Real Estate Tax Strategies That Help Investors Legally Pay Less Taxes

Greg Seay CPA (00:00)

were the ones that had the most tax advantages that I could help them with. And there’s a lot of opportunities when it comes to purchasing, acquiring, trading, dealing with real estate, whether it’s long-term, short-terms, the borrower method, wholesaling, all that, house hacking. There’s so many different opportunities there. And it’s one of the areas that at least I’m well convicted on that it’s the fastest way to build some wealth.

Quentin (02:00)

Welcome to the Real Estate Pros podcast. I am your host, Q Edmonds, and I am super excited to be here today. And we are going to talk about taxes. All right. ⁓ wait, wait. Come back. Come back. Come back. back. No, this guy’s going to help you with your taxes, right? No, he is the guy that you call to get you.

in line, all right? So this is good. This is good. So I know some of y’all dealing with the trauma aftermath right now. Everything’s okay. Everything’s okay. This gentleman is going to clear up a lot of different questions and put you at ease about some things that’s going on within the tax world. And so I’m excited, very knowledgeable, coaches people around this area. So I’m really excited for us to learn and glean from Mr. Greg Seay Mr. Greg, sir, how are you doing today,

Greg Seay CPA (02:51)

I’m doing well, Q. Thanks for having me on. I appreciate it. This is gonna be fun.

Quentin (02:54)

Yeah,

absolutely. No, man. So glad that you’re here. I’m with you. It’s going to be fun. It’s going to be informative. And I’m the type, sir. I like to dive right in. So I would love for you to tell the people what’s your main focus these days. If you don’t mind, give us a little bit of an origin story, kind of how you got into this space. Like, we love origin stories. And then tell them what part of the world you’re in. People love to know where people are geographically. And so Greg, you have the floor,

Greg Seay CPA (03:21)

Thanks, Q. So I’ll start with the origin story here. So my background, know, graduated accounting back in, gosh, it’s been a while now on it. And started my own firm kind of the same time I was working full time as an employee at my local church on there. So I’ve been doing my own CPA gig since about late 2015, early 2016.

Quentin (03:32)

Gotcha.

Yeah, gotcha.

Greg Seay CPA (03:48)

It really started like most folks do. just become, ⁓ come one, come all, I just need clients. I need to work with people. And so if people were willing to work with me, I was open to it, but shortly realized there soon after that, you know, it’s tough to understand the tax code. It’s a massive, massive document. And so it didn’t take long for me to find where should I be a specialist in and where can I provide the most value for folks? So.

I did this CPA firm as a general CPA from 2015, 2016 up until about 2022, and then went full time into it in the middle of 22. And then at that point really wanted to focus in more so on folks that deal with real estate. And the reason I picked that is I found a trend working with a lot of different clients, the ones that were dealing with real estate.

Quentin (04:31)

Yeah.

Greg Seay CPA (04:45)

were the ones that had the most tax advantages that I could help them with. And there’s a lot of opportunities when it comes to purchasing, acquiring, trading, dealing with real estate, whether it’s long-term, short-terms, the borrower method, wholesaling, all that, house hacking. There’s so many different opportunities there. And it’s one of the areas that at least I’m well convicted on that it’s the fastest way to build some wealth.

It’s a way that I like to say you can be lendable, you can be cashflow positive and look poor to the IRS. That’s the little trifecta there. That’s why I loved about it. And so really wanted to start digging in to start working with folks that deal with real estate, just so that I can make them aware and help coach them through how can they leverage their assets in the best manner to both get some cashflow

Quentin (05:23)

Yeah.

Yeah.

Greg Seay CPA (05:43)

while also not paying any more in taxes than they’re legally required to. So there’s the origin story behind it. As far as where I’m located, I’m based out of Northwest Arkansas. We call it the Wally World, more or less. It’s the home of Walmart, home of several Fortune 500 companies, Walmart, Tyson, JB Hunt. There’s a lot of executive folks that live around here. I’ll go into that in a little bit more detail as we get into it.

