The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 020 - Tax Advantaged Investment Strategies w/ Chase Ravsten
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Join me and Chase Ravesten from Vistia as we discuss unique strategies to reduce taxes besides investing in real estate and doing cost segregation studies, there are many other ways you can reduce our clients taxes that we have discussed. Some of the topics include:
- Pending Legislation for Conservation Easements
- Qualified Opportunity Zones
- Oil and Gas Mining Wells
- Capital Gains Planning
- Retirement Account Distribution Tax Strategies
Okay, so we fight the story for each other. We talk about the four and eight five minutes and we don't work in our total. We talk about all five hours to get money. We're going to a little bit about 35. Dapple a little bit about 15 minutes. Now none of this is investment by just to give you some great ideas of how tax data can impact your financials and some of it like great ideas when you're considering where to park your cash in different financial instruments, different investment vehicles, and different types of tax events as you also consider the profitability of different items you're going to invest in. Hope you enjoyed it and let us know if you know anybody who may be interested in joining our practice or potential clients. Tell them to email info at markfolbergba.com. Enjoy.
SPEAKER_01Thanks for tuning in. I am joined by Chase Ravston. Is that the right pronunciation?
SPEAKER_03It is. It is Chase Ravston.
SPEAKER_01Okay, Ravston of Vistia. And we're going to talk about a variety of topics relating to some advanced tax strategy. We're also going to talk about some legislation updates. And we're also going to break down uh some ideas for you guys that you can either do yourselves, work that we work with our clients, or you can take to your clients if you're a CPA or EA listening. So let's start off. Chase, tell me, tell us a little about you, who you are, and what you do.
SPEAKER_03Um I am a I guess my official title is I'm a VP for uh Vistia Capital. We're an independent broker dealer. Um myself personally, I've been in the financial investment services space for about 15 years of my life now. It's been my main career as an adult, and um I I love it. I have I'm in Denver, Colorado, a suburb of that. And I've grown up in this industry. I've seen a lot of different aspects in it. My dad is a wealth manager, and so I've learned a lot from seeing him. I've worked with a lot of different investment advisors out there in a lot of different areas. And also I have uh a wife and a wonderful wife at home who supports me in that, and three amazing daughters. And it's I'm always looking for ways to help people find things that are unique for them to help them further their financial goals and find clarity and making things truly simple and easier for them in their life.
SPEAKER_01Awesome. So, you know, one of the things that we were just talking about, and one of those tax strategies that people like to um stay away from or criticize it has to do with the the C-word, which is conservation easements. There was some recent legislation that um we were just looking into. So let's talk, let's talk about some of the stuff going on and what that may be for what that may mean for some of the people in the audience.
SPEAKER_03Yeah, so you know, in the industry, people hear about them being called conservation easements. When you hear about them in the news, when you hear about them written out, a lot of people call them conservation easements, sometimes also known as syndicated conservation easements. Um, really, the official name I think is really important. They are real estate development projects with an opportunity to conserve. So they don't, they're actually not a conservation easement until it's elected to go that direction. So I think that's a very important piece that people need to understand is we just call them that because you know it's easy. It's an easy name to give them. But that's not how they start out. But in terms of the uh recent legislation, if you look up today, it's December 20th, 2022. And it's as of this morning, there was legislation introduced inside of a bill. And that let me pull that up here. It is called, it was inside of the omnibus bill. It was released this morning, um, HR 2617 Consolidated Appropriations Act. Um, and it's talking about it's labeled as in the Senate bill conservation easement proposed language. And when you look inside of here, it's changing the way conservation easements look. Um, if this goes to vote, which you know, I can't say what's going to happen, but if it goes to vote, we know exactly the way these are gonna look next year and the changes that are made. You know, some of the highlights is if you read through this bill and the way it says as of this moment, um, it is saying that a conservation easement, let's say next year or after this bill passes, um, as they're so called, is really the way they're restricting it is they're saying the most you could reduce, get it on a multiple inside of that conservation easement is a 2.5. Most you reduce your adjusted gross income is by 30%. And then if someone gets into a piece of land, they actually have to hold that piece of property for three years before they could think about doing something like this. Now, there are exceptions built into it for private foundations and families and other things, but it's very limited. So, what it does is for the syndicated conservation easement world, it changes the way those things look and how those things will be done. Um, now that's not affecting syndicated fee simple easements or uh facade or historical easements. Again, there are exceptions to this. So there are other things out there, but that's as of today, as of this moment, when we're talking, Mark, that's what the legislation is being proposed. Um, is for any programs moving forward after this day.
SPEAKER_01Yes. And you know, I remember they were talking about voting about something in November on that. I think it was at the end of October and early November, very similar discussions as well. Um so it that's why it's just so important to have you know good guidance and a good team around you to help you navigate that space and understand all the current and future opportunities. And there are some other potential opportunities to reduce your your AGI and your taxable income through charitable means, um, in addition to easements. And uh what's also interesting is that this it seems like this legislation is really only uh going after those guys, uh going after the the partnership type of easements, right? So if you owned the land outright and were to do a similar strategy, you wouldn't be the you would not be at risk of changing the legislation. Does that sound about right?
SPEAKER_03Um, you would definitely want to uh definitely get a tax attorney involved to review that before you made that decision and um again to see how this bill plays out specifically in relation to that. But there are let's just take historical. Um, one of the things that there's an exception around is historical easements and like facade easements.
SPEAKER_01Well, those are very things for the for the audience here. Um, can you explain a little more about um what historical and facade easements? Now, this is something that is really cool that is one of those strategies that maybe less than one percent of tax accountants know about that can be a really great opportunity if you understood the significance of it and if it applied to you.
