple:You know? And Can you
Nicholas Cook:just unpack opportunity zones just we can get into it more later, but just for people who maybe aren't as familiar with Oh, sure.
Justin Rupple:Yeah. So, you know, federal opportunity zone, these qualified opportunity zones are are basically geographic regions that have been determined as, you know, disadvantaged in whatever way or another. They have their criteria.
Nicholas Cook:Yeah. Blighted in some fashion.
Justin Rupple:Yeah. Yeah. So if you invest in those, there's tax advantages. So because they're incentivizing kinda reinvesting in those areas to give them a lift, an economic lift. And that makes absolute sense why the government does that.
Justin Rupple:So the way the Legislational Opportunity Zones have been historically is they kind of come in these phases, they eventually expire out, and then Congress re ups them. And so this new tax bill just re upped them. Now I'm gonna admit right now, this new tax bill is hundreds and hundreds of pages. It's been passed for, it was nearly sixty days ago as it got passed.
Nicholas Cook:Yeah, in July, right?
Justin Rupple:Yeah, it was July 4 that he signed it into law. And so there's aspects of this that we're still unpacking. And so the very first things we dove into is understanding how it affected the R and D tax credit, bonus depreciation, the employee retention credit, a number of things like that. State tax exemption that increased to 15,000,000 per taxpayer. The qualified opportunity zone, I'm still getting my head around the details of it, but one is it extended it where you can keep doing it versus expiring.
Justin Rupple:They created kind of a staggered holding period where you can get a partial benefit after less years, like five and seven and ten, I believe it. But don't hold me to it because there's so much to know in all these different things. Oh, yeah. But also, before that tax bill passed, if you were to sell, let's say, your business, and you have a capital gains event, and immediately invest in a qualified opportunity zone. So this is maybe a real estate development.
Justin Rupple:Maybe you bought a property. It could be a fund that you invest in that's investing in opportunity zones. So there's different ways to do it. But you invest in opportunity zone. One is you get a tax deferral.
Justin Rupple:You don't have to pay that capital gain tax right away. But that tax deferral only went till the 2026. And so you still owe that tax before the investment even got liquidated. But then two, if you hold it for ten years and then that gets sold, it's gonna you know, real estate over a ten year period is gonna
Nicholas Cook:Generally speaking.
Justin Rupple:Generally, I mean, I can't guarantee it, but historically, it's gonna grow in value. Yeah. And all its appreciation, all the growth of value from your original purchase is exempt from capital gains, exempt from tax, which is phenomenal.
Nicholas Cook:I mean
Justin Rupple:And, you know, but the downside is you have to hold it for ten years. Sometimes, depending on how well you vet the investment, and even if you thoroughly vet it, not all investments go the way you plan.
Nicholas Cook:No. They do not.
Justin Rupple:And it
Nicholas Cook:Especially in the last
Justin Rupple:few not cash flow well. It might be lose you you never know. Yeah. And so there's risk, but there's advantages. And so but I've worked with business owners that are selling their business or people selling their properties and don't wanna do ten thirty one.
Justin Rupple:I think that opportunity zone is the only way to address capital gains. We're able to say that it's one way that's viable with any of the cash that you can put aside for ten years.
Nicholas Cook:Yeah. It depends where you are in your your life cycle. Right?
Justin Rupple:You know? Everyone's gonna be different. Yeah. You know? And there's other strategies that you can take advantage of.
Justin Rupple:There's things like charitable remainder trusts, which is carving out some portion of your ownership in the business before you sell it and pledging it to a charity. What that means is you go to sell. The money goes in there. No capital gains due. You get a charitable contribution for that, which is awesome.
Justin Rupple:You can actually have this money invested. You can take income off of it and pay tax as you get income. Mhmm. The downside is in your passing, any money left in the portfolio has to go to the charity that you named that's pledged to. Yeah.