Quentin (06:10)

Yeah.

Greg Seay CPA (06:11)

because

there’s some really good strategies for folks that are high income earners that may have a spouse that don’t work. That’s where I’m out of. I’ve got a team now. So when I went out on my own in 22, I was just a solo shop. I built a little home, 10 by 10 office in my backyard and worked with people remotely, but really missed the team aspect and meeting with people face to face. Although we still work remotely with folks nationwide. I will say that we’re able to provide services for folks all across the country.

Quentin (06:16)

Mmm.

Greg Seay CPA (06:40)

Even outside as far as not in the continental US, but Alaska, Hawaii, you name it, we’re able to service clients in those areas. But now I’ve got a team of four, including myself. I’ve got another CPA in my office. I’ve got my front office admin and I’ve got an operations manager that helps be a liaison between how I speak as a technical expert in the CPA world and then how do clients understand the language of taxes. So she’s that great liaison for me.

Quentin (07:55)

Yeah, I love it, Greg, man. Thank you, sir. Thank you for welcoming me to the journey of how you got started, where you are. I love the journey. And as you was talking, I was taking copious notes, actively listening. And I like to kind of regurgitate, summarize what I heard, because I like to make a statement to ask you a question. And so you you graduated in accounting, started your own firm, you’re just working at your local church.

you know, tithing your time, you know, your talent, know how that go, right? And it was like, listen, anyone can come. I just, I need clients. So listen, all this bubble, the little girl with a snowball stand coming, whatever seats like, ⁓ great, you get these taxes back, right? And it was kind of, you know, tough understanding the tax code because there’s so many different nuances. And so you kind of zeroed in a focus on real estate.

Greg Seay CPA (08:27)

yeah.

Quentin (08:54)

found people doing real estate. was a lot of different opportunity. And you kind of just grew from there, know, built their office in your back, in your backyard. Now you got a team of four, like, so things just growing, things has been very successful. There’s, there’s been a journey, right? And so that right. So Greg, I like to say that their destiny has no wasted moments, right? So just meaning just as you build,

Greg Seay CPA (09:09)

There has.

Hmm.

Quentin (09:20)

You’re learning, you’re borrowing from each moment. You’re borrowing from the hardships. You’re borrowing from the success. You’re borrowing from the failures. You know very well what works, but then you know very well what doesn’t work. And so you’re just building on the moments on the journey. And so I always like to ask, what has the journey, what has the moments taught you about yourself? Has it taught you discipline, resilience? Like, what has it taught you, Greg?

Greg Seay CPA (09:45)

man, I’ll say this, and this may be a little bit cliche, but I learned the most from my failures on things. No one’s, no one speaks and really kind of learns anything from their successes. They just kind of happened to them and they, they feel that it’s, it’s just kind of providential in a sense. but those failures, that’s where you really make yourself better on it. So there’s been so many different iterations on.

Quentin (09:56)

One more? Yep.

Yes,

Greg Seay CPA (10:10)

How do we work with real estate investors? Who’s the right fit? Because there’s a lot of different things that you can do in real estate, different strategies on how you build your portfolio, how you manage your tax liability on it. So where I’ve kind of failed into as far as who’s the best market for me, it’s going to be those residential folks that are either, I would put this way, if they’re working for a long-term rental type portfolio.

especially in my area here in Northwest Arkansas, we’ve got Walmart execs, JB Hunt execs, Tyson execs, where the husband or the wife are a very high income earner, their spouse may not be working. And so they can get that that golden real estate professional status for it, if they’re up for managing their portfolio. So there’s opportunities that I failed into on that.