SPEAKER_03Yeah, so historical easements or facade easements, the way that works is let's say you have a building and it's an old historic building. Well, as we know, is let's say a building was built in 1930. It's still up and running today. Well, that's changed hands probably multiple times and it's been updated and retrofitted, it's been upgraded, and it doesn't look anything like the original building. So, what are usually a facade easement or historical easement will do will come in and grant an opportunity for you to return that building back to its original viewpoint and structure and get a tax deduction for it in the process. And so it's a way for people to kind of say, Hey, I live on Main Street or I have this old building, it is an integral part of the town, and it can be a unique historical piece, but you have to make it look like the way it was built originally. So if it had some weird designs or some unique flooring, everything else, you have to what they do is they go out and actually get a picture of the original building, and everything has to match as is. And in doing so, you get there are tax benefits that can potentially come out of that if you follow through the steps. You actually have to work through the National Historical Society and go through, you know, there's some obviously some processes you need to follow, but it is a very unique way to look into it. It just like T Simples. There's there's different tax codes out there to incentivize people to do things to preserve legacy in this country. And that's one way they do it, and that's why they've done it. It's a unique way to look at that.
SPEAKER_01Very cool, right? Um, so you know, it uh there's it's interesting when and then you have historical tax credits, which you don't really find in many neighborhoods, but in in New Orleans, they're very common. And if you walk through New Orleans, you see how the buildings are maintained. And I imagine that the historical tax credits have contributed to the style of the city, which is really interesting. Um yeah, I I mean this this whole concept is just it's just a great way where if you're working with someone who's resourceful and you can find these opportunities. I mean, how awesome is it that you can do something that could potentially add to the curb appeal of your restaurant or your hotel or whatever business you own and get a tax, get some tax savings at the same time.
SPEAKER_03Yeah. And that's again, is you look at the why they do these things is because they want to maintain that preservation. They want to maintain that look, and then also incentivize people to put the money and effort into doing those things because it does, it's gonna cost a fair amount of cash to return it back to its original look. Um, I know someone um in the south that had a building and we they pulled up plans. And if you look at the old pictures, there was this, they had like two uh um plywood, like they had this nice hardwood floor, but just right down the middle of it, they had plywood running down the middle of it. I said, What was the point of this? They said, We don't know, but that's the way the picture is. That's the picture we have, so we have to make it look like that. Said, okay, they said it's gonna cost us a lot of money to make it look like this. It's not the most functional, but this is one of the requirements with it. And it's it's fun to see those things come back.
SPEAKER_01Awesome. Hold on one second here. Oh, am I coming in? Um, how's the quality of my voice, by the way? Just checking.
SPEAKER_03Ah, it's good.
SPEAKER_01I can hear you loud and clear. Okay, cool. Um, so what about um when it comes to so let's let's move on to talk about qualified opportunity dealings now. So now a lot of our clients, we we explained this idea for them as a potential tax saving strategy. And right now, this is what you know, with 100% bonus appreciation, a lot of early stage investors are driving into such low brackets, they're not really stressing about cap gains so much, but uh, we do have a demographic of clients that have stock gains and looking for strategies to reduce their stock gains, especially if they fail to tell us and strategize. Uh, this is one of the of the few opportunities to do capital gains planning after the fact. So um, you know, with capital with qualified opportunity zones, we can defer the the capital gains until December 31st of 2026, right? And uh and at that point, you know, you've you've seen the economic benefits of the deferred cap gains. You can you only have to roll your gain and not the whole basis in. And uh another cool thing is it doesn't have to just be investment into real estate. Now you could roll your gain into real estate and see the benefits of the depreciation and the growth of of inequity and value uh in that real estate, but you could also invest in businesses and qualified opportunity zones as well. Uh, but so what I'm wondering for you is what are some of the things that you see in opportunity when you help connect uh potential investors with qualified opportunity zones?
SPEAKER_03I love that actually, and yeah, that's I love the idea of what an opportunity zone can do for people and how it can help them work inside of the tax code and help them fund unique opportunities to help their capital grow. So, you know, the biggest thing is always tell people is like you said, is they don't have to do planning beforehand. It can be a sec afterthought because you have 180 days um after the realization of it to um actually invest the money. And so you have a few months to say, hey, what's a good opportunity for me to get into? Do I like the underlying investment? Do I not like the underlying investment? And yeah, there's like you said, you can get real estate, businesses, oil and gas. There's a lot of unique opportunities out there. Just make sure you like that. Um so looking at it is what I like to do is make sure people understand that it's a 10-year hold-on opportunity zones. So you got to make sure you like the underlying investment. Because the tax benefits are nice, right, Mark? Oh, I know. Yeah, it's like saying, hey, who doesn't not want to pay their taxes? Again, is we have a couple years. As of today, the law states we have till 2026 to be able to realize our gains. Great. So we get to kick the can down the road, as they say. But if you like, you know, that's a great idea. And depending on where you're what state you're in and what tax bracket you're looking at, and there's a lot of things at play there. But it can be nice because I always say, hey, the tax delay is always a great thing. But the most important thing is what do you think of the underlying investment? What do you need the money for? Do you are you gonna need the gains for something in the future? Are you gonna could you potentially need the money within five years, 10 years? Because if you want the full benefit of the tax treatment that comes with it, not only the delay till 2026, but any tax-free distributions and tax-free incoming that can come out of that, you have to hold it the full 10 years. So I think it's important for people to realize it's the tax benefits are great if you like the underlying investment. If you don't like the underlying investment, if you don't see potential opportunity for it, it's probably it would be hard to potentially justify it for you unless you're getting advice from your CPA, your tax attorney that says this has to happen. But that's what I like to talk to people about is when you're evaluating these, evaluate it not only for the tax benefits, but for the underlying investment benefits. Like what else can I get out of this? Again, is I have to hold it 10 years. What does that look like? What's my exit strategy in the 10 years? How does this overall benefit me? And if I were to take the taxes out of it, would I still invest in this overall? Or the tax strategy out of it, would I still invest?
