Tax Strategies 6 and an Inventors Passion Projects 1
Tax season is here and a look into Troy Hurtubise's inventions
During the next few months, I will be summarizing two chapters from two tax books that I have read that have helped me a lot in understanding what needs to be done for taxes. They are Tax Strategies for the Savvy Real Estate Investor, Volume 1 and 2. I still highly recommend that everyone pick up both books. They are not just for real estate investors and are filled with lots of great information. Here is a link for both books incase anyone wants to purchase them:
https://store.biggerpockets.com/products/tax-strategies-book-bundle
Chapter 5 - Squeezing The Tax Savings From Your Short Term Rental. Short term rentals are typically rentals that are rented between 1 day to 3 months. They also don’t have do be connected to Airbnb. Renting out a room to someone who needs only 1 night, like a plane pilot laying over, is considered a short term rental. There is a rule in the tax code that the IRS created that says that you can rent out your home or vacation home and the income will be tax free if it is rented out for 14 days or less during the year. Another good thing is that there is no dollar amount cap. Meaning that you can make as much money as you can in 14 days and it won’t be taxed. It is still advised to report it, just to avoid any issues. However, expenses related to this can’t be written off. Another thing to be aware of is the difference between a rental business and an active business. A short term rental business is operating a property like a typical short term. Once the tenant leaves, you clean it and prepare for the next guest. An active business is more like a hotel where you provide a service to the guest, such as food and laundry. Active businesses are taxed more because of self employment taxes.
Chapter 6 - A Tale Of Two Investors: Flip VS. BRRRR. Flipping a property is when you buy a fixer upper property, rehab it, then sell it. BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. This is when you buy a fixer upper property, like a flip, but now you rent it out to tenants. Once a bank sees that it can cashflow, you refinance the property, since the appraised value went up. You then use the money you pulled out to buy another property. Flip profit is subjected to ordinary income tax rates, while the BRRRR is not. Flips are also subject to federal, state and self employment taxes as well. For BRRRs, there are no taxes due at the present on the property appreciation or the refinance proceeds. You can also get the depreciation benefits and tax deferments. A strategy some flip investors use it to buy a property to BRRRR it, wait about a year, then sell it. This gets you the tax benefits of a rental, and the cash of a flip without the higher taxes.
One of the main reasons I want to invest in multifamily real estate is to have consistent cashflow to fund passion projects of different inventors and engineers. One inventor that I heard about is named Troy Hurtubise. Troy was best known for creating a suit whose goal was to be bear proof. He was born in Canada and was considered an inventor and a conservationist. His inventions include a fire proof paste that could withstand temperature higher than the shuttle received on reentry, called Firepaste, a bear proof suit that Troy tested on himself called the Ursus Suit and a ballistic military suit for soldiers to wear called the Trojan armor. The bear suit testing was even made into a movie called Project Grizzly. While creating all of this sounds amazing, it did not end well for Troy. Because of his Trojan armors expenses he became bankrupt. He attempted to sell the armor online but had no buyers. Eventually it was raffled off and the winner gave Troy the armor back so he could keep working. Unfortunately, Troy was killed in a car accident in 2018. This story is sad to me because you can see the desire to create being hampered by a lack of capital. And while it makes since for a for-profit company to have to pick and choose investments carefully, having steady rental income could have been used to help finance even more inventions from this man.
Ursus Suit
Trojan Armor