Then the other side of the coin is on those short-term rentals and Airbnbs that’s just exploded over the last decade or two. And there’s massive amounts of tax savings that’s available for folks that are doing short-term rentals that even if they are high income earner, that they can take advantage of that while still working a full-time job. But it took me several iterations of going through and finding the small per

couple that’s just building out their portfolio on are they a good fit and how do we work with them best? What’s the best strategies that we can do with them? And it wasn’t until, gosh, I can’t tell you how many times I failed into that, that I just learned like here’s my target market, here’s who I’m gonna work with best that I can provide the most value to.

Quentin (11:48)

Yeah.

Yeah, yeah. Man, thank you for just that introspective answer. I greatly, greatly appreciate it. And you talked about failures, right? So I thought this was an original term, because I was about to go coin it, put it on a t-shirt. And when I did some research, I was like, oh, other people say this. But I’m still going to say it anyway, right? So I often say failure is fertilizer. Failure is fertilizer. And if you allow yourself to.

Greg Seay CPA (12:20)

Hmm.

Quentin (12:24)

get the nutrients to get really grounded and buried in a failure, actually something beautiful grows from it. And sometimes failure is just dung. It’s like manure, right? So it gets messy. You want to avoid it at all possible if you can. But if you don’t avoid it, again, if you allow yourself to get rooted in it, you get all these nutrients from it and you grow from it. And things start to change.

Greg Seay CPA (12:32)

Hmm.

Quentin (12:50)

The pasture start to change, like the greenery starts to change. The smell starts to change. Like everything starts to change once things start to grow from it. And so, so yeah, I often say failures just put it a lot. So I love how you say you failed in some, in some things. You literally grew in some things cause you didn’t avoid it. You allowed yourself to get rooted in it and grow into it.

Greg Seay CPA (12:54)

Mm.

yeah.

Yeah.

Yeah. I mean, just kind of add onto that just a little bit. It’s like failures painful. Success isn’t painful. And when something hurts you, you’re going to do something different. So you don’t hurt that get that hurt anymore. And so I think it’s part of every entrepreneur’s journey is to just fail, be okay with failures, because you’re going to learn and you’re going to grow from that. It’s that fertilizer aspect, like you said, and I honestly, I’d never heard that before. So I’m going to put that in my back pocket.

Quentin (13:36)

Yeah.

Please do. It’s not my original saying, unfortunately. I thought it was, Greg. So go ahead, man. Use it. Fire away with it. But you know, from your experience, you know it’s true, right? Like, ⁓ even the Bible talks about trials come to make it strong, right? Like, that’s why the trial comes. Science, there’s a part of neuroscience, there’s a part of your brain that you don’t even tap into unless you’re going through difficulty.

Greg Seay CPA (13:42)

Ha ha!

Hmm.

Quentin (14:03)

unless you’re overcoming adversity. like, so literally like you are rewiring your brain when you attack difficult things and it grows you, it grows your capacity. I tell people all the time, things don’t grow without tension. Like nobody goes to the gym and just be going like this with nothing in their hand, know, going like this with nothing in their hand. No, you need the tension and that redefines you. It grows you, it makes you stronger. yeah, it’s failure. I love how you put it.

Greg Seay CPA (14:03)

Hmm.

Mm-hmm.

Right.

Quentin (14:30)

I failed into some things. You held the tension and you grew into some things. I love it. I absolutely love it. Yeah. Let’s talk some strategies, man. I know you got some strategies up your sleeve. so, man, talk to some people about some strategies that you feel like would be very advantageous for people.

Greg Seay CPA (14:32)

Hmm.

Yeah.

Alright.

Yep. Yeah. Well, there’s two main ones that I deal with on a regular basis. Once let me do the the most fun one. I’d say easiest one that’s doesn’t take a lot of work to get into to really see the benefits on it. And that’s what the it oftentimes it gets coined as the short term rental loophole on there. So you’ve got short term rentals and you’ve got long term rentals. And, you know, in the industry.

Quentin (15:41)

Mm.