SPEAKER_01So, so what's you know, you and you know, I I did a webinar on qualified opportunity zones when they first became available because it took me a while to internalize it, so I figured I might as well teach it and do my own research. And we I think it was you at a conference um who said who compared these investments in QOZs as almost like a supercharged Roth IRA, and that you know you can you hold it for 10 years and then the game there's no gain, there's no absolutely no capital gains tax on the sale. Obviously, you know, you're still generating income in a K1, but you know, what's what's really interesting is well now let's compare it to a Roth IRA, you've got to wait until you're 59 and a half to take the money out of a Roth IRA. And meanwhile, you just have to hold this thing for 10 years. And at the same time, you're gonna get gonna get cash flow that you can use on your own endeavors and for your own living expenses. Another cool thing about this for real estate investors is you're likely um now actually I I have a question for you on this. So if you're investing in a QOZ, are you gonna have you're gonna have partnership interest or is this interest in uh in a C corporation?
SPEAKER_03Uh the opportunity zone?
SPEAKER_01Yeah.
SPEAKER_03Um most of them are actually it depends on again, that depends on the opportunity zone. Like ones we look at, you actually come in as a limited partner. Right. So it's just a partnership, right?
SPEAKER_01Okay, that's what I was seeing as well for most of them. So if you're investing in a limited partner and let's say you invest in a business, or let's say you you're you uh invest in uh real estate in a QOZ, that's passive income. And let's say you you don't have real estate professional tax status and you're wondering about the value of all these deductions here. You can use your other real estate losses to offset any potential profit in the cash flow that's generated um in these QOZs as well as a limited partner. Or even if it's a business, it's still passive income. So you can use your real estate to offset the profit, but any potential profitability in the shares that K1 you get. As long as there's no material participation, right? You should be just fine.
SPEAKER_03Yeah, well, yeah, and again, is that you have to have the real estate designation and a few things have to play. But remember, if you hold a QOZ for 10 years, all distributions and all gains come out of it tax-free. And that's automatically treated that way.
SPEAKER_01And so I thought okay, so I thought it was just the capital gains. Are you saying that any ordinary income and and work that is generated after 10 years is untaxed?
SPEAKER_03No, just the first 10 years.
SPEAKER_01Okay.
SPEAKER_03Yeah, because the so let's just take a good example. Let's say we invest today, what's 2022? I have to hold that for till 2032. However, that partnership performs, let's say I get income out every year, and then at the end of the 10 years, there's a sell-off and I get some money out. All those distributions can come out tax-free to me as long as everything's been followed correctly, everything's been done right. And so, but then once I get all my money back, it's all been tax-free, all my benefits have been tax-free. Now, if I go at the end in 2033 and invest in Bill's bait shop down at the local dam shop and that produces income, no, that's all taxable now. It's it doesn't matter what it is. If I take my money and do something with it after, it's now taxable in that scenario. Because once it hits my bank account and I go by ABC widget and that widget produces a return, that's taxable. No, you only get the tax treatment while you're in the opportunity zone.
SPEAKER_01Right. So what and what I'm also thinking to myself, when people have a large capital gains here and they want to take advantage of the deferrals, what is the um what what would you say to someone who says, well, yeah, that's nice, you know, we get to defer the cap gains on this you know,$500,000 stock cap gains that rolled into QOZ. We're not paying any taxes this year, but eventually we're gonna get hit with the capital gains at the end of 2026. So you know, obviously you still are gonna eventually pay taxes on that transaction down the road. So so what do you say to someone who is who may be hesitant because you're eventually gonna pay taxes on the CAP gain?
SPEAKER_03I would say that's a great, I love the question because what is the underlying investment doing for you? Is there a re revaluation of your investment? Because let's say it's a 10-year hold and it's an illiquid investment. Are they revaluing the investment in 2026? Are they is it producing returns? Is this goes back to the question we what we were talking about before? Is if the underlying investment doesn't excite you and doesn't benefit you, the tax benefits probably aren't enough. Because the tax benefits are nice, but again, is that's not advice or anything else, but it's saying that's what you need to look at is because the underlying investment has to be a benefit to you. If the underlying investment is not of a benefit to you, you don't like it, you're probably going to be upset anyway in the longer. Because again, like you said, you have to pay the taxes eventually. We just can't not pay them. We're going to realize those. And so are we going to be happy in a spot? Are we going to have cash flow to be able to pay those taxes? So, going back to your example, you said, let's say we sell$500,000 in stock and it's all capital gains. How are we it's done, right? If I'm selling 500,000, let's say all 500,000 of that is capital gains for Google's and Grimms. Keeping it simple. Keeping it simple. I roll all 500,000 into there. Well, let's say I'm in the state of Florida and that's going to be a let's just make simple math. Let's say it's 20% I own federally on that. No state tax, no nothing. No, I'm just keeping it super simple. You know, Mark, you're good with numbers. What's 20% of$500?
SPEAKER_01100,000.
SPEAKER_03$100,000. Due in 2026, I'm going to realize that$500,000. Now I have a hundred thousand dollar tax bill due in April of 2027, right? Do I have cash to pay that? Did the investment do something? Is it worth that tax bill? Because now I still don't have access to that cash per se. That$500,000 still in the opportunity zone. Do I have other funds to pay for those taxes? Has the investment been beneficial for me? If I hold that for the full 10 years, it's in 2032. Am I recouping more than I put in? Is it, has it been beneficial? Has it done the things I wanted it to do, other than just delay the dollars a few a few years? So that's all part of the overall structure of the investment. And why I like to do what I do is to say, hey, let's look at something to make sure this makes sense for you. If it doesn't, the underlying investment doesn't make sense and it doesn't meet your risk profile, then probably don't do it.