Justin Rupple:Nothing wrong with that. I love people that are charitable that that want to give to causes that they're passionate about. I'm all for that. The downside is that amount of funds can't be given to your heirs. And so in that kind of situation, I have other business owners that they hear that from their financial advisor and think that's the only way that I can avoid paying capital gains.
Nicholas Cook:Got it.
Justin Rupple:But then that cuts my kids out and my grandchildren and all that kind of stuff. And so like, oh, I either pay the tax and have it for my children, or I don't pay the tax and it all goes to a charity. And we show, hey, there's actually there's other options. There's ways that you can defer the tax and still have it as legacy money. But also, if you wanna carve out some portion to be in a CRT, as they call it, that's another great strategy to be able to not pay tax, but also have funds that can be given to something you're passionate about.
Justin Rupple:Yeah. And I think that I
Nicholas Cook:mean, that's that's, again, that's an awesome option because you know, what happens when you pay taxes is the government then spends the money how they see fit. Yes. Right? And so, you know, in that case, it creates an opportunity cost for, you know, essentially where that money may have gone. Right?
Nicholas Cook:And so, I mean, there's a lot of, like, discussion around, you know, charitable contributions and how and and civic engagement, how some of this stuff has kind of started to, you know, show a pattern of decreasing over the last seventy years. And a lot of that is because you also see tax rates going up. And so people no longer have the ability to elect where they wanna maybe make those contributions. Yeah. And this is kind of restoring that in some fashion, it sounds like.
Justin Rupple:Yeah. No. Absolutely. You know, I on one hand, I always clarify when I talk to my clients. Look.
Justin Rupple:I'm not I'm not anti paying taxes. Sure. You know? One is, you know, if you file a tax return, you're required to pay your taxes. That's important.
Justin Rupple:Look. My kids go to public school. I have a son with a disability who gets disability benefits through the county, which is funded through the state and the federal Medicaid program. I'm grateful for that. What we've had to navigate with one of our kids and getting the care he needs, we would not have been able to do without taxpayer money.
Justin Rupple:That's like very grateful. There's a lot of wonderful things. I love driving on roads. Don't you? Yeah.
Justin Rupple:Love the traffic lights at work. Know? Yeah. There's yeah. Now is it being done the most efficiently?
Justin Rupple:Are there ways it could be improved? Of course. And we, of course, all can argue with how it could be more efficient and all that. But I think what everybody agrees, matter what side of the aisle you're on, is there's improvements that could be made in how the government runs and how it spends its money. Absolutely.
Justin Rupple:So, yeah, Paying what you're legally required to pay, absolutely. There's important things that we get out of that, and I'm not against it. But there's nothing in the tax code or I think even both legally and also morally that says you're required to pay more than you legally ought to.
Nicholas Cook:I mean, wrote the rules. Right? So you're I mean, it's not like you're trying to do something. People use that term loophole, and it's
Justin Rupple:like Yeah. No. Loophole gives the idea of some kind of, you know, sketchy little error that they made in the tax code, and you're exploiting it. And then as soon as they catch it, they're gonna close that hole.
Nicholas Cook:Sure.
Justin Rupple:And now you're gonna be out, and then they're gonna come after you. You know? No. That's not what we're talking about. We're talking about taking advantage of the tax code as it was written to be taken advantage of in a strategic manner that supports what your your endeavors.
Justin Rupple:That's what we're talking about.
Nicholas Cook:Perfect. Well, we're gonna take love this conversation, by the way. We're gonna take a quick commercial break. So we will be right back. This show is sponsored by Sleep Sound Property Management, one of Portland's largest and top rated management companies that specializes in multifamily and residential real estate.
Nicholas Cook:They can help you acquire, operate, protect, and sell or exchange your properties. If you want to invest in real estate, give them a call or visit them online at sleep sound p m dot com. That's sleepsoundpm.com. Okay. So, one of the things that we've been kind of talking about loosely is this big beautiful bill that was passed.
