Real Estate Strategies to Minimize Your Taxes (w/ Vincenzo Villamena)

Unlock the secrets to legally optimizing your tax savings with our special guest, Vincenzo Villamena, the founder and CEO of Online Taxman Global Expert Advisors. Have you ever wondered how the wealthy manage to retain so much of their earnings? Join us as Vincenzo shares invaluable strategies for reducing tax liabilities through smart business structuring and leveraging real estate investments. We also dive into a comparative analysis of the US tax system versus European systems, showcasing how different incentives can spur innovation and investment.

Curious about the benefits of real estate professional status? Learn the game-changing advantages this status can bring, including cost segregation and accelerated depreciation, which allow high-income families to offset their wage income with real estate losses. We'll also cover the tax incentives associated with Trump-era Opportunity Zones, designed to boost investments in underdeveloped areas. Vincenzo emphasizes the importance of making these tax strategies more accessible to everyday investors, ensuring that more people can reap the benefits of smart tax planning.

Finally, discover how real estate investors can significantly reduce or even eliminate their tax obligations using techniques inspired by Robert Kiyosaki's principles. Through practical examples, Vincenzo explains how depreciation, cost segregation, and 1031 exchanges are utilized to achieve zero tax liability. We'll also break down the nuances between long-term and short-term rentals, and how passive losses can offset various types of income. Wrapping up, Vincenzo stresses the importance of combining self-research with professional advice to tailor strategies to individual needs, highlighting the critical role of expert guidance in navigating complex tax laws.

CONNECT WITH VICENZO!
https://www.instagram.com/donvinny/
https://www.instagram.com/onlinetaxman/
https://www.linkedin.com/in/vincenzo-villamena

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Chapters

• 0:00 Maximizing Tax Savings for Entrepreneurs
• 7:05 Tax-Saving Strategies for Everyone
• 19:55 Maximizing Tax Savings Through Real Estate
• 28:34 Personalizing Tax Saving Strategies

Transcript

Speaker 1: 0:27

What does it really mean to be wealthy? Is it just about the money in your bank account, or is there more to it? You're listening to Wealthy AF, the podcast where we cut through the BS and teach you what it truly means to be wealthy AF, and today's guest is Vincenzo Villamena, and today we are thrilled to have him. He's the founder and CEO of Online Taxman Global Expert Advisors. Vincenzo is a seasoned tax professional with a wealth of experience in accounting, finance and international tax matters. Today's topic is how to optimize tax liabilities and how to reduce your tax burden legally. Have you ever overpaid on your taxes? How do we pay less on our tax liabilities, vincenzo? Welcome, by the way. Thanks, mark, for having me.

Speaker 2: 1:16

You're welcome, bro, you know there's a lot of ways to sort of, I would say, optimize right. I think what it comes down to is one you know the whole notion of how to deduct and what to deduct, and that you know ultimately goes into you know, whether it's real estate investing or opening a business. Actually optimize it for that side. And then the other important aspect of optimization is your structure right, meaning what are you using? Are you using an LLC? Are you using an S-corp? If it's an active business, are you using a C-corp? And so I think when you look at what tax savings is, it's really about those two things what your structure think you know. When you look at what tax savings is, it's really about you know those two things, what your structure is. How did that works within? You know both, like an asset protection side as well as a tax side, what's being able to be deducted or not, right, like.

Speaker 2: 2:04

So, for example, we do a lot of analysis when it comes to whether it's real estate investors and people with their own business deducting your car mileage right, and so, again, tracking how many miles if you're driving to a property every week or every month, you know how many miles is that from your home, et cetera, and keeping really good records in order to make those deductions.

Speaker 2: 2:27

As well as you know, paying for whatever it is, parking. Or let's say, for example, live in another state. Let's say you like to visit a place, right Like the Poconos, for example. Okay, and now you live in Florida. Well, every time you go to the Poconos, if you buy a house there and it's a real estate property, rental property then you get to deduct that trip because you're going to visit that house. So it's kind of being this high-level strategic thinking about how can I maximize deductions and how can I I don't want to say create, but how can I be able to justify certain deduction by, again, by doing things like travel, doing things like deducting your mileage as well as structure. That I think a lot of people sort of overlook, or a lot of accountants or tax preparers overlook because they're just focused on the compliance side, like actually filing, as opposed to the tax planning side of being a real estate investor or just being an entrepreneur.