SPEAKER_01And a lot of our strategies, you know, because you know, especially when we talk, and I'm always I'm pretty much getting tired of always talking about cost segregation. It's not like you're putting your, you know, obviously you already have the rental. The rental has to make sense. You don't buy the rental just for the cost. You know, although a lot of people receive they find ways to rationalize just buying an expensive property getting depreciation. Similar concept here. And then, you know, also if you're gonna push a$100,000 tax liability, although it would probably be more for most of you because you also have like without overcomplicating things, net investment income tax and likely have state tax, but keeping it simple here, you know, you get to see the economic benefit of having not paid$100,000 in taxes over the this amount of time and seeing the return on that tax savings being reinvested into other vehicles. Uh now with and and so what for a lot of folks here, they say, okay, that sounds really cool, but I don't know any QOZs. I don't live near one. How do I take advantage of this? What's the first step in that?
SPEAKER_03Well, I think that's important. Like, Mark, I think that's where you sit yourself out in different. You know, they could contact someone like me who understands these different programs and the different options out there. But I want to take a step back and say, yes, it's easy to get wrapped up inside the tax benefits. And again, as we made that example, overly simplistic, just for the example purposes. And so that's not exactly the way the tax bill is going to work out. But like you said, it's easy to get wrapped up inside of that. I think your example of the going out and buying an apartment just for the cost tag is maybe not the best idea. I love that. It's a good idea.
SPEAKER_01For all the doctors and dentists looking at listening buying properties in the Smoky Mountains, you know who you are.
SPEAKER_03Yeah, it's, you know, we got to make smart financial decisions. And so when we're looking at these, yes, evaluate the tax benefits. But, you know, someone like myself is that's why I like to do what I do is saying, hey, I love to put look at the tax benefits, but then also look at the invest benefits and kind of put the two together. And that's Mark, why I'm grateful I know you is because we can get together and kind of do the analysis and say, does this make sense or does this not make sense? And so really a lot, there are some financial advisors out there that do know about these. If you don't, reach out to Mark. Mark knows some great people that can do that. He can put you in touch with myself or anyone, uh, people in this space that can help educate you around some of the firener nuances around the investment side of these things. And so it's important for you to one, do education. There, these have been around since 2017. So they're not new, but they're still fairly young, if that makes sense.
SPEAKER_01Yeah, you know, um, it's funny because a lot of clients will say, hey, sure, I, you know, they're trying to help me decide on on all these decisions because of the tax consequences. Where I tell them, like, you know, we could potentially create some tax savings, but does this make sense for your business? Do you really need a new Ford F-150? Maybe are you gonna do it just and you know now? Sometimes they'll ask me if they should get married to save money on their taxes, and we'll we'll calculate the savings, and sometimes it'll be$30,000,$40,000. And then I don't tell them to I want to tell them to get married though. Like that's that's a big decision taxes here. Uh all the time, though, and sometimes I gotta tell my clients, like, hey, you know, this this is more of a business decision than a tax decision because at the end of the day, we're not, you know, solely driven to reduce our taxes. The best way to reduce your taxes is to be broke and unemployed, and you know, we're not looking to be like that. So sometimes I gotta remind some of these folks at our decision-making criteria. I just want to stop real there and say, so what you're saying is sometimes getting married is a good butt is a good business decision and potentially not a good business decision for your taxes, absolutely, you know, if it you know if you can make it uh just for taxes, and you know, obviously, if it if it weren't to work out, then you got yourself a whole handful of things aren't gonna be tax deductible.
SPEAKER_04No, no, you may have a few extra expenses other than just your tax bill at that point in time. Make that decision wisely, right?
SPEAKER_01Absolutely, absolutely. I was wondering what you may have heard, if anything at all. But when the QOZs first came out, they used to give you uh, I believe it was after five years, and correct me if I'm wrong, but I believe it was after five or a certain amount of years, a partial step up in that basis of the deferred gain. So if you held it for a certain amount of time, the amount of the deferred gain would be reduced. And then that was that kind of because of the of the time elapsed, we're no longer to get that partial step up basis towards that deferred gain. Do you I heard that they're gonna try to extend that out? Uh, have you heard of anything like that in proposed legislation?
SPEAKER_03I've heard of that. I can't say I've seen anything in writing, so I can't comment directly, but I can tell you the revaluation that happens inside of these funds is a true thing. Um, and the reason that works is the way some of these funds work out there, these QOZs, is they have a revaluation of your funds after a certain period of time because they're illiquid investments. And so you say, hey, if I invest into something and it's a 10-year hold, let's just go back to that example. Well, I can't exit that. If it's illiquid, I can't get my money back for 10 years. If I had to sell off my interest in it, it is not a liquid thing. So the marketability of that investment is much less than if I were to buy it today. So it's not easy to replace those funds. So I have to get someone to come in and take my spot. And so they're not going to trade me dollar for dollar. So a lot of those things is they do, yeah, you'll see revaluations from these opportunity zones a couple of years in because you're locked in. You can't, it's not an easily liquid installable asset. And so, because of that, it's not like going to the stock market, going into your TDA Ameritrade account saying, I'm gonna sell this stock for this stock, and you can do it within 24 hours. There's not open buyers on the market. And so the marketability, you get a marketability discount. There could be other things that come into play when doing that. We work in oil and there are like we work with an oil and gas deal that they do that because they say, hey, it's not as marketable. There's discounts that come into all that. And so there are things that come into play with that in mind. And so I've heard it now. This bill that I mentioned earlier in the interview, it could be inside of there, but that bill is 4,000 pages long. I have yet to get through all of it. I scanned for the one part I was looking for around the syndicated conservation easements and the changes there, and that was 2,700 pages in. So it's a it's a big bill. So there could be something inside of there, and that's where I rely on tax attorneys that we we work with and high-end CPAs that pay people to read all 4,000 pages.