Greg Seay CPA (15:47)

They also have this term of midterm rentals, but from a tax perspective, there’s really only two categories. You have a long term and you have a short term. The definition for short term rental means that the average stay that you have throughout the year is going to be seven days or less. So there’s ways that you can have a long term rental for a part of the year and also a short term for the remainder of the year and meet that qualification.

As long as your average stay throughout the year is seven days or less, you can potentially qualify for this quote unquote loophole for them. So if you had somebody as a long-term tenant maybe for the first two months of the year, they stayed 60 days for it. But then the rest of the year, you had a bunch of folks just stay over the weekend three days at a time. You’re likely going to see that average come out to seven days or less. So that’s what’s going to qualify you to get that short-term qualification for it.

The second piece when you’re running some type of short-term rental operation is you need to, what they call it, materially participate in that activity. a lot of, the easiest way to identify that is saying, are you the one that’s self-managing? Are you running the operations? Are you putting the nails in the wall? Are you managing reviews? Are you doing cleaning? Things like that. There’s seven different.

tests that come into play for material participation, you only have to meet one of them in order to qualify. So if you’ve got a seven day or less average rental period and you qualify for material participation, you’re a perfect candidate for the short term rental loophole. There’s a secondary aspect that you got to get into. I’ll talk on that in just a sec. But more on material participation. There’s seven tests. Typically two of them are what

folks really qualify themselves for. The first one being, did you spend 500 hours or more working in that rental activity? So did you spend 500 hours throughout the year putting hammers to the nails, managing tenants, managing bookings, communicating with folks on how to get in, how to get out, all that. That’s the, that’s, I would say the easiest.

or at least the most clear cut way to qualify. The second is going to be, did you spend 100 hours working on that rental activity and more than anybody else throughout the year? So if you meet one of those two tests, that’s where you qualify for material participation. So again, there’s two initial predecessor steps that you got to get. There’s a seven days or less rental period. And did you qualify for material participation? If you do those,

Quentin (18:18)

Mm-hmm.

Greg Seay CPA (18:37)

the way the short-term rental loophole will work is it turns, let me back up a bit. Rentals in general, by default, are considered passive income for you. But if you’ve got a short-term rental and you qualify for material participation on it, then that income can now be considered what’s called non-passive. So.

Quentin (18:50)

Mm.

Greg Seay CPA (19:04)

If you have losses from a non-passive activity, like an Airbnb that you materially participate in, those losses can offset your other income. So say you’ve got a side gig, a side hustle, you’re doing Uber, Lyft, Spark deliveries here in Northwest Arkansas for Walmart, or you run your own business or you’re a W-2 employee. The losses from your short-term rental can offset that income. So.

Quentin (19:30)

Mmm.

Greg Seay CPA (20:12)

Now where the losses come into play is when you do what’s called a cost segregation study. most, most, okay, back to the generalist side of it. Generalist folks that don’t, that aren’t aware of cost segregation, they typically take your whole property, say you spent a quarter million dollars for it, they split out the land, you can’t depreciate the land, and they say, all right, $200,000 of this quarter million,

we’re going to depreciate over 39 years. So you may get a few thousand dollars in depreciation on that Airbnb. Where cost segregation comes into play is it’s an engineering study that you do. So I help, I don’t perform these, I help facilitate them, but you get a lot of information together about your property. And what they do is they break out all the different components of your rental that you’ve got. How much

What’s the value of the roofing? What’s the value of the driveway? Your electrical systems, HVAC systems, drywall, tile, flooring, appliances, and they split all those things out to say, here’s the value for each of these different components. Whereas the default that most CPAs do is they just group it all in one and say it’s all 39 years. When you do that cost segregation, a lot of those things will be considered a 20 year item.

or a seven year item or a five year, as long as that item is 20 years or less, as far as what’s its useful life. Now, due to the one big, beautiful bill, you can do bonus depreciation on it. You can accelerate it and take it all up front in that first year that you do it. Now, there’s also things you can do after the first year. That may be a different podcast for a different day on there, but say you got this $200,000 of potentially depreciable property.