Nicholas Cook:It's not I didn't name it, but Sure. You know, you don't forget the name. Of course. But there's some exciting stuff that's that's coming down through that legislation, for businesses, for, you know, all kinds of people. From what you've read so far, what are the things that you're just most excited about, either that is new or things that they've kept?
Nicholas Cook:Like, what do you think people should be paying attention to, or what are you guys thinking about right now with this new new legislation?
Justin Rupple:That's great. I mean, first of all, I would mention, you know, even though it is the one big beautiful bill, you know, I'll be the first to admit there's things in it I don't like at all. Sure. There's things that I I think aren't good for our country, good for certain disadvantaged people groups, things like that. But like everything in life, you know, you take the the best of something and and and take advantage of it.
Justin Rupple:And so there's opportunities it creates as well. And I'm I'm grateful that they've been able to create those opportunities that that serve business owners and real estate investors all over the country. So the key things that we've seen that are extremely beneficial, we mentioned the r and d tax credit research and development Yes. Earlier. Three years ago, some rules kicked in that were extremely unfavorable that made taking advantage of the r and d tax credit often actually have a worse impact on your taxes, which is funny.
Justin Rupple:A tax incentive that actually hurts you to take advantage of.
Nicholas Cook:Yeah. It's interesting.
Justin Rupple:It was awful. People in lobbying congress would last several years to fix it. This tax bill included that. And for small businesses under 31,000,000 revenue, they can retroactively go past the last three years and claim tax refunds.
Nicholas Cook:So what's an example of, like, r and d for real estate? It's like, hey. We're gonna do a new mechanical system for energy efficiency or, like, that kind of stuff.
Justin Rupple:Yeah. So in the in the real estate world, it usually gets into architectural or design and engineering. Okay. Yep. So for a real estate investor, it's usually not viable for them personally, but a real estate developer.
Justin Rupple:Okay. I've worked a lot of general contractors that do design build work. Mhmm. And so they have in house designers. They're doing some of that architectural work.
Nicholas Cook:Yeah. Material Yeah. Testing research and
Justin Rupple:stuff like that. Sometime I mean, I've seen some that, you know, they're like, yeah. We had a because I I've I've dumbed it down to say, hey. Do you ever have the opportunity? You're trying to figure out how to do something.
Nicholas Cook:Yeah.
Justin Rupple:And they're like, oh, yeah. Like like, that's technical in nature. Yeah. We had a, you know, we had a a client that wanted us to build this particular structure, and we had to do some research. We had to test different materials to figure out what's gonna hold up, what's gonna bear the weight, whatever that is.
Justin Rupple:Like, hey. That's generally speaking, that's r and d activities. And then we work at, you know, identifying them and then figuring out what expenses did you incur in doing those things
Nicholas Cook:Yeah.
Justin Rupple:Which is mostly payroll dollars. You're paying people to do it.
Nicholas Cook:Could you test paint or flooring? Like, because, like, when we think about tenant turnover and impact on just durability of products, or is that maybe
Justin Rupple:know, I I see where you're going with it. Usually, when I start talking is, know, you're like, oh, tax incentives.
Nicholas Cook:Yeah. So
Justin Rupple:let's flip it You you start thinking all sorts of different ways to go about it. Now while something like that could be viable, it often comes down to a matter of scale as well. We find that for for it to be worthwhile to claim the r and d tax credit, usually, it needs to be I've seen around a 150,000, $200,000 a year in r and d expenditures. Okay. And so that usually means payroll dollars.
Justin Rupple:Yeah. And so while it's certainly viable to, you know, test different flooring materials to see how they hold up in different environments, conceivably, there could be ways to do that in a manner that qualifies for the r and d tax credit.
Nicholas Cook:Somebody who's a man who manufactures flooring could do that.
Justin Rupple:Exactly. So usually that comes down to flooring manufacturers, you know, not not the the person buying the flooring to put into the rental. Yeah. Do know what I mean? Yeah.
