EIDL Loans, CARES Act, ROTH IRAs & MORE! – Tax Tuesday with Toby Mathis Ep. 115

(digital tones ring) – [Toby] Hey guys, this is Toby Mathis – [Jeff] And Jeff Webb – [Toby] And this is Tax Tuesday, so it must be Tuesday Well the days are starting to blend together for some reason And we have a whole bunch of questions already flooding in, so you guys are like, you guys are Johnny on the spot, you’re gonna make us work today, I can tell Make sure that you guys can hear us loud and clear, just go to the question and answer pane I don’t think our chat function works on these Oh let’s see, yes, all I need is one yes, and then I know Let’s see if I can find my little thingy, yep, there’s a whole, look at all them All right, so we’ll just jump right on in and make it really easy Okay, we got 100 yeses All right, so first off, you could always go, is there a way to buy a house, somebody’s funny All right, so we have, first off take a look at the social media stuff, you can always jump on and grab all the good stuff that we send out I know today we’re gonna be sending out either during this event, we’re trying to finish up some touches on a retirement under the Cares Act, there is, there are a few relief provisions there that not everybody’s aware of for accessing money, so we will talk about that a little later, as well as watching some of the wonderful videos we’ve done Hey, this is kind of how this goes We go through about 20 to 25 questions that we picked out of the folks that have been emailing in, and you can always send in questions to Tax Tuesday at Anderson Advisors And then we grab those and do the, and use them as kind of the fodder for the actual Tax Tuesday, and then we take questions live throughout And this is the first time I’ve ever had to do this, but we’re getting so many questions that I put in little Q & A slides so that we actually know – [Jeff] When we’re not answering on-screen questions? – [Toby] Yeah, because you know it bugs me as I’m sittin’ there and I’m gettin’ all these questions in, somebody says, could you advance the slide? And I don’t know why, but that makes my eye twitch At this point I’m like, my eye is twitching So I just figured, hey there’s an easy way I’ll just put a slide up I use to try to do that, but it was too tough, so I’m gonna try it again You guys already have a bunch of questions, we’ll get to ’em here in a second Real quick kind of the update, we have now had the Paycheck Protection Program, and Healthcare Enhancement Act passed, that actually was signed into law, was it yesterday? – [Jeff] I believe so – [Toby] Oh my God, it seems like a week ago, but it was actually yesterday morning That’s how fast this stuff’s moving The PPP program is back underway, the banks are doing their best to screw the little guy, I mean to process the loans, sorry (chuckles) Did that come out? Yeah, so it’s really really frustrating, because we have been seeing this over and over again that the banks, and I don’t plan, and this is the sad part it’s like this is really a congress, but they really are going and taking care of their biggest clients first Somebody says, do you know how to turn cell down on a, so that’s kind of funny, that’s an interesting question that came in If our signal is coming in too hot, that might be something you need to turn down on your end, I’m showing us perfect here, say something Jeff – [Jeff] Uh, that guy’s a really good looking man, that Treasury Secretary – [Toby] Mnuchin? He is a good lookin’ man So anyways, let’s jump into some things that you might not have realized First off, that if you had somebody pass away in 2020, that they actually are entitled to the stimulus check So the IRS is doing one better, and it’s sending stimulus checks to decedents going back to 2018, and before you think ah, that’s not a big deal, it’s about to my calculations, for them and individuals who passed who are under 17 who would be qualified as a child, which is really getting kind of morbid, but it was 37,000 give or take And about 2.2 million others, it’s about 3.4 billion dollars going out to people who have passed away And I don’t think they’re entitled to it, Jeff Maybe for 2020 they would be, but that’s kind of weird, ’cause it’s technically, what is it, a tax credit for 2020? – [Jeff] Yeah, more of an advanced payment – [Toby] Advanced payment, yeah – [Jeff] Yeah – [Toby] Yeah, so yeah, and I’m pretty sure that like, actually 100% sure that the 2018 and 2019 folks don’t But ready, fire, aim, let’s just get everybody