I usually say ballpark rule of thumb somewhere between 18 to 35 % of that depreciation or that value, you’ll be able to accelerate all at once. So rather than taking $3,000 in depreciation, you may be taking $60,000 in depreciation. And so if you’ve got a W-2 income of a hundred grand, now you’re generating a $60,000 loss on your Airbnb, you’re not going to be paying as much in taxes that way.

Quentin (22:38)

Yeah.

Greg Seay CPA (22:38)

So that’s

the beauty behind the short-term rental loophole is that you can have other things that you’re spending your time on, but as long as you’re self-managing that Airbnb, it’s seven days or less, you can do that cost segregation study and have that loss offset your income from other places. So that’s a massive tax savings thing that you can do. So that’s the first one.

The second route, this is where I see specifically here in Northwest Arkansas, but it can be true throughout the rest of the country as well. Say you’ve got a high W-2 income spouse, and the other spouse doesn’t work, but they’re willing and passionate to manage their own long-term rental portfolio. They’ve got to qualify for what they call real estate professional status, and it’s kind of a golden standard in the industry.

Quentin (23:11)

Mm.

Greg Seay CPA (23:27)

Because if you can reach real estate professional status, you’re setting yourself up really well for some tax savings. There’s two qualifications when it comes to reaching that real estate professional. The first one is, you spending 750 hours or more throughout the year working in a real estate trade or business? So are you doing residential construction? Are you managing your own long-term rental properties? Are you doing reconstruction?

remodel, things like that, or property management. Those things can all qualify and go towards that 750 hours. The second piece where this is where it really trips up folks and why it’s really good for folks that have a high W-2 income spouse and the other one doesn’t work. In addition to spending that 750 hours, you have to do that more than anything else that you do throughout the year.

So that’s why it’s really hard for folks that maybe are a W-2 employee working full time, 2,080 hours a year, and they’re trying to do this real estate stuff. That means they’ve got to work 2,081 hours doing their real estate piece. Now, I don’t know about you, it’s going to be real tough to work 80 plus hours every single week out of the year. And there’s been court case after court case where folks have said that they’ve qualified for real estate professional, but it gets disallowed because

Quentin (24:42)

Yeah.

Greg Seay CPA (24:50)

Either they’ve not kept good logs and records of their time, or it’s just kind of totally fraudulent kind of stuff that they’re not keeping track really of what their hours are. So those are the two pieces that has to come into play for a real estate professional. Now, when that happens, again, we’ve got to go back to that material participation piece. So on one hand, you’ve got to be a real estate professional. Meet the 750 hours and more than anything else for the year. So that’s one piece to it.

Quentin (24:53)

No.

Yeah.

Yeah.

Greg Seay CPA (25:20)

The second thing, very similar to the short-term rental loophole, is you have to materially participate in your rentals. So if you meet both of those, again, now you can turn long-term rentals, not just short-term rentals, into non-passive income. And you can do that same process again, cost segregation studies, create losses from your rental activities, and have those losses offset either your business income or your other earned income.

Those are really the two main areas that I work with clients that they’re in need of. They don’t know how to handle things with the short-term rental loophole. They don’t know what qualifies for real estate professional status. How do I get material participation? And then what do we do with cost segregation? Who do I work with? We help clients with that. So those are the two things that I really wanted to hone in on with you today that is going to be extremely valuable for folks that either they currently have a pretty decent portfolio.

but they’ve not done any kind of real tax strategy behind it, or they’re just now getting interested in it and they want to set themselves up on the right foot.

Quentin (26:23)

Yeah. Love it, man. Man, thank you for walking us through that. I’m sure that was really helpful. But listen, listen, they can press pause, rewind, pause and take notes. Listen, they can do it in doses. They can do it in doses. You just gave the information. They can receive it in doses. So what’s next for you, sir? What’s next for the business? What are you looking to solve at Scale Next?