Justin Rupple:But, you know, we have clients that are that are the flooring manufacturers. They're the fabricators or or they're like I said, they're design build firms where they're doing the plans, and they're doing the engineering of different structures and things like that, not aware that there's a tax credit that incentivizes the very work they're already doing. And so anyway, back to the big, beautiful bill, That's a big one that has helped a ton of our clients put just literally money right back in their pocket to help grow their business. Another is the bonus depreciation, renewing at 100%. You know, for anybody listening that's completely unfamiliar with it, you know, when you buy a property, you know, that by default, your investment minus the land value, because the land value, the dirt you bought doesn't So the building and improvements, everything built on the land or modified with the land, you you depreciate.
Justin Rupple:Real estate depreciates over twenty seven and a half years. Residential real estate, twenty seven a Commercial, thirty nine years. And so you can restructure the depreciation through a cost segregation study, which basically itemizes if you bought a property for a million dollars, let's break it down to what did you buy? Cabinets and flooring and the driveway and the pool in the backyard and all the different components, the appliances, the water heater. Let's put values out of the million.
Justin Rupple:This much was this. This much was that, and we're gonna break it all down. A lot of those components, depending on the property, sometimes 25, 30% of it can go into these shorter lifespans between five and fifteen years. Well, bonus depreciation applies to anything that's in those shorter spans.
Nicholas Cook:Yeah. Makes sense.
Justin Rupple:Yeah. And so when it got renewed a 100% with this tax bill and made permanent, which means it will stay there unless congress writes a new bill that changes it
Nicholas Cook:Yeah.
Justin Rupple:Which is gonna be complex and and less likely to happen. Mhmm. Which means you can buy a property, and, you know, it could be 20 to 30% of it. You can immediately deduct on your taxes this year rather than spread that over, you know, thirty, forty years roughly.
Nicholas Cook:Yeah. Which can offset other taxable
Justin Rupple:income. Exactly. So it's hugely beneficial. So that was a big one. Have a lot of investors taking advantage of, and we're literally waiting for this to get passed because it was at 40% this year and gonna expire at the end of this year Got down to zero.
Justin Rupple:So there was no bonus depreciation if they didn't pass this bill. So that was a big one. We already mentioned the estate tax exemption getting bumped up to 15,000,000 per taxpayer Huge. And index inflation. So it'll just keep going up with inflation.
Justin Rupple:That's a really big one. There's another thing called qualified small business stock. So when you talk about people selling businesses, this is a unique thing most business owners never heard of before. Part of what's unique about it is if your business is a C corp, and there's parameters around it on the sides of business and all this kind of stuff, you issue, sometimes they call it founder stock, which are stock certificates claiming qualified small business stock, and then you hold that stock for five years before you sell. Yeah.
Justin Rupple:The old rules, the first 10 millions of capital gain 10,000,000 of capital gains, and I'm I'm simplifying it. There's there's nuances just to simplify.
Nicholas Cook:Sure. Yeah.
Justin Rupple:So That's my disclaimer. The first 10,000,000 is exempt from tax. Wow. Well, this new tax bill bumped it to 15,000,000. So if I if I'm running a profitable business and I'm looking to sell, Yeah.
Justin Rupple:And I'm running as a c corp, which is generally not the most tax efficient place to be for a profitable business ongoing. Sure. But I've seen founders or tech startups that give venture capitalist money. They're a c corp because a lot of VCs want c corps and how they're structured. Yeah.
Justin Rupple:It's a whole another conversation. And they're taking advantage of qualified small business stock. And so this new this thing changed the rules to where if they hold that for at least five years and then they sell, the first 15,000,000 is tax rate. That's that's wild. That's it's phenomenal.