Speaker 1: 3:27

What would happen, Vincenzo, if the government stops collecting taxes?

Speaker 2: 3:31

I mean, if it stops collecting taxes, I think then you know, a lot of these services that we are able to have don't work as well, right, I mean, I've lived in South America for 14 years. I know you obviously originally are from the DR, and so you know, you've been in these countries where you know there's just not a lot of tax compliance and, candidly, that leads to just not as much services or the roads not working, et cetera. So I do believe that we have a legal right to minimize and optimize our taxes, but I do think that we still need to sort of play that game. A lot of what we do is using the system to our advantage and the thing is, these sort of strategies are available to the common person. Right, it's not just for, you know, the super wealthy or corporations, and a lot of what we do, you know is is available to the common man because ultimately, you know, what does the us tax system do?

Speaker 2: 4:24

It? It tries to create incentives. Our system, in particular, um, incentivizes investors and entrepreneurs and that's why you have, you know, real estate, you have depreciation, you have things like a you know a cost segregation study where you can, you know, essentially take depreciation and expedite it over, you know, a shorter period of time. You know you have, you could be known as a real estate investor and because of that you are able to deduct that against your ordinary income, like income from a W-2 job, like a regular job. And so the point is is that if we use these tools that are given to us, that the government does, to incentivize people for investing and being entrepreneurs, then we too can take advantage of these loopholes, or whatever you want to call it, that allow the ultra wealthy and corporations to why does the government incentivize the tax system for investors and entrepreneurs?

Speaker 1: 5:27

Because we're capitalists.

Speaker 2: 5:29

Again, we talked a little bit about South America, but I think the most fair comparison is to look at the United States tax system versus the European one. Right, Because these are both quote-unquote developed countries, right, and in Europe they have more of a socialist system. And listen, these things work for them and I'm not here to sort of give my opinion or judge one versus the other, but the point is, when you look at a country like France or the Andes countries or most of the West European countries, they're paying upwards of 50% tax. Of course, they have a great social safety net, so it works for them, but I wouldn't say that it encourages investment and innovation. Encourages investment and innovation, and that's why you know, when you look at the US versus those countries when it comes to things like innovation et cetera, that's where all the you know, tech, startups and whatnot are coming out of the United States, Because, again, we encourage that type of entrepreneurship and we encourage investors to invest in that right by having lower capital gains tax rate if you were to sell out of an investment, or lower dividend rate.

Speaker 2: 6:34

So now it's just a part of our tax system and that's the point is, when the government wants to promote something, they give tax incentives, right. That's why electronic vehicles there's a tax incentive for it, because they want to promote that Electronic efficiency. When it comes to houses and energy efficient windows, Again there's tax credits for that. And so that's the point when there are certain initiatives that our government wants to encourage, we give these sort of incentives, and that's again what you know, truly a capitalist taxation system is.

Speaker 1: 7:06

So you mentioned that you own real estate Colombia, brazil, a few places, a few countries in our off-air conversation. Is that why real estate professionals have tax, a favorable tax advantage? So I have, I'm in the real estate space, as I mentioned to you earlier, as an investor and I have some passive investor friends that invest in real estate and they're, like, so concerned. So one of the things that I have a good friend and she's so concerned about making sure Vincent so that she's got her real estate professional status. So I don't remember what it is I think 750 hours a year or something. I don't remember what it is to be a real estate professional status and she's like, because of that status, you can take advantage of some additional tax break. You mentioned earlier that the government incentivize and promotes incentivize based on what the needs of the community. So is that why real estate professionals are incentivized with all of these really cool things with depreciation, cost segregation I know these are big words, but is that why the government?