SPEAKER_01Yeah, and then I rely on guys like you and them as well, as we do our own research and then think about how it applies to the client. When they're so with the QOZs with revaluations, what does that mean for the client and their taxes, if anything?
SPEAKER_03So let's just go super simple. Again, not pertaining to anyone specific listening to the call, but an idea. Let's say you put in a hundred, let's go back to our example of the 500,000, right?
SPEAKER_02Yeah.
SPEAKER_03Because we've used that number a couple of times. And I like simple math. I invest, I let's put I've put in 500,000. Let's say they're going to revalue that fund in 2026. Well, what they do is take in a marketability discount and the valuation of it, and then they'll send you out a new value of your investment in your K1 in 2027. So when you go to pay taxes on that, it's actually not as high as you would have put in initially. So let's say I would put in 500,000. Let's just say it gets reduced to 400,000. So now my K1 says, hey, you're realizing these gains or you're realizing the value of this fund, and your value of fund is not 500,000, it's actually 400,000 because if you were to sell it off, then that's what it'd be worth today. That's a general idea of what it's how it happens, and that's not exact, but that's kind of the concept of what they do inside of it. Does that make sense?
SPEAKER_01So it could potentially offset some of those deferred capital gains that some folks that are skeptical of qualified opportunity zones would be worried about as correct.
SPEAKER_03Very interesting. Yeah, and again, is that's where you have to that's going back to kind of this overarching theme is you have to evaluate the investment. What else does the investment do for you other than delay your tax? Delay the tax bill on that and kick that can down the road. Because there's things that it could do for you. It could do that, it could not do that. What is the investment itself? What is that QOZ doing for you, and how is it helping you overall?
SPEAKER_01Interesting, interesting. Now, as you kind of started talking to uh talking about earlier, let's let's talk about oil and gas, which is I think is it's one of the most one of the more misunderstood uh tax saving opportunities here. And it also is not just for taxes. This is another instance where it has to make sense from a business perspective. It has to cash flow. But uh for some of the folks who may have never heard of it, what what what are the what are the tax saving opportunities of investing in oil and gas mining wells?
SPEAKER_03So great, great question. So it depends on how you invest. So there's a couple different ways you can invest into oil and gas. You can come in as a limited partner, you can come in as a general partner, you can come as like an LLC member. If you don't know what those mean exactly as you're listening to this, it's just different ways to own and invest in the partnership and different risk exposures you're open to inside of that. So there are different ways you can look at it and do it. Let's say you come in as a general partner. As a general partner, you are open to all the risks that come with the company and the liabilities and everything like that. Again, kind of going back to it, you kind of have to evaluate all right, what are my risks? What does it look like? Be like, oof, I don't want to do it just for that. Well, most companies have that covered and they look at it and help you understand how they minimize that risk for you. But when they look at these things, you say, all right, let's say I invest$100,000. They say you can get a tax deduction up to 92% of what you put into the investment. So in that scenario, and that would come off your gross income. So in that scenario, you could get a$92,000 tax deduction off your gross income for intangible drilling costs. It's a one-year deduction that comes your way. And so that is a unique thing. And then years two on, you can get other deductions that come out of the partnership to help offset any income you receive from exploration and depletion and other costs that come along with that that offset that. So those are some things you can do. There's people that use it to offset, invest using their IRA to offset um Roth conversions. That's one way to do it. There are people who invest in it to reduce estate taxes and to pass assets on to the next generation. Um, there are different ways to do it, but it can produce, again, a great tax deduction up for you up front or an offsetting of assets, depending on how you get into it and what your goal is. You know, that's one of those things. Start with the goal in mind of what do you want to have accomplish and saying what are the things that are most important. And oil and gas can fit that. Because if you're like, hey, I want a deduction off my gross income, that's, but I want my money still working for me and producing some kind of return, that's where the oil and gas can come into play is because you can get that deduction, let's say up to 92% of what you put in. And you can still see investment returns. Again, most of these are anywhere between five to 10 year holds or longer, depending on the investment you get into and all the minutiae thereof. But yeah, if you say, hey, I put in$100,000, I get a X amount of tax deduction on the front, and then I still get investment returns on top of that. Maybe that is attractive to you. Maybe you love the idea of oil and gas. Maybe you hate oil and gas, and it's not a good idea. You know, everything we touch on a daily basis is still made with oil and gas almost. It's it's a very prolific thing out there. So it's kind of one of those things you evaluate and say, does it make sense for me to get into this? Is this a good investment for me? Or is it a bad investment for me? Again, the tax deduction is a nice thing. I think, Mark, as it goes back, is we can get wrapped up and ooh, the tax benefits are amazing. That's that's exactly what I want. Run the numbers, make sure that makes sense, but then make the sure the investment and what you could potentially get out of it makes sense as well. Because the other thing you have to evaluate is what happens if you get nothing out of it from an investment return. Are you still going to be happy with the money you put inside of that? And I nope again, it's not Mark, that's not for you and I decide, right? It's like you're going back to it like you need to decide if you want to get married or not for that tax deduction. Is it worth it? It's January 30, you know, it's December 31st. Are you going to sign on the dotted line or not? We don't make those decisions for people. We just do the educating and say, hey, here's what you could potentially do with it. Does it make sense for you?