Justin Rupple:It's wild. Most don't even know it exists. There's also ways that if you if you end up selling in three years, you can do a QSP as a rollover and roll those funds into another startup and still have the capital gains exemption. So there's a lot of nuances of those things. Well, this tax bill made that even more beneficial.
Justin Rupple:So that was a really big advantage that to a lot of our people running startups, they're looking to get investment, grow, scale, and sell. Mhmm. It's a huge tax benefit to incentivize that.
Nicholas Cook:No. That's awesome. You mentioned you know, is there anything in the bill that came out that you feel like maybe isn't good for business owners or the real estate field, or did you think most of it was all just positive?
Justin Rupple:You know, I think most of it's very positive. You know, grateful to see they didn't make any changes to ten thirty one exchanges
Nicholas Cook:or anything
Justin Rupple:like that.
Nicholas Cook:Worried about that
Justin Rupple:and interest deductions. Yeah. And all that kind of stuff. I'd you know, a lot of my business owners are grateful that they increased, but only to a limit of the what they call SALT
Nicholas Cook:state Oh, yeah.
Justin Rupple:Local tax deductions. Because in the previous bill, it it dropped only 10,000, which means you can only deduct state and local tax, which include property taxes on your residence. Mhmm. Up to $10,000 on your federal tax return. You used to be able to deduct all of it.
Nicholas Cook:Yeah. And
Justin Rupple:so they increased it to 40,000, which is nice. Yeah. You know? So that was one that was a benefit from the previous rules, historically not where we should be. We should be able to deduct anything.
Justin Rupple:Any state and local taxes you pay, should be able to deduct off your federal tax returns. So that was a bummer. Yeah. We didn't see that get increased all the way. Sure.
Justin Rupple:I'm trying to think if there was something else that we were bummed didn't get made permanent. Oh, qualified business income deduction. Oh, that was a good one. I overlooked that one. If you're running a business as an LLC or an S Corp, back in the Tax Cut and Jobs Act in 2017, they created this thing called the qualified business income deduction or QBI.
Justin Rupple:So if you're listening and you're a business owner, you may have heard of this. It is effectively a 20% deduction on your personal tax return of your business profits. So if your business was $500,000 in profit that passed through to your your personal tax return, 20% was deducted immediately on your tax return, which is a 100,000. Great. Again, there's parameters to it.
Justin Rupple:There's there's situations that can minimize how much of the QBI you get, and there's certain industries that are totally excluded, which is silly, but they did that. But that was also gonna expire at the end of this year. So this new tax bill renewed it at 20%, which is phenomenal. So a lot of our business owners are thrilled about that. They can keep getting that deduction on their personal tax return.
Justin Rupple:So a lot of the disadvantages I see is more things like cut to Medicaid programs and some of that kind of stuff. Yeah. You know, naturally, as congress is figuring out how to get a tax bill passed, they gotta deal with budget issues.
Nicholas Cook:Oh, yeah. If we're
Justin Rupple:if we're reducing taxes here, we gotta offset that with reducing costs somewhere else.
Nicholas Cook:Spending and whatever
Justin Rupple:else is going So, you know, they've cut things. Some need to be cut. Some some I think are gonna hurt the country in the long run, but we all can have different opinions about that. Sure.
Nicholas Cook:Yeah. Well, I mean, it's a it's a moving target always.
Justin Rupple:Yes. Absolutely.
Nicholas Cook:Well, no. It's been it's been great speaking with you, Justin. I wanna pivot a little bit Sure. As we kinda wrap up here to give the audience a chance to get to know you a little bit more. And so one of the questions I have in, you know, I'm kinda putting you on the spot, so it doesn't have to be anything super profound.
Nicholas Cook:But, you know, what's one of your favorite quotes and and why?
Justin Rupple:Oh, man. You didn't you didn't prepare me for that. You know you know when sometimes you get asked on the spot, your mind goes completely blank? Yeah. It does.
Justin Rupple:I I think of quotes all the time. And at this moment, I'm like, totally drawn a blank.