Speaker 2: 8:11

does that? Yeah, I mean, you know, and just to back up because I think this is important, like, let's call it tax tip, you know and talk about real estate professional right. So again, let's say you have two spouses right Now. One has a you know, a high paying job, and then the other one maybe is a part time or stay at home mom or dad, and so I would encourage people in this situation to use the fact that one spouse is the primary breadwinner and the other spouse is part working or barely working. That part-time spouse or not working spouse tries to become a real estate professional right and, to your point, is able to document 750 hours a year doing that. And the other side is that you have to dedicate more time to real estate than anything else, right? So hence they can't be both full-time employees.

Speaker 1: 8:57

I think the universe agrees with you, as I hear the sirens. You're in New York City. I know we talked about it off air. I can hear the sirens. He's in New York City, guys, and I hear. This brings me back to when I used to live in New York City the sirens and things and all the craziness. But anyways, yeah, the universe agrees with that statement you're making about becoming a real estate professional.

Speaker 2: 9:15

Yeah, exactly, you have to lower that background noise. Yeah, because, again, and then let's say, this family buys a rental house, right, and they do the cost segregation study, they accelerate the depreciation, right, but basically then all of a sudden you have, let's say, a $10,000 or $20,000 loss that a high-earning family wouldn't be able to deduct against that wage income. But when one spouse is a real estate professional, then you can deduct that $10,000, $20,000, whatever loss of the real estate rental property against that high-earning spouse's income. You know, to your original question, they're definitely um, trying to encourage, uh, you know, investment.

Speaker 2: 9:57

And then in the trump tax plan it went even further.

Speaker 2: 10:00

They created this um program about opportunity zone, which was a program, and they designated, you know, certain parts of the country, um, and in those parts if you invested in it by either investing in a real estate project where you put a lot of money into fixing up the house or building roughly 50% of the purchase price, so you know again, it would be like a complete cut.

Speaker 2: 10:21

Or if you started a company in a zone which was designated for as an opportunity zone which you get where, generally zones where not as nice areas, generally zones where not as nice areas. Then you know, if you start a business on that zone you could also roll over a capital gain from either real estate or another or stock, you know, any other sort of exit into an investment in this zone and get a deferment of that capital gain and ultimately if you were to sell it in 10 years it would be tax-free the gain on the opportunity zone investment. So again, I mean, these are all strategies, but if you peel back behind the layer it is also because the government wants to incentivize people to invest in these sort of areas or invest in these things.

Speaker 1: 12:27

Let's educate people here a little bit. I'd like to get your opinion on this. So is it fair that rich people get to use these loopholes, as we say, and I don't like to call them loopholes? You know, I was listening to podcasts and I forget the guy's name. I was listening to a podcast and he said he made something, he made a statement when the guests was using the word loophole and I just used it and he said something to the effect they're not loopholes, they are laws set on by the IRS, by the government, to incentivize just like you said, to incentivize investments in those areas. Is it fair that wealthy people are the ones that have this information, is able to get access to this information, like the information you literally just shared right On the OZs, on OZs, correct this event. This is, the average person doesn't know what that means. But is it fair that rich people get to take advantage of those things, those optimizations, as we call them?

Speaker 2: 13:23

and the average person is power, and you know, you're right, you know rich people have the financial capacity to obviously hire high-priced lawyers and accountants in order to execute these strategies. But then I mean the beauty of the modern day world and the internet and podcasting is that you know we could go on and talk about this stuff and give people you know access right, and and to at least first understand the strategy and then even part of my mission is to, you know, make these type of strategies available to to everybody, right, because you know even part of our business is really you know we implement strategies that you know I used to work at the big four, at pricewaterhousecoopers, and and try to help just a regular, normal, everyday investor, investor or entrepreneur do that. Another strategy that we do and this is really not related to real estate, but I always use it because it's a fair comparison is that for international entrepreneurs that live outside the United States and they don't have any US employees or whatnot, we set up an offshore company in Hong Kong or the British Virgin Islands that's owned by a US C-Corp and when everything's operating outside the United States and the management everything is taking place outside the United States, you get a 10.5% tax rate which is reduced by 21%, and we set up these strategies. I mean personally, I set it up for myself, because I don't live in the United States anymore, I live in Brazil and we set up these strategies. I mean it's personally.