a bunch of money, and then we’ll worry about how to pay for it later – [Jeff] And I believe I was reading that the whole social security deal is not going as planned The distributions to social security recipients – [Toby] None of it’s going as planned – [Jeff] There’s been some additional guidance sent out – [Toby] Right, so we could belly-ache all day long, but the states are having a heck of a time handling the onslaught of unemployment claims In fact, if you are an independent contractor in the state of Nevada where we’re at, they’re telling folks it’d be mid-May, so you only have to somehow manage to find a way to stay alive, you’ve been in lockdown for a little over a month, and you know, I guess you could eat your carpet or somethin’, I don’t know, like what do you, eat your furniture, that’s gonna be the new one I don’t know what these folks are gonna do It’s really frustrating But anyway, we already have a bunch of questions, so I’m not gonna pontificate What I will say is that the Paycheck Protection Program is back in full force, yes, if you’re working with us, we have inside tracks on a few different lenders that we have great relationships with, and we’ve submitted quite literally well over a thousand of the PPP apps just to our main lender, and then we work with people who are getting monies It’s tough Some people are, oh there’s, there’s some good questions out on the stimulus, so we will be getting, yeah intermediate fasting time So forced fasting, we’re gonna put you on a diet, we’re gonna starve you to death I don’t think that was the idea But there’s a bunch of good questions, I’m just gonna zip on through and just do it Now this is one of the things that I, I forgot where I stole this from, but it was probably once upon a time in Mexico or something, I think somebody said it, are you an American, or American’t And I really do believe that we have optimists and pessimists right now, and that’s what’s feeding a lot of the anxiety And before you guys say that this does not have an impact, it absolutely, positively has an impact on health, and on the economy So I’m sorry, it’s, there’s two ways to look at everything, the glass is half full, it’s half empty, it really does, and we’re seeing a huge difference between it at the end of the day, I’m one of those guys that says you always gotta be on the optimistic side, even when stuff’s going on around you and you gotta keep your, (chuckles) somebody said, I’m getting some interesting things about where the American’ts should go No, it’s a free country, but I just say that we shouldn’t be living in fear And to give you guys a little bit, there’s a slide that I’m gonna show you a little later on about what happens with our economy when we have health epidemics and pandemics Anyway, let’s jump into the questions How do I file for unemployment payments if I’m an independent contractor, we’ll answer that one Explain loans from the new CARE Act, I heard you do not have to pay it back if you continue to pay employees, that’s the PPP, and I’ll explain how that works Does the CARES Act allow me to deduct losses from W-2 income with prior year accumulated passive activity losses? Jeff, I know, wants to answer that one Can I deduct my entire home cost since all of us are working from home, that’s amazing We’ll answer that one If my losses are less than $10,000.00 can I still apply for the $10,000.00 advanced loan in the EIDL? It’s actually an emergency grant, so it’s not even a loan But we’ll answer that one PPP is only for salaries below $100,000.00 I’m the sole owner/employee of an S Corp, and my salary was a bit over, is there a specific way to apply? Certainly answer that one Do you have a loan for new construction? We have a loan for new construction which has been delayed due to Corona, does that qualify under EIDL, well certainly, there’s a lot of these that have to do with the CARES Act, they’re not all But I’ll make sure that we get to a bunch of tax stuff too What is the recommended way to file taxes for income property that is partially rented and partially used by the owner? There’s a tax question, we’ll get that Can I write off 100% of my loss due to the Coronavirus? I am a W-2 physician, income over $300,000.00 I own rentals under an LLC, and pay a property manager Can I apply for the SBA loan and grant since both rental and W-2 income will be affected? And I love the fact that he used affected The arrow had the affect No, what is it, the arrow had an affect on the aardvark Is it a good time to convert traditional IRA to Roth IRA now since there is a loss in the stock market? Really interesting question, and I think there’s gonna be another one kinda like that down the road here Just like everyone else, I want to also know your thoughts of how do we come out of this way ahead and thriving?