Greg Seay CPA (26:28)

I was kind of water from a fire hose there, but it’s good info.

Yeah, so now we’re after the busy season, the tax season, I would call it the heavy compliance season of the year through April 15th. This is the time of year that I can’t stress it enough. If you’re not started planning now, now’s the time to start planning for next year. Because often, here’s one way to characterize it. It’s almost like a CPA is more or less a publisher in a sense. Meaning, histories happen or things have already been written in history.

And now when you get into January of the next year, they’re just publishing what happened in history. They’re putting the numbers into your tax return. There’s not much that you can change on it. And so there’s no strategy or planning that could happen into it. So where the planning comes into play is understanding what do you have currently going on? What’s your ultimate goal? You know, I asked the questions, what type of portfolio are you trying to build? Are you one that’s

Are you willing and able to do things with short-term rentals or you self-manage it? Or are you looking to quit your job and try to reach this real estate professional status? And we help guide clients through that. So we’ve got a coaching program that we do, or we meet with folks every week. We kind of have one week where we do an agenda item with real estate specific. And then the next week’s kind of an open chat, coffee with Greg. What’s your questions that you have, but.

can’t stress enough that now is the time more than ever for you to start your planning journey and not just let the year go by and it just happens to you. You want to effectuate your own journey on this.

Quentin (28:24)

Man, I love it. I’m so glad you was here today. I really appreciate the information that you gave. Greg someone wanted to reach out to you, connect with you, collaborate with you, learn more about what you’re doing, hire you, help you, let you come save the day. How can they get in contact with you, man?

Greg Seay CPA (28:42)

You bet. Yeah, I got a couple different ways. So our website, it’s very real estate specific. It’s just rei.cpa. So you know that you’re getting with the real estate focused CPA firm. That’s an easy way to get to us digitally online. And then if you want to reach out to us through email, it’s just contact@rei.cpa. That’s going to get you in. We’ll give you a call usually same day, if not the next day.

and schedule some kind of discovery call or what I call it a fitness call. What’s the best fit between us? Are they at the right spot in their journey that they need to start doing this tax planning piece and strategizing behind it? Or maybe they have some other needs. They’ve got back taxes, things like that they need to get caught up with. And now then they can start figuring out their strategy behind it. those two ways, just rei.cpa or email us at contact@rei.cpa.

Quentin (29:36)

Greg, man, let me say three things to you, sincerely. First, thank you for your time. mean, time is our most precious commodity. So thank you for gracing us with your time. Secondly, thank you for your narrative, what you’re proficient at and sharing it in an eloquent, dynamic, powerful way. I call them stories. That’s the word that I use, right? And so thank you for your narrative, for your story, planting seeds in people that really can course correct, right? And this is something that is so needed

Greg Seay CPA (29:55)

They are.

Quentin (30:06)

And we know, you know, a lot of us, got to be better when it comes to this area. So thank you for planting seeds that can literally help people cause correct their businesses, their livelihoods. So thank you. And lastly, thank you for your perspective, man. Thank you for your mindset and the way you think, the way you’re wired and bringing that mindset to this platform. I greatly appreciate you coming on, sir.

Greg Seay CPA (30:29)

Oh, likewise, Q I appreciate you guys having me on. was fantastic. I’d love to be on at some point in the future. Any way I can help someone out. I mean, that’s kind of my mission here. How can I help folks keep more of what they earn and do it the legal way behind it?

Quentin (30:38)

Good.

You ain’t said nothing but a word, you’re welcome back anytime, man. so, people, y’all heard Mr. Greg, please look into the show notes, get in contact with him, check him out, but definitely make sure you’re subscribed here, because I promise you, we’re gonna continue to bring up amazing people just like Mr. Greg. So sir, I say thank you again, and everyone else listen, you’ll have a fantastic day.