SPEAKER_01Yeah, so and and with oil and gas, it's interesting where we think about um cash flow and how this compares to real estate. So when you invest in, so some of our clients they they you know, they they really got excited about you know the booming, you know, opportunities for short-term rentals, cost segregation, the bonus appreciation, but bonus appreciation is phasing down, and maybe they have a couple of short-term rentals and they don't want to do any more property management, they still have full-time W2 jobs. So it another way where you can see yourself investing in tax-advantaged assets that are gonna cash flow. This is an instance where you're not doing any work, you're a limited part, you just put your cash in the fund, and if you can write off as much as 90%, you'll see some tax benefits, and the cash flow will likely be faster. Obviously, there is risk, but what we would now correct me if I'm wrong or misleading, but what we would hope to see is if you have a five-year exit, over the course of five years, your capital contribution is coming back to you a lot faster than when you put down 10-20% into a mortgage. So you know, when you look at cash in, cash out, you can get a really nice tax savings in the form of your tax, you get a really nice return in the form of a tax deduction and and reduction in taxes, but also the cash flow, which is gonna be your profit in addition to your return of capital with the distribution, is gonna be a lot faster. So the amount of cash in your pocket will most likely be greater. Now, there's tons of value variables here, and I don't want to go down too many rabbit holes and talk about refinancing or whatnot, but the amount of cash that you outlay and how long it takes for it to get back into your pocket through distribution, tax savings, and through profitability will likely be faster than when you put a bunch of money down on a long-term rental or a short-term rental, you put 20% down, and uh let's say in the future, let's say you know voters depreciation is down to 20%. There's a there's a likelihood that you're gonna have more cash in your pocket from investing into a successful oil and gas mining. Well, this is not investment advice, though.
SPEAKER_03I appreciate that. Yeah, it's again, it's it's a matter of deciding what makes sense for you and where it's gonna land for you, the best thing long term. And yeah, evaluating those cash flows. Some people like the idea of that, and you're not wrong in terms of evaluating that. Does the cash flows look good? Is it a better opportunity for me? Is it what does it fit my goals and financial future? And you got to marry the two together and not. I think one of the things is sometimes we look at things from a pure investment return or a pure tax return. And I think more and more these days, we need to be looking at the kind of the convergence of the two and building a solid plan based off of that. Because sometimes we can say, well, we're gonna make all the money in the world, but if I give away 99.5% of what I make, it doesn't matter what kind of return I make. If I'm only keeping 0.5%, it's tough. And so I think when you marry the two concepts together, what you're saying with tax planning and cash flow planning along with investment planning, you can see a generally a higher overall return and a better return for you. Now, that may not always be the case. That may not always be the things, but it could be, again, depending on what you're looking for, putting the two together, not just wearing one hat definitely gives you a better perspective on things.
SPEAKER_01Yeah. And you know, I think that this is going to be a more popular strategy for some of our clients that are maybe just a little burnt or don't have the capacity to do the short-term rentals or other types of investment vehicles that require time. So they may see this as an opportunity here to uh have profit and tax savings. Uh deplete the depreciation, sorry, the depletion expense in an oil and gas mining well. Now, so it to me, and correct correct me if I'm wrong here, in and we'll probably have some guests in the future who can help us out with with um breaking down what they've seen in some of these funds, but the depletion of the the well, which is a deduction, which is and correct me if I'm wrong here, but this is separate from intangible drilling rights, or is there a connection between the two items? And this is a tricky question here. So we're gonna bring in some view because I know you you're you know you advise on lots of stuff here, but so when you have this land that's depleting, it it kind of that deduction kind of resembles depreciation in in that you're gonna see um a non it's a non-cash expense, right? You already own the land and the land is you already own the property and it's deteriorating in value over time, but you're not spending anything for that reduction in the valuation of this. So similar to the benefits we see in depreciation, we're gonna see that depletion deduction over the years as well.
SPEAKER_03Yeah, so what I mentioned earlier is you're gonna have a certain amount of your income offset every year. Depletion is one of those things that come into it. Depletion is a very real thing. So if you own the land, and you know, when you asked about intangible drilling rights, again, as as I was gonna thinking through that question, it's a great question because yes, it's the way you I think the way you're looking at it is pretty unique. And I haven't heard it put that way, but I can see the correlation is absolutely, but yes, depletion is something that works in the favor of the investor because it offsets income produced by the partner. Partnership because that's exactly what it's designed for. Because yeah, it's you having an asset, it's deteriorating in value, and that's exactly what depletion is. That's kind of what depreciation is, and you're able to take that as a tax deduction.
SPEAKER_01And like and unlike other deductions that we have in our businesses, like payroll and like you know, cost of goods sold and inventory or inventory. Well, inventory becomes cost goods sold, uh, or taxes. This is a deduction that doesn't cost us money. We've already paid for this asset, and we're reduced spending additional cash to get this deduction. So that's uh it's always great when we can reduce our taxes without having to have more cash leave our pockets. Uh one of the things that also a really cool strategy that a lot of people may not realize is that you can invest in oil and gas mining wells in qualified opportunity zones here. So, how awesome is that that you can take advantage of two strategies at the same time? And and you know, I think it was you who first introduced me to this idea. And when we're working with clients, we want to look at all their sources of income and see how we can strat, we can stack up different strategies together to uh combine for optimal savings. So, what have you seen as far as the ability to do this and and what you know what opportunities you found for potential investors?
SPEAKER_03It's exactly that. Yeah, you know, people who like opportunity zones and people who love oil and gas, it's like the best of both worlds. And that's why I use this quite a bit, and that's why we have people who use these inside of their portfolio. Um, is because like, hey, we they're very positive on what oil and gas will bring to bear for them. Um, and they like the deferral of that. And then kind of going back into the marketability discount, if you're locked into something for 10 years, you know, it's you can't market, you can't sell your interest in it very easily. So you're gonna get it some kind of discount probably in the future. You know, it's a potential, but it's one of those things that's saying, yeah, if the oil and gas produces returns, and it is exactly that. It's an OZ inside of the OZ, because I think on the like you said, you had a podcast all about OZs. So people can go back and listen to kind of how the formation of that and what they thought about that and everything else. But it's a zip code that's been designated by the governors of each state. And that zip code, that where this oil and gas is, is an opportunity zone, which is most people wouldn't have put those two together, but it's a unique opportunity that allows people to get into something different that produces returns and income. And there's people out there who love the idea, and that's why we present it saying, hey, you can buy a building, you can buy, get into a business, or you can get into oil and gas. Here's a unique opportunity for you to look at something a little bit different for you overall.
