How To Flip Real Estate with an LLC — Transcript

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1. 0:00welcome back to tax is made simple my
2. 0:01name is Carlton Dennis and today we are
3. 0:03going over real estate tax law do you
4. 0:05guys want to know why the wealthy love
5. 0:07investing in real estate is because the
6. 0:10power of depreciation and today I'm
7. 0:13gonna teach you what depreciation is
8. 0:15most of you guys probably know
9. 0:17depreciation as when you drive a car off
10. 0:20the lot it immediately loses value so if
11. 0:22you were to go back to that dealership
12. 0:23you're not gonna be able to sell it even
13. 0:26five ten minutes after you leaving off
14. 0:28of that lot because your vehicle is
15. 0:29already lost value well guys when you
16. 0:31invest in rental real estate the same
17. 0:33thing happens and the government
18. 0:36incentivizes you for investing in real
19. 0:39estate and giving other people an
20. 0:41opportunity to live in properties that
21. 0:43you purchase so let's just say you and I
22. 0:45are real estate investors today and you
23. 0:47and I are gonna learn a little bit more
24. 0:48about depreciation of why the wealthy
25. 0:51choose this vehicle as one of their
26. 0:52favorites to invest their money in it
27. 0:54okay so let's just say we purchased a
28. 0:56property and it's 1.5 million dollars
29. 0:59well anytime we purchased a property
30. 1:00they're gonna give us a statement
31. 1:01letting us know what did we buy and
32. 1:04typically we're gonna buy two things
33. 1:06we're gonna buy the land that the
34. 1:07property sits on and we're also gonna
35. 1:09buy the actual building structure one of
36. 1:12those things the IRS says deteriorate or
37. 1:15depreciates in value and that's the
38. 1:18property right
39. 1:19there's wear and tear the windows the
40. 1:22appliances the roofing all these
41. 1:24different components that make up our
42. 1:25rental property are going to go down in
43. 1:27value over time so when we are given
44. 1:30this closing statement there's gonna be
45. 1:32values associated with the land and
46. 1:35there's gonna be values associated with
47. 1:36the building the building you're able to
48. 1:39take in a write-off
49. 1:42over the course of twenty seven and a
50. 1:44half years if it's residential or
51. 1:46thirty-nine years if it's a commercial
52. 1:48property now a residential property just
53. 1:51first layman's terms is any property
54. 1:54that is four units or less so let's say
55. 1:56you have a single-family home or a
56. 1:58duplex where there's a house in the
57. 2:00front and a house
58. 2:01back or maybe a triplex where you have
59. 2:03like a stacked house on top of another
60. 2:05stacked house and then there's one in
61. 2:06the back or maybe of a four-plex where
62. 2:08there's just four units and four doors
63. 2:10these properties depreciate over the
64. 2:13course of twenty seven and a half years
65. 2:16that's a long time and if you own a
66. 2:19commercial building let's just say five
67. 2:21units or more so in a big apartment
68. 2:24complex or maybe a restaurant or an
69. 2:26office space these buildings depreciate
70. 2:29over the course of twenty nine thirty
71. 2:30nine years thirty nine years so you're
72. 2:33giving a write-off based on the
73. 2:34building's value over the course of
74. 2:37either twenty seven and a half years for
75. 2:39residential real estate or 39 years for
76. 2:42commercial real estate so let's dive
77. 2:44into my example let's say you and I
78. 2:46purchased a property that's 1.5 million
79. 2:48dollars and when they gave us the
80. 2:50closing statement they told us hey
81. 2:51Carlton hey
82. 2:53anonymous your land is worth five
83. 2:56hundred thousand dollars in your
84. 2:58building is worth a million okay great
85. 3:00we get a million write-off perfect if
86. 3:03it's residential we get to write it off
87. 3:04over the course of twenty seven and a
88. 3:05half years which means to you and I have
89. 3:07to split a write-off of thirty six
90. 3:10thousand three hundred and sixty three
91. 3:11dollars every single year for twenty
92. 3:13seven and a half years as long as you
93. 3:15and I own this rental property we will
94. 3:17hit this write-off every year for twenty
95. 3:19seven and a half years and if it's a
96. 3:21commercial property we're just going to
97. 3:22divide over 39 years and receive a
98. 3:24write-off for that now if we make
99. 3:26improvements on the property of course
100. 3:28those improvements we get to write off
101. 3:29as well and those items get depreciated
102. 3:32but for the sake of a real estate
103. 3:33investor why is this depreciation
104. 3:35important well if I'm earning income off
105. 3:39of my tenant living in my property
106. 3:41depreciation is one right off that can
107. 3:43help offset that income that I'm
108. 3:45receiving and let's just say I end up
109. 3:47having more depreciation than I have
110. 3:50income then I'm not paying any taxes on
111. 3:53my rental income and that's the power of
112. 3:56depreciation