Nicholas Cook:Or like a phrase, they're idiom that you live by. Yeah.
Justin Rupple:Let's see here.
Nicholas Cook:I have two more questions I could circle back
Justin Rupple:if you want. You know? Then Yeah. Do that. Do that.
Justin Rupple:Because because give me a second. Go for
Nicholas Cook:it. Yeah. Another question, which is, you know, some people thought about this heavily. Some people have not. But what is your why?
Nicholas Cook:Like, you're out there. You know, you you're a founder. Right? You started a business. It's not an easy way to go.
Nicholas Cook:Yeah. You know, what is your why do you do you have kind of a a, you know, a a handle on what that is? What drives you?
Justin Rupple:Yeah. You know, I think all of us, if we kinda look back over our lives, even our childhood sometimes, we'll find, like, you know, ways that we've operated that just come naturally, things that excite us. Mhmm. You know? And maybe they looked totally different in the way it played out or the circumstances, but it has to do with just kinda the unique way we're wired.
Justin Rupple:Yeah. You know, whether we believe, you know, we were created a certain way or whatever it is, there's just a unique bent we all have. So, like, I was one that, like, I would go to the grocery store with my mom as a kid, and, like, that was back when you would cut coupons and all that kind
Nicholas Cook:of stuff. I remember that.
Justin Rupple:You know, they had, like, double coupon days and all this kind of stuff. And, you know, I would be looking through them all, and I'd look into the sales, and I'd do all the math in my head. And and, you know, part of it is my way to get what I wanted. Like, I wanted all the sugary cereals that my mom didn't wanna buy, but I would convince her because, look. We got this coupon and this sale.
Justin Rupple:If we double the coupon, like, it's almost free. Let's buy all the Captain Crunch. You know, that kind of stuff. Absolutely. And it's that idea of, like, connecting dots, seeing how we could take advantage of these are opportunities to strategically be able to accomplish something we want.
Justin Rupple:Like Yeah. I I get excited about that. And so, like, I regularly tell people with what I do is, like, I enjoy what I do. And most people could tell. Like, I have fun.
Justin Rupple:Like, people were like, taxes feel just, like, god awful. You know what I'm like? Oh, for me, it's opportunity.
Nicholas Cook:Yeah.
Justin Rupple:Like, oh, it's it's exciting because I when someone just sees something that seems like work, it seems noxious, and I see opportunity. And so that's something I I just I can enjoy. It brings me to life. And so as I uniquely kind of found my way into this as an insurance adviser who kinda saw these opportunities and kinda made it a pivot of, like, I wanna be the expert at helping people take advantage of opportunities that accelerate what they're passionate about Sure. Yeah.
Justin Rupple:And what they're trying to do. Like, that's fun from it. It's fulfilling. Like, I personally enjoy it because I'm coming alongside other entrepreneurs, other business owners, other real estate investors, and helping them see the opportunities I see. Yeah.
Justin Rupple:And helping them take advantage in the way that benefits them. Like, that for me is it's just very fulfilling. It's fun. It's how I'm wired. It's how my brain works.
Nicholas Cook:Okay. That makes perfect sense. So the next question, and it could be neither, but I always like to ask people if they had to choose before between whiskey or wine, what they would pick.
Justin Rupple:So, you know, if you'd caught me a few years ago, would've gone wine all day long. But over the last few years, I've been developing a taste for whiskey and bourbon. And and I've shifted, and locally, I love going to the Multnomah Whiskey Library if you've ever
Nicholas Cook:been to Portland. I love that place.
Justin Rupple:Yeah. We're take I we have some friends coming in town actually next week, and I'm like, oh, we know where we're taking them. So I've been doing all the taste for it. I adore it now. It's like, oh, I love I love a good bourbon.
Nicholas Cook:Cool. Very good. Absolutely.