That’s interesting I grabbed that one just because well, it must be my narcissism And I figured that would be something fun to hit on If you take a distribution from a retirement account with the intent of paying it back within three years, as permitted under the new stimulus bill, do you ever have to report the distribution if it is timely paid back? Great question Suppose your traditional IRA was worth 100, boy, I think I picked a lot of questions again, Jeff – [Jeff] You may have – [Toby] Yeah Suppose your traditional IRA was worth $100,000.00 on January first If its value crashed along with the market, it’s now worth 17% less, or $83,000.00 Are taxes on the conversion based on the account’s value at the time of the conversion, and then would you go over again why we do not want to convert a traditional to a Roth Well, you always calculate, so we’ll go over that And by the way, if it went down 17% and went up 17%, is it back at $100,000.00? Query, query Don’t you love stuff like that? Jeff’s the numbers guy I have a $500,000.00 IRA account with Schwab, and I’m planning on taking $100,000.00 distribution Oh that’s fine, look what I did With $400,000.00 remaining, can I set up a QRP account and set up a $100,000.00 loan also? Yeah, we’ll go over that, that’s actually one question that has to place It was like a knock knock joke All right, I own three LLCs, one of them was just formed in mid-2019 and has zero revenue, so what operating and start-up costs can I expense to carry the loss forward without sending up any red flags to the IRS? Um, we will go over that too I’m inheriting my father’s investment portfolio He died in October, and we expect his financial advisor to transfer the stock out of the advisor’s firm and over to my new account The value of the account has dropped dramatically since my dad’s death What will be the basis of the assets when they come to me in this new account? Or what will they be? That’s a really good question, and we, Jeff loves those types of questions, ’cause he loves talking about basis Would getting my real estate license have more benefits for being a real estate professional? Go over that If I open my Solo 401K QRP, do I have to file a tax return for it And wow, we got a few more, Toby went crazy You guys send in a lot of emails, I’ll just say that So I don’t like leaving a lot on there, on the bone, let’s just put it that way All right, if I Airbnb my rental property, do I qualify for some type of employment? And we have to use the NOL in reverse order? Do we have to use against most recent year, can we go back to 2014 and then come forward Now, for those of you guys who were on two weeks ago, we’re gonna have a different answer, because the IRS has given us guidance since we had that first question, it was about how you do the net operating cost, and they put it back in conformity with the way we use to do it The way it was written was to bring it to the most recent year of the loss, and now it’s going back, so I’m just gonna tell you that Yep, that’s because the IRS likes to contradict the congress, and congress can’t write You know, but we’ll go over that and put that one to rest In 2018 we put a new roof on a property in California, it cost $30,000.00 If we sell this property in the next year, do we lose the depreciation? So do we lose the depreciation We’ll go over that So we have a lot of them, so we have a bunch of questions already This is my new Q & A sign, so here’s a few questions that came in live, and we’re just gonna answer ’em real quick All right, aloha Aloha My C corp has a Solo 401K plan set up I’m an officer, but my wife is not I want to contribute salary max amount possible, and have the corporate contribute the max as possible I’m 38 years old, I don’t want to take any other form of compensation from the corp What would be taxable to me, what is the best way to do this? I think I’ll have to use a W-2 salary All right, so I’m just gonna get into this I’m not gonna go where there’s a bunch of other questions, but here’s how it works You can defer up to $19,500.00 Is that what it is this year? If you’re 38, – I think that’s what it is – [Toby] Both you and your wife So if you don’t want to pay any tax, then you defer that directly into the 401K Then you can contribute 25% of any of your salary, any of your compensation into the plan as well So you’d be able to, let’s say you took $30,000.00 in payment, you’d be able to defer $19,500.00 directly into the 401K, and then you’d be able to take 25% of $30,000.00,

which would be– – [Jeff] $7,500.00 – [Toby] $7,500.00 and put it in there So you’re gonna be in the ballpark, probably closer to 26 or 27 where you’re not gonna have to pay any tax on it, and that’s per person But she has to provide services My question, under the CARES Act, could a rental property, approximate value $85,000.00 be taken out of a traditional IRA and rolled into a Roth, paying taxes over a 2.5 year period? No, Greg, I think that what he’s looking at is taking out and then paying it back in This would actually be rolling it over to a traditional, and then you would pay tax immediately, there’s no, yeah this isn’t like the CARES Act, where they give you the ability to take an early withdrawal – [Jeff] Yeah, several years back there use to be a two-year, that you could pay the tax on a Roth