SPEAKER_01So what's interesting to me is like you imagine the scenario here where a client has potential tax liabilities on the sale, the disposition of the stock. Let's say they have, again, let's say they have a basis of 100,000 and they sell for 500,000, they roll the 500,000 in into an oil gas mining well in a QOZ, the results are significantly different on the tax side. Now, obviously, it has to be a good business decision, as we discussed, but you're deferring in the year that you do this, you're deferring your taxes, and you're gonna write off hundreds of thousands of dollars potentially in intangible drilling rights. So the results is gonna be from this this strategy as you go from a transaction that winds up that could potentially lead to you owing money to a strategy where you're actually gonna wind up reducing your taxes and and not only reducing the capital, eliminating capital gains tax that year, but also those losses will offset the taxation on other sources of income, whether it be your business or your W-2 income.
SPEAKER_03Correct. Now, I want to make sure I'm clear though, is if you invest in oil and gas in an OZ, there are no tax deductions that come out of that.
SPEAKER_01So the intangible drilling rights would not offset, would not flow through to the client in that.
SPEAKER_03No, because in that scenario, you actually invest as an LLC member. And as an LLC member, you're not invested as a general partner, so you do not get any of those intangible drilling costs day one. And so, yeah, um yeah, those do not flow through the same way in that scenario. Um because you're not a general partner day one. And that's the way they have them set up. Um, because you the and the reason the other reason for that is because the overarching effect of the cap gains, I mean the opportunity zone kind of trumps the tax benefits of the oil and gas distribution. So you don't need the tax deductions as long as you hold it for 10 years, and so they don't they use those funds elsewhere, and so that's a unique, it's a unique fit there from that standpoint, if that makes sense.
SPEAKER_01So, what I'm wondering now is because these wells have a shorter life than other types of investments in qualified opportunity zones, do you have the opportunity when you approach that day where the deferred taxes are going to be recognized in December 31st, 2026? Could you potentially find a significant reduction in the valuation of this Q of this oil and gas mining? Well to I mean, because you've already spent a couple of years uh you know drilling away and reducing the resources and available oil and gas. And if it's only, let's say, a five-year project, maybe we could expect a significant reduction in valuation to to offset those deferred cap gains. Is that a potential opportunity?
SPEAKER_03Yeah, potentially. But um actually most of these projects are 10-year projects, but what you're saying is still holds true. You could see a potential significant reduction in value because of the marketability, and what you're saying is still holds true. But you gotta, again, is it's the 10-year rule still applies because of the QOZ. And these are actually user tenure investments that people get into. Um, and so they kind of mirror each other that way. But yes, you could potentially see a reduction, a revaluation of the part of what you contributed in that year in 2026. That is a possibility. Again, is you know, we'd have to look at the individual partnership and what it does and what their opportunities are and their historicals and everything that comes with it. But yeah, that is definitely something that could happen.
SPEAKER_01Very cool. Um, another thing I want to we since we have a little bit of time, you talked about a little bit here with using the oil and gas mining well to create will potentially create some tax saving opportunities relating to your IRA. Can you you expand a little bit on this and what this might mean?
SPEAKER_03Yeah, so the way people use this is like with an R IRA. Let's say I have a hundred thousand dollar IRA. Simple math again. I can invest my IRA into the an oil and gas fund. And I invest as a limited liability partner or something like that, and or an LLC member. And when I do that, I'm able to take the invest it. I'm gonna get an investment return just like everyone else. But what they do after a year is they will revalue the fund because again, it's a 10-year hold and it's not, you can't replace it. And so there's a potentially, um, they look at a revaluation on it, they say, hey, what can we revalue this fund at? And because of marketability or price of oil and gas and a few other things that go into, obviously, they have a qualified Big Ten CPA firm who handles this, handles this and attorneys who review all this. And at the end after the first year, they will send out a new K1 and saying, Hey, here's the value of your IRA now. So you put in 100,000, but now it's only valued at 50,000. What people will do then at that point in time is saying, all right, now because my value, I have a K1, so is my value is only worth 50,000. I will go in and convert that$50,000 IRA to a Roth IRA, and I'm only paying taxes on that$50,000 value. And again, is then any distributions from the partnership that come from the oil and gas investment will go right into that Roth IRA. And there's not taxable to you as an investor because now it's going into your investment and will grow tax-free, and it's not a taxable distribution to you. And so people use that in that scenario. How that plays out exactly would have to be pertaining to your individual situation, if it makes sense. But it's something that we have people look at for sure when using these.
SPEAKER_01Very interesting. Strategy you you'll almost never hear about in the in the general public. Um last question, what kind of opportunities out there and business opportunities are you thinking about and getting most excited about? Or where are just some new changes or things out there that are that you're enjoying to research or explore more?