Speaker 2: 14:57

I set it up for myself, you know, because I don't live in the United States anymore, I live in Brazil and we set up for a lot of our clients that are American expat, and the beauty of the strategy is, you know, when you look at it, a C-corp owning a foreign company. I mean this is the same strategy that you know the Googles and the Apples of the world and LinkedIn, they all do that right. I mean you know Google and LinkedIn have, you know, major, major headquarters in Ireland, and the reason is, again, that's a quote-unquote. You know it's a low-tax jurisdiction, I mean they're able to get good talent there, but you know. So I like trying to bring these type of strategies, whether it's the big corporations, for the you know, ultra-high net worth individuals, to regular people when it applies, and so I do think it's possible for people to incorporate these strategies in their own plan.

Speaker 1: 15:46

What is the lowest hanging fruit for the working class, american or family to reduce their tax liability? What's the one strategy you would say is the lowest, the easiest? Do one, two, three. You should see an impact on your tax liability.

Speaker 2: 16:02

I think, just starting a business, right? If you're interested in anything you know in particular, you know, buy some books on it, maybe get a subscription or whatever, and then just deduct that, right? You get three years that you're able to deduct business expenses until it becomes a that right, you get three years that you're able to deduct business expenses until it becomes a hobby, right? So if you have an interest in anything you know maybe it's, I don't know blowing glass or metalworking or whatever, do you know what Go out, you know, formalize that, buy the tools or whatever you need and you know what. Maybe it becomes a hobby in three years. That's fine. But you know what years? That's fine. But you know what, if you go through the motion and say, okay, I'm trying to make this a business, et cetera, that's something you get that you could deduct against your wage income, right? Because, as I mentioned before, the US encourages entrepreneurship and investing, which means that the other side is people that are employees, et cetera. They don't have a lot of tax breaks. So, a lot of people at the end of the year, okay, I'm an employee, blah, blah, blah. Is there anything that I could do to optimize? Well, not really as an actual employee. So you have to do more outside-the-box thinking, like start a business, like that example I just mentioned, or invest in real estate.

Speaker 2: 17:12

By investing in real estate, you would get this depreciation deduction. You would get this depreciation deduction right and if you, you know, had a decent investment, you know doing the cost segregation study right, which, to explain to everyone, is, you accelerate the depreciation. When you buy a house, you want to depreciate it, which means that you know over 27 and a half years you're allowed to deduct. You know the cost of the house, the cost of the actual house, not the land. But the point is you can accelerate some of that depreciation. So you buy a house for 500,000, you have one option, which is to depreciate over 27 and a half years. Or you could do one of these cost segregation studies, which means that you look at okay, well, what about the appliances, what about the light fixtures, the door handles, things that could basically be removed from the house can be depreciated at a lower time period of five to 10 years. And so, again, when you're able to accelerate some of that depreciation, obviously it gives you a bigger deduction and then, when you're a real estate professional, you can deduct it against the wage income, and then it's sort of like a rinse repeat.

Speaker 2: 18:20

So okay, then every few years, when you've expended all the accelerated depreciation right like every five years then you buy a new all the accelerated appreciation, right, like every five years then you buy a new property and you do the same thing. And then you keep on doing that. And then you know, let's say, you want to sell that house, there's going to be a capital gain. However, you could do a 1031 exchange where you can buy a new rental property within six months and roll over the capital gain.

Speaker 2: 18:47

You kind of keep on doing this until one passes away and then the next of kin gets a step up in basis right, which means that you know, let's say, I bought the house for 500. Now it's worth a million. If I sell it at a million, then I'm going to have this $500,000 capital gain. But if I die, then my next of kin will get that million dollars that's the value that they will inherit it at and so then they can sell it the next day at a million and not have to pay any capital. So that's sort of you have to have this sort of short term. Okay, let's get the depreciation, et cetera, but then also have that long term strategy. Where is this going? And, yeah, am I going to roll this over, I'm going to keep this for the rest of my life, or what am I going to do with this?

Speaker 1: 19:27

investment. There's a lot to unpack there. You talked about 1031, which is basically when you own a property and instead of selling it, you roll it over into a same like and kind type of asset and that deferreds the capital, that deferreds the tax into the future guys. So he's talking real estate for those of you that are not familiar. Then he also talked about depreciation, so accelerated cost segregation. You take the accelerated depreciation. Robert Kiyosaki you familiar with him Very much so.