commercial, and then that’s been gone for several years now – [Toby] And I think it’ll come back, and the reason that it’ll come back is ’cause congress needs the money And so what you’re gonna see is that we need to raise capital ’cause we’re giving away so much flippin’ money So they’re gonna say hey, let’s give these people an incentive to do a taxable transaction that’s in their best interest We’ll let you spread over several years, or two years, your Roth conversion, ’cause some tax is better than none We’d rather get that tax now All right, how can I file for unemployment payments if I’m an independent contractor? So Jeff, you looked at this – [Jeff] Yeah I did, and independent contractors are gonna be eligible for unemployment However, the majority of the states are not yet prepared for this Last I looked, only 10 states were giving independent contractors unemployment right now I think Illinois started today, and I think California starts next month Nevada starts next month also, correct? – [Toby] Mm hm Yeah, they’re saying, so what they did is they said that the federal unemployment, which normally you wouldn’t be eligible for unemployment if you’re an independent contractor You have to be employed And they dumped that on there, and they said the states will distribute it according to how the state does And the states aren’t set up to do distributions of unemployment to independent contractors And more importantly, they just had massive amounts of employment claims What is it, three or four million people filing for unemployment? Or more? No actually it’s more, it’s probably like 12 million I forget what the, it’s just a huge number Just here, it was half a million, so I imagine that it must be significantly higher all over the country, but it’s, we’re talking 12% unemployment right now, and it’s probably gonna be closer to 25 by the time we’re done curing ourselves, which I say dubiously – [Jeff] So this is a case where, as far as documentation, you’re gonna have to contact your state unemployment office to see what they want for documentation It’s most likely gonna be any 1099s you received, and/or your 2019 income tax return – [Toby] Mm hm, yeah, and somebody, let’s see if this is relating, oh no I think California started taking apps today for unemployment of independent contractors – [Jeff] Yeah I think I got it backwards, it must be Illinois that’s next month – [Toby] Yeah, so David I think you’re right I’ve actually had some folks that were S corps, and this is one of the questions, but, that actually got their unemployment right away Can I contribute to my 401K plan if the corp runs a net operating loss for the year? Yeah, of course you can It’s a valid expense, and we’ve done that I actually did a huge, years ago, I still remember this, ’cause it was a, somebody made a mistake, and they made a $700,000.00 profit inside of a C corp when it use to be kind of bad to make profit in a C corp We managed to do a defined benefit plan the following year, carry it back, and between the two years, we were able to create the $700,000.00 loss and go back and get it So yeah, I know you still can All right, how, okay we already did that I’m gonna find my Q & A sign, there’ my Q & A sign, ’cause we have so many questions Let’s go to the ones down here, you guys are writing so many questions, I actually have to scroll down Oh my goodness, they’re still not, look at that, Jeff Look at these people typing I’m a realtor and received two 1099 miscs One under my name and the other under my corporate name Which is the best for reducing my tax liability? You’re gonna want ’em both under the corporation, but if they gave it to you personally, you’re gonna have kinda two choices If you have the requisite paperwork that says

that you are an agent of your S corp and that you’re under their exclusive control, then you can just literally just deposit it into the S corp, endorse it over If not, then you’re probably, what would you do, a Schedule C, recognize the income, and then just write it to the S corp? – [Jeff] Correct – [Toby] I’m assuming it’s an S corp But you know, some states it might be a C corp But it’s almost always better to not have it go as a sole proprietor Your audit rate goes up about mm, 1,000% to be a sole proprietor So not saying that it’s bad, I’m just say that it’s bad All right, if I, and you pay more tax and you don’t get an accountable plan, there’s all sorts of stuff So realistically you’re suppose to pick one methodology If I pull out some money equity from a rental property, how will it be taxed? Um, you wanna go ahead? Yeah yeah – [Jeff] Yeah, it won’t be taxed at all, it’s a loan – [Toby] Right, the only way that you’d have an issue is if you pull money out, and you’re not at risk for that loan In which case, if it exceeds your basis then you’d have capital gains, but from what I’m, this sounds like hey I have a rental property and I’m gonna pull some money out of it You’re never gonna be worried about that if it’s just you If you’re in something else where there’s other people that are signing on the loan and you pull money out and they give it to ya, you could have a taxable event The easiest thing is just to shoot us the scenario and we could tell you pretty quickly Can you use money from a PPP loan to fund a Roth? Will that make you ineligible for