Justin Rupple:So you mentioned the quote. You know? I still partially draw on a blank, but, you know, I I I was I was raised in religion. And while there's ways that my life has shifted and my beliefs have shifted over the years, you know, there's some key principles that's brought to me. You know?
Justin Rupple:And, you know, what sometimes this might sound really cheesy. If you're talking about the golden rule, that whole thing, do to others as you do yourself. Sure. You know, it still it still holds true. Mhmm.
Justin Rupple:You know? It's like there's some of those things that even figures like Jesus spoke to two thousand years ago that were it's really about just being a good human. Yeah. You know? Absolutely.
Justin Rupple:It's about, hey. If I treat people with the kind of of respect and kindness and thoughtfulness and and honesty that I would want to be treated myself Mhmm. I can trust that whether you believe in God or the universe, like, this is gonna come back and serve me. Yeah. It creates something.
Justin Rupple:It creates the world I'd rather live in. You know? 100%. So even what what I'm doing, you know, we try to approach it not as a transactional. Like, we're just trying to get deals and make money.
Justin Rupple:Mhmm. Hey. If if I if you're my client and I if I approach you from an educational standpoint, hey. We're not gonna do anything secretive. We're not gonna try to sell you anything.
Justin Rupple:Yeah. We want you to understand the pros and cons of any strategy, of any incentive so that you can make the best decision for you with your adviser supporting you. While that sometimes might mean an opportunity doesn't materialize because it actually isn't in your best interest. Well, if it was me on the other side of the table, I would want someone to take that approach to me Mhmm. To really fully disclose the pros and the cons, the the short term and long term benefits and costs and risks so that I can make the right decision for me, I would appreciate that.
Justin Rupple:And so we try to take that approach.
Nicholas Cook:Yeah. I don't think you can ever go wrong with that approach. I think it's always kinda work out in the long run.
Justin Rupple:And then Short term, it could mean opportunities don't end up panning out. Yeah. And that's okay. But I think if you build a business that way, then you build trust, and you build long term relationships that we can collaborate and work together. There is enough opportunity everywhere for all of us.
Justin Rupple:Yeah. Whether it be in real estate and tax strategy or whatever it is, opportunities are there. And so if we support each other, if we're kind to each other, if we're collaborative, we're opportunities are gonna find us.
Nicholas Cook:Perfect. Perfect. Well, Justin, you know, really appreciate having you on. I guess the final question I have is, you know, how can people reach you? Do they go to your website?
Nicholas Cook:Is there an email, a
Justin Rupple:phone number?
Nicholas Cook:A lot of stuff in the show notes too. But
Justin Rupple:Yeah. I know it all be there, but it's real easy. We're Elevated Tax Strategies. Our website is just elevated.tax, so that's not hard to remember.
Nicholas Cook:Very easy.
Justin Rupple:We're down we're here to elevate your tax strategy. And and a key thing to mention is we do we start with complimentary tax strategy consulting. So there's no cost because we wanna find the opportune if there's no opportunities that are meaningful and viable that have value for you Sure. Then there's also no charge. And so there's really no risk to have a conversation around, you know, what's here, what what moves can be made, all that.
Justin Rupple:So elevated dot tax, my personal email is Justin@elevated.tax, so that's not hard either. You know, feel free to go to the website. You can schedule a meeting with us. You can shoot me an email. Would love to have a conversation about anyone specific situation and see if there are any opportunities that could support what they're doing.
Nicholas Cook:Cool. Well, I love what you're doing. Thanks for coming on and signing off here.
Justin Rupple:Alright. Thanks for having me. Good to be here.
Nicholas Cook:Bye. Bye. And that concludes today's episode of Retire on Rentals. But we do have a quick favor to ask before you jump off. If you haven't already, please go ahead and like and subscribe.
Nicholas Cook:More engagement means better content and more excellent guests. And we look forward to joining you on your real estate journey. Now remember, stay focused, stay driven, so you can retire on rentals.