Speaker 1: 19:58

Yeah, rich Dad, poor Dad. Right, the Rich Dad, poor Dad. The guy that wrote that book. A lot of my listeners have read that book If you've seen any of his content and you see him online. He says the rich people don't pay taxes. Is that true?

Speaker 2: 20:12

I think that's all relative. But again you look at people that are just investors and even though they're cash flowing from these properties, with depreciation et cetera, they're making money but they're not paying taxes because the depreciation is essentially deducting, creating a deduction that will zero out their income so that they don't actually have to pay taxes because they don't show any net income, even though they have a positive cash flow.

Speaker 1: 20:36

Do you have any stories or any examples of maybe a customer or client that you work with that made a ton of money you don't have to share names that made a ton of money. You don't have to share names. Or maybe you could just share the strategy or the example of how it went down that made a ton of money but deployed a lot of these things that you mentioned cost segregation, 1031s. Do you have any stories you can share, like that of someone that their tax liability they might've made I don't know, maybe a million or a couple million dollars or I don't know, whatever that number may be, 500,000.

Speaker 2: 21:14

And their tax liability went down to zero because of all of these sophisticated strategies that you mentioned. Yeah, I mean again, I have a lot of clients where either they're full-time or part-time real estate people, because of the depreciation, were able to get their tax liability down to zero or close to zero. I think what it comes down to is buying real estate, doing that cost segregation study to accelerate the depreciation, and then your options. One is somebody has to be a real estate investor, or strategy two along these lines is that if you're in a market where it can be, you know where Airbnb is allowed. Then you know that short-term rental income where the property is, on average, rented for under seven days and you're providing cleaning and you're helping the person, maybe even like, oh, here's some tips on what to do in the area, so it's kind of like a concierge service, but really the seven day rental period is really important because it's super short term. Then that business or that rental property becomes a business and the same rule applies right, where then you can? You know you can take a loss of that business and it's being able to be deducted against your wage income. So I've had a lot of people that you people that are able to take advantage of that to deduct against their wage income.

Speaker 2: 22:34

The other side of that is and this is another sort of high-level strategy is you have two types of income. You have this active income and you have passive income. So now, real estate normally passive income or loss. And then I just mentioned two strategies to make that passive loss active so you can deduct to get your active income, which is wages.

Speaker 2: 22:54

But there's a lot of people that I work with that just have a lot of passive income, right, they have a stock portfolio or maybe they're doing like crypto stuff. They just need passive losses to deduct against that passive income. In those situations we have them invest in a lot of real estate syndicates, right, whether it's like some of the real popular ones like Fundrise or whatever, or just more private real estate syndicates that I've invested in personally, et cetera. But the point is they get this K1 form and it shows a passive loss because the whole depreciation thing that they're doing at the syndicate level right, the investor group level, if you will and again, they're deducting this passive loss against their passive income from the real estate portfolio or crypto. So, yeah, that's the other part of this whole strategy is passive losses go against passive income. If you have active income like wage income or you're a consultant, you're doing like independent contractor work, you need to find an active loss, which I get is via real estate, either by being a real estate investor or doing the short-term rental business.

Speaker 1: 23:55

Or any other public business. I want to ask you about the strategy. You said so. You said if you have an STR short-term rental and it's seven days, you were very specific. You said seven days. So if you're renting it for seven days or less, that converts it into a business which allows you to take a loss, right? I think that's the word you use. Yeah, correct? My question is you were very specific in the seven days. Yeah, is there? I don't play in the short-term rental space. I play in the long-term rental space. I play in the long-term rental space.

Speaker 1: 24:26

That's my game, but is there a difference in the way a regular long-term rental is taxed versus a short-term rental, specifically seven days, when it's rented under seven days or less and you're churning and burning, right, yeah, what's the difference? Is there? Because you were very specific, so I just got a little short on that?