loan forgiveness? John, that’s a really good question So the PPP could be used for payroll, it could be used for utilities, it could be used for rent, it could be used on interest on a mortgage on your property, and so if it’s used as compensation to you then you could absolutely take that compensation and put it into a Roth It doesn’t make it non-taxable too – [Jeff] I’m not sure I’m gonna agree with that as far as forgivable portion Now if it’s gonna be used for QRP, yes, but if it’s gonna be used for any type of IRA, I’m not so sure – [Toby] No, it’s ’cause it’s compensation, he’s not taking a deduction for it So if I get a PPP loan, and I write you a check, let’s say it’s Jeff Webb, CPA right? And you write yourself a check, and then you take some of that check and put it in a Roth, – [Jeff] Oh okay – [Toby] Yeah, so yeah the company’s not gonna contribute it to – [Jeff] So I’m recognizing it as compensation, and then putting it in a QRP, or in a Roth, absolutely – Roth, yeah, that’s all See, Jeff and I, we get along well (chuckles) I could tell what you were thinking though You’re thinking that they’re putting it in a Roth 401K? – [Jeff] Yeah, just putting money on Roth or something – [Toby] Yeah, so you gotta be a little careful, but realistically you’re gonna have pot of money, pot of money two And you’re gonna track that money And then you get to make a certification, so as long as it’s within the realm of, I don’t know how they’re gonna audit these things I’m just sure some people are gonna do really nasty stuff But, I’m a sole member of a PLLC, I received $10,000.00 of PPP How can the money be forgiven? I’m an independent contractor, and the company pays myself So as you, Shawn, it is really quite simple You pay yourself out like you would before If it’s $10,000.00 that means you’re probably receiving somewhere in the neighborhood of $4,000.00 a month in compensation, so over an eight week period, you’d continue to pay yourself your $4,000.00, which would get you to eight, and then you’d spend the other $2,000.00 on your utilities, on your rent, and that would all be forgiven It’s over an eight week period, it’s called to covered period And then you’ll never have to pay it back And get this, this is where Jeff and I get all sorts of geeked out It’s forgiven, and then they say that it’s non-taxable Which means you should also get to take the deduction So you’ll get a $10,000.00 deduction, and you’ll get forgiven for $10,000.00 So depending on what your tax bracket is, it’s like a double whammy Isn’t that cool? Somebody says, can you share ideas on how to use IRC139 in a C corp So Todd, that is a really good question, and what it really boils down to is 139 is the section of the code for natural, big disasters – [Jeff] Right – [Toby] Is it a national disaster? – [Jeff] FEMA-type disaster, so – [Toby] Yeah, and what it allows an employer to do, is reimburse any of the costs associated with that disaster to their employees So in English, it could pay for any of your Coronavirus-related expenses, including having to go home, like all of your employees So this is where it gets interesting, ’cause you can’t really do a home office for your employees, but you could technically start reimbursing them

for anything that they had to incur by working at home So you could buy their web cams, their computer, their extra internet, or somethin’ like that I imagine there’s some ways And if it’s just you, then you want to go a little crazy You want to push that and make sure that you’re getting as much money Chances are, you’d be able to write it off anyway, but um, something that’s, here’s the stimulus, and then I’m gonna move on Do you know why some people received the $1,200.00 in their account while others didn’t? Do you know when they use ACH? So Edwardo, here’s what’s happened So a lot of people, it seems like a lot of people used intermediary, like would go to TurboTax, H & R Block, Jackson Hewitt, Liberty Tax, and they would get a advance on their refund Or, they’d go to their tax preparer who would give them advance on their refund, and a little fee was taken out, but that can’t go to the tax preparer’s account, it’s illegal So they’d use an intermediary account that was a temporary, basically like a trust account, and that was what was actually on these tax returns So what ended up happening is, those accounts don’t exist anymore, so when the, you know, so you really have to look on your return and see what the account number was listed, and there is a tool that the IRS has, what is it called, Find My Payment Tool? – [Jeff] Yeah, somethin’ like that – [Toby] And yeah, so just type in IRS stimulus, and see if you can get there And then you could see the last four digits of the account, make sure it’s one you recognize ‘Cause you’re not alone, a lot of people have had this happen Now if it went to an intermediary account that doesn’t exist, the bank’s gonna return it, and you’ll be issued a check But those checks are scheduled to go out all through the summer, with some going all the way out, I think into July and August So it’s gonna be a while before you get it – [Jeff] Um, IRS actually delayed sending out refund checks so they could get through some of the stimulus – [Toby] They had 30,000 employees that they sent home, that now they’re gonna bring back and they’re