SPEAKER_03You know what? We're actually I really like the I'm a big fan of real estate. I just don't like owning rental properties. I've done that once in my life. I really don't like that phone call, even with a management company saying, hey, this broke. It's like, okay, we'll fix it. How do how do you possibly break that? That's what I've lived in houses my entire life, and that's never something like I broke this. That just doesn't happen. That's just doesn't fit me. So one of the things that we're looking into is I like unique partnerships that offer benefits like real estate. Like there's a lot of talk out of people getting into multifamily stuff. Well, I'm busy, I don't have time to manage this or that and this and that. So I'd like to get into things that will produce income, produce revenue for me without me having to think about it, but aren't exactly tied to the stock market. So things like that, that is saying, hey, how do we maximize our dollars, maximize the leverage without max having to add more things to our plane? So that's kind of where my interest sits. Is as we go into this next year, I know I'm looking more into some of those multifamily type approaches, you know, what getting into investments and department complexes, what do those look like? I know our firm does a lot of that, and some other unique things out there that may be a little bit different, but are that unique fit for us. You know, there's people who get into crypto, who get into this, go to that. I think crypto is an interesting conversation because of all the FTX that's going on in the marketplace. Oh, yeah. And that's a that's a fun conversation to have. But I think it's the more you can read, the more you can educate yourself about what's going on out there, the better opportunity you are to bump into something that you are. And I the best thing I could tell people is you know, make sure you're not overextending yourself in your investments and making sure the investment makes sense and just don't get wrapped up in the excitement of it all, but into the actual numbers and what it makes sense. And if you don't get it, you don't understand it. Take a step back before you invest to make sure you get a full understanding of what you're what you're actually executing on.
SPEAKER_01So and you know, we'll probably be um bringing in a team of real estate syndicators as well and have a talk about you know what does that mean and you know what uh internal return rate of return is and what expected profitability and the decent syndication might be for some of our clients who are doing some of that stuff. And then from my perspective, on a tax splitting side, we you know, we want to see and understand the tax treatment of passive income versus active income or passive income generators, where if you have positive taxable passive income from one source using real estate to create negative passive income with the depreciation and losses to offset the tax liabilities and uh lots of could and then we also have conversations can have conversations on even if you don't have real estate professional tax status and you're not gonna reduce your overall tax liabilities by investing in real estate, you're still having investing in tax-advantaged assets where the cash flow is there, and most of the time, if it's positive cash flow, you're still gonna see depreciation offset tax liabilities on that cash flow. So lots of really great opportunities in favorable tax treatments and different types of investments as well that we're having lots of conversations with our clients on.
SPEAKER_03That's and I think that's exactly I think Mark, you're doing a great job by educating people out there. It's like we work in the syndicated real estate world. We have you know financing for apartment complexes. We do a lot of stuff. We do a lot of capital raising in that. And I think it's and I think the fact that you're out there letting people know and bringing on these different concepts, saying, hey, here's some of the things you get out of it, here's what you can't get out of it, is a great, I think a great fit for you. I think that's your listeners are being benefited by that.
SPEAKER_01Yeah, absolutely. And you know, another cool thing with the syndications is for folks who are reaching towards the end of their investing careers or towards retirement and don't want to be landlords, similar to with uh oil and gas, they can put their money into a syndication, they'll see the cash flow and the tax benefits, they can group it in for material participation with rest status if they have it. And now they're gonna see all these advantages, but they again they don't have to do any work. So they if they don't want to do any more landlording and deal with broken furnaces and garbage disposals, they can still get in on the opportunities here. So lots of different ways that you can look at the opportunities here.
SPEAKER_03That's and that's exactly it. And I think that's when you go back to it, it's the idea of converging both tax planning with investment planning into one to make your overall investments higher.
SPEAKER_01Yeah, absolutely. And you know, when I talk to my clients, we say we want to align a tax strategy with your business goals, they both have to be aligned together. So, you know, if if you really want to, you know, you can invest in a failing business, sure, that'll reduce your taxes, but is that really what you want? So we have lots of conversations on you know the tax impact of different things, but also we have to understand with our clients what do you want to do? What do you want to do with your cash? What are you interested in and what are your goals?
SPEAKER_03Agreed completely. I'm on board with that 100%.
SPEAKER_01Awesome. And this is not investment advice.
SPEAKER_03No, definitely not nothing in here is investment advice. If you take any of this investment advice, that's not smart. So this is this is not that. If you have questions about investments, things like that, consult a financial advisor, call me directly, we'll talk about your individual situation. If you have questions about tax planning, talk to Mark. Um, yeah, don't take this as gospel truth in any way. Always do your research and do your information. This is just general concepts to talk about ideas and things to get the, as they say, wet the whistle.
SPEAKER_01Absolutely. I feel like because I know that because of your certifications, I have to say that you know, at least every hour, just so just so everybody feels good. I appreciate it.
SPEAKER_03I definitely appreciate it. Yes. We probably should have started in like every five minutes just throwing that up. This is not this is not investment advice, this is not tax advice, this is just information.
SPEAKER_01Yeah, I'll put a little wording on the bottom as well, just just so no one goes after us. Uh not like they would. I'm just joking.
SPEAKER_03Yeah, but it's it's good information to have, and it's it's nice to have the conversations around this and talk to you about this information.
SPEAKER_01Yeah, absolutely. And I have a lot of fun running these different scenarios and possibilities and talking to an expert like you. Uh Chase, as we wrap this up. Uh, do you have an ask for the audience and how can people reach you?
SPEAKER_03Yeah, and um ask it if you have any questions about any of this or anything you're looking at. You can always reach out to me directly. Just um best way to reach me. Uh trying to figure out the best way to reach me. I guess you just call me. Um, I have one number. It's 720-212-3174. That is the number to reach me. If you want to talk to me, just say, hey, I heard you on Mark's podcast, and we'll rock and roll. You may catch me off guard, but happy to chat with anyone about anything and be a resource to anyone who needs ideas and just wants to get to know each other. So it's a great opportunity.
SPEAKER_01All right, wonderful. Uh Chase, thank you so much for your time. Everybody listening in. Hope you enjoyed it. We're gonna have some great talks on a lot more of these concepts and dive in deeper down the road and talk to me or talk to your CPA or talk to Chase about what you can do here, what it means for you. And we'll be keeping in touch. And also, I'm looking for hires. Okay, so if you know an accountant, uh a tax accountant looking for work, we're looking for talented people.
SPEAKER_03Awesome. Thanks, Mark. Have a wonderful day and a wonderful holiday season, man.
SPEAKER_01Awesome, thanks a lot.