Speaker 2: 24:48

Sure, no fair question. So it's as you know, on the tax return the long-term rentals go on Schedule E, schedule E, yes, sir, and when you make it into a short-term rental and the seven days is a rule, then you can shift that. It's actually Schedule C, so it's a schedule that's for businesses as opposed to Schedule E, which is for real estate. Okay, so then you're doing the profit loss on Schedule C, C, not E, and then that loss flows into your tax return and again can be deducted against wage income or if you have any other type of business income, like independent contracting or whatever.

Speaker 1: 25:26

Yeah, okay, got it, got it, got it. Is there anything that you didn't share that we should have shared with the audience, vincenzo, that bring this tremendous amount of value.

Speaker 2: 25:41

yeah, we might have missed I, you know another one that I think um, um, the other one that I think is is a good one. You know it's interesting because it applies to me every year. You know I live in Brazil, right, and so I have every year there's carnival, right, and carnival is, you know, people know it's a big celebration, et cetera, and every year I rent out my apartment there for Carnival and I make, you know, really nice money actually, because it's obviously like in heights and time of year there's a lot of demand, et cetera, and because it's my personal residence in Carnival's, you know, about a week that money's tax free. That is actually in the US. It's called the Augusta rule and it's based off of if everyone you know plays golf, the Masters in Augusta, georgia, right, and so what people were doing was they were renting out the house on the masters and so basically, you get a freebie.

Speaker 2: 26:33

If you rent out your primary residence for up to 14 days, it's tax-free. So, whether there's a sort of event in your hometown or maybe you're just going away for a nice vacation for 14 days and you just want to make a little bit of extra money to cover costs of vacation or whatnot, who doesn't want to make some side money, that 14 days is tax-free and so that's called the Augusta rule. So that's another sort of nice little tax tip that anyone could do. If you have a rental property, you don't have to report it. And again, yeah, if it's something where, like you know, that's awesome.

Speaker 1: 27:04

That's a good strategy. Thank you for sharing that. I had no idea. I never heard of that strategy before. That's amazing. Thank you for that. I don't know that. I personally want my personal residence personally, sure.

Speaker 2: 27:20

If you lock everything up, maybe you have like a shed and you're cool with it cool with it.

Speaker 1: 27:29

You know, you know protective with my, with my, with my personal space. Um, just because I have so many rentals, right, I'm just like, hey, man, this is my space, like you know what I mean. Like like, this is just me and my family here. But, brother, thank you so much for sending vincenzo. Um, if folks wanted to get a hold of you, people wanted to connect with you on social, where do they find you? How can they hire you? Where can they talk to you? If they wanted to connect with you on social, where do they?

Speaker 2: 27:50

find you? How can?

Speaker 1: 27:50

they hire you? Where can they talk to you if they wanted to consult with you on tax strategies, bringing you and your team on to help them? How do they connect with you, brother, so?

Speaker 2: 27:57

onlinetaxmancom O-N-L-I-N-E-T-A-X-M-A-N. Same thing with social media Instagram, linkedin et cetera. But you can visit onlinetaxmancom. That's more for tax preparation services. And then we have globalexpatadvisorscom and that's really for these sort of high-level strategies and on globalexpatadvisorscom is where you could actually connect for a personal consultation with me personally. So onlinetaxmancom is more for my team. We do a lot of tax preparation et cetera. Then Globalized Federal Vouchers is more for this sort of high-level tax planning strategy.

Speaker 1: 28:35

Perfect man. Thank you so much. Really, really appreciate you, Vincenzo. It was great learning from you. I mean, learned a ton from you about this wonderful topic of tax. But more important, I think it's just strategies. Right, you give us a lot of strategies. Is to give us a ton of strategies?

Speaker 2: 28:51

just knowing a little bit right, knowing some of the term, again, doing your own research. Just watch out, because google is like a gift and a curse, you know. It's like it's great to learn a little bit more chat gmt now everyone uses, and it's like also like the randomized systems because I think it's good but then sometimes there's some misinformation. So then you know, fact checking it with a professional, whether you do some research, like also like the randomized systems, because I think it's good but then sometimes there's some misinformation. So then you know, fact-checking it with a professional, whether you do some research and come have a consultation with us or whomever you know. I think it's great to sort of do your own research and then talk to a pro and then you'll sort of personalize that strategy. But it's been my pleasure, mario. Thank you, sir, really appreciate you.