gonna pay them an extra 25% if they’re touching mail, and 10% if they come in God bless our federal government, right But that way they’re getting through all these paper returns, and it’s really interesting By the way, we are now through the questions that came in from 3:10 Aye aye aye Explain loans from the new CARE bill I heard you do not have to pay it back if you continue to pay employees Do you wanna hit these? – [Jeff] Uh, that’s mostly true for the PPP loans I would not count on more than 80% of your PPP loan being forgiven If it’s used for payroll to continue paying employees, the EIDL on the other hand, is not a forgivable debt It’s what, three and three quarter percent loan that you have to pay back over 10 years And what’s the deferral on that, four years or three years? – [Toby] For which one? – [Jeff] The EIDL – [Toby] The EIDL is actually a 3.75, it’s a 30 year loan, it’s deferred for one year If you’re a non-profit, it’s 2.75 And they do that emergency advance of up to $10,000.00 – [Jeff] And that emergency advance is a grant, that does not have to be repaid – [Toby] It never has to be paid, but if you get the PPP, it goes against the forgiveness amount under the PPP So it’s kinda weird, they all relate Other loan provisions under the CARE Act that you should be aware of is you can borrow from your qualified plan up to $100,000.00 So what that means in English is that is that if you have a 401K, you can borrow against the 401K If you have $100,000.00 in the account, you could borrow $100,000.00 You get a year deferral, it’s not, you don’t have to pay interest on that year, it’s just that you don’t have to make any payments for that year And then you pay it over a five year period after that Um, somebody says, this is a good one Actually, this is actually related to this question, so I’m not gonna advance the screen For PPP loan, can I hire my 14-year-old to replace an employee I laid off? Or can you hire back laid off employee and then lay ’em off after we run out of funds? That’s the situation So here’s where it gets weird, Susan Yes, you could actually hire your child labor as long as they’re related to you, right Then you can go, as long as it’s not like working at a mine or something You can hire young folks

But if you bring somebody back, you’re really just paying them glorified unemployment You’re almost better off not And the reason being is ’cause unemployment now is up to about 30 bucks an hour In fact, we tried to hire, and I’m not kidding you, three different people last week that we put in offers to, and all turned down because they were making more on unemployment than they would if they came here and worked So our government has now gone into competition with us, willingly or unwillingly, I don’t know whether they thought about what they were doing, but they’ve made it really difficult for employers that still need people to get them because many of these people are paid more under their existing unemployment, they’re gonna continue to receive that for 39 weeks, it’s ridiculous, stupid – [Jeff] Yeah, so the purpose of the PPP partly was to enable you to hire back people that you furloughed – [Toby] Mm hm, and if you furlough ’em and bring ’em back, and then you’re just forced to let ’em go again, all you did is, give them money that’s being forgiven, congratulations, I call that unemployment And a lot of people have realized this, there was a great article written about a gal up in Washington that had a couple of salons, and her people actually got mad because they made less working for her than they were getting on unemployment And so they were like, what the hell are you doing, you weren’t even thinking about us And she’s like, I thought this was a good thing So that actually turns into a two year loan at 1% with a six month deferral That’s the PPP So there’s actually, like the loans are the PPP and the EIDL are the big ones, there’s also the, it’s not the main street loan, but it’s the express loan, it’s up to a million dollars, is a standard loan under the SPA They moved from 350 to a million You’re gonna have the ability to borrow from your own retirement account, qualified plans only, not your IRA, for up to $100,000.00, and then, I’m just gonna plant the seed, be on the lookout for the main street program by the Fed, they’re gonna buy back from banks about $600 billion worth of loans You’re gonna see those coming out, those are gonna be somewhere around two and a half percent four year loans, and the SPA is gonna buy back 95% of ’em from your local lender, so those will be out here pretty quick All right, let me just zip on through this I’m gonna sneak through ’cause I was already doing that Does CARES Act allow me to deduct losses from W-2 income with prior year accumulated passive activity losses? – [Jeff] No, there were no changes made to the passive activity loss rules So if you’ve accumulated PALs, passive activity losses, you cannot carry those back The only thing you can carry back is the net operating loss, which is a business loss Now if you’re a real estate professional, that’s a different story, but – [Toby] If you’re a real estate professional, then you don’t have passive losses, you have net operating losses – [Jeff] Correct – [Toby] And you can carry those back five years – [Jeff] Right – [Toby] You can carry them forward two years, right Or is it indefinite? – Well, I think it’s still indefinitely, even with a five year carry back – [Toby] I thought it was two years Maybe I’m, maybe my brain’s scrambled But it’s five years back – [Jeff] Yeah, you use to be able to carry back two years and forward 20 – [Toby] Oh, maybe that’s what it is – [Jeff] And now it’s carry back five, – [Toby] And indefinite carry forward – [Jeff] Right – [Toby] Yeah So yeah, you’re probably right But you go back the farthest year, that’s one thing I want to make sure that I screwed up I didn’t really screw it up, I was reading the statute, right, but then the IRS realized that there was about half and half of the accountants were going hey, they just fixed, they just, like we’re gonna apply this to the closest tax year, ’cause that’s what they said And what they really meant was the earliest tax year, so the IRS rewrote the language and said it’s the earliest So if you have a loss in 2019, you would carry it back to 2014, use up any income from then, and keep carrying it forward For corporations, it could be wonderful, ’cause corporate taxes were higher before the Tax Cut and Jobs Act, so you can go back and knock out some of them 39% taxes if you want Okay, so we already hit that Here we have a bunch of questions that have been coming in, and I know I’m gonna go over an hour You guys don’t have to keep reminding me Um, if you guys want us to stop in an hour, what you do is you just stop at an hour We’re gonna, we’re not gonna stop Can one apply for unemployment and the PPP? Yes Absolutely, they’re completely separate So in theory, you can be on unemployment and you can get PPP for your company that then pays for other employees Can I use 165 to offset losses? What’s 165? I don’t know, 165IA, do you have any idea what that is? – [Jeff] Hm mm – [Toby] I have no idea Toby I really appreciate (mumbles)

it seems you guys do a lot of (mumbles) all right, something about this Susan, I think we’ll handle Could you go over loan forgiveness for self employed individuals? It’s no different than for everybody else So when you have a PPP, they’re just basically saying, and by the way, this is true for everybody here, if you’re a sole proprietor, you can apply for the PPP, you can apply for the EIDL And the way they calculate the PPP, if you’re a sole proprietor and it’s just you, is your net income divided by 12, your net income for the year, I should say, and then you divide it by 12 and multiply that, whatever that is, by 2.5 So if I make $100,000.00 a year, that’s the max that I could use, then I would have 8333, multiply that by two and a half So I’d take 100 divided by 12, multiply it by two and a half, which is somewhere around $22,000.00 or something, $24,000.00 And then as long as I use that on the qualified expenses, I wouldn’t have to pay it back And the qualified expenses are paying me, and paying the qualified expenses of utilities, rent, and interest on mortgages that are on your business Somebody says in 2018 I received two years of lump sum pension payments It significantly increased my income, therefore I’m over the threshold Any recommendations? Yeah, you file a 2019 tax return, and all is good They’re gonna go off of your 2019 if it’s filed So if that was 2017, 2018, then Tom, by all means do your 2019 and get that And you’re still allowed to Because technically, you could actually go all the way up until 2020 when you file this return to get the stimulus Uh, let’s go on I thought you were gonna say somethin’ there, Jeff Can I deduct my entire home cost since all of us are working from home? – [Jeff] That would be nice, but no If you’re working from home as employees, it’s an employee expense, non-reimbursed expense, and that’s no longer deductible since beginning of 2018 At best, you could try and get your employers to try to reimburse some of these costs, because they could, your employers can deduct it But yeah, you’re not gonna be able to deduct your home cost – [Toby] Mm hm And that is absolutely 100% correct, I don’t know what else to say It use to be that if you had expenses that your employer didn’t cover that you would write off on your Schedule A, but you can’t do that anymore, miscellaneous itemized deductions including non-reimbursed employee expenses are gone And this wouldn’t qualify as a home office, it’s not continuous regular use and exclusive use So, the only thing you could do is possibly under 139, and it wouldn’t be for the entire cost of your home, but it would definitely be for any extra amounts that you had to incur for child care, things like that, as a result of the Coronavirus Can section, this is interesting, somebody asked this, can Section 139 be used to reimbursed shareholders during COVID, yeah It just depends on what the expenses are, so yeah, absolutely Somebody then asks, what professions are deemed real estate professional other than realtors, developers Would a real estate appraisal, appraiser be considered a real estate professional? – [Jeff] And I’ve actually seen court cases where they’ve decided that an appraiser is both – On the transaction – [Jeff] Yep The only ones I’ve seen that definitely do not are usually on the financial side, the lenders and such – [Toby] You have to be involved in the purchase and sale of the property, so if you are a mortgage broker, and you’re not, like you’re just processing, they’ll probably say no But if you’re involved in the transaction, a real estate agent, developer, any sort of, somebody in construction, anything like that, then yes And that is for one half of the equation, that is the 750 hours of being involved in a real estate profession If, and once you hit that, that doesn’t have to be on your properties, then you shift over and say hey, as an individual, or if you’re married, both spouses, then you have a material participation So a little bit of a different test, so there’s two tests that you can actually use And then if you get those, you pass those, it’s called 469C7, then your passive losses become active from real estate And you can offset all of your other income,

it’s no longer passive So it’s a pretty powerful tool If my losses are less than $10,000.00, can I still apply for the $10,000.00 advance loan under the EIDL? – [Jeff] Well, the EIDL is not being based on your current year losses, it’s based more on your prior year profits, your gross profit, I believe So the calculation is actually done on how much you made in the prior year after you remove cost of goods sold, and then it’s calculated around that So what you actually lost this year really doesn’t play into it – [Toby] Mm hm, fair enough The other thing you look at with the EIDL, it’s not actually based on true loss, it’s based on your operating expense And so they use the, yeah they use the cost of goods sold minus your gross income equaling your gross profit, and that’s what they’re, they’re really just giving you a 30 year loan The advance is just based on the number of employees, and that’s a completely different animal So in either case, we don’t care about the loss to your business, we care about your gross profit of your business, and how much it cost to operate And they even asked about lost rents and things like that in the application for some folks, so What they’re trying to do is figure out how much they can loan you And remember, this is a loan you’re paying back The only part that’s not paid back is the advance And they’re anticipating that you’re gonna get this in conjunction with the PPP So the advance may not be paid back, but you can’t subtract it out of your forgiveness under your PPP – [Jeff] And while they talk about it being a $10,000.00 advance, it’s not necessarily that Like you said, it’s gonna be based on number of employees and may only, if you’re the employer, you and your wife may only be two or three thousand dollars, and not the $10,000.00 – [Toby] Mm hm, cool We have a bunch of questions that just came in These guys are, I don’t know what’s going on with everybody They’re just tappin’ away And we’re way behind – [Jeff] It’s like they’re not at work or somethin’ – [Toby] I know They’re not watching the press conferences All right, no I think he’s done today All right, do any of these states, do any of state taxes filings due, I’m not quite following this, do any of the states have filings due in states where incorporated and are foreign filed So I’m assuming what they’re meaning is, do you have to do the state taxes, are these actually required to be paid right now, or are they on hold, or, I guess, I’m trying to read the tea leaves on this ’cause there’s a whole bunch of (mumbles) – [Jeff] Um, other than the July 15th deadline change, I don’t know that any of the states have deferred payments – [Toby] Nope, and they weren’t even being very nice about it But it’s up to the state, you each check with your state, go to your secretary of state and see if they put it, or your department of tax Does the corp have to pay employment tax on, if I defer salary into a 401K? The answer is yes, you’re gonna run it through payroll And I would actually run it through a payroll company, it’s not worth it to mess around with all that stuff, it’s so much easier just to do it through somebody else And I will say this, if, depending on how big your company is, if it’s just a few people, look at using a PEO or Professional Employee Organization, you’re gonna get better rates on everything from workman’s comp to, you’ll actually be able to participate in a health plan and other things at a much reduced rate – [Jeff] Yeah, and deferrals to QRPs reduce federal income, but they do not reduce Medicare and social security – [Toby] Yep, so you still have, you’re still gonna have the employed, in state and federal taxes, FUTA, SUTA, all that fun stuff All right, in order to withdraw $100,000.00 from my Solo 401K penalty-free, do I have to provide proof of eligibility requirement, such as a COVID diagnosis, adverse financial consequences? The answer is, if you take an early withdrawal and you don’t want to be subject to withholding and to the 10% penalty if you’re under 59 and a half, then yes Otherwise, if it’s a loan, then no Along with that question, it took a withdrawal from an IRA to make sure I could pay contractors Okay, so it sounds like you did an early withdrawal And all you do is you give your custodian, you self-certify those things Hey, this is hurting me That’s it, that’s all you have to do And it’s a little letter that you give your custodian, usually they’ll ask for it, we have ’em if you ever need it I put one together for all the people that do our funding programs, I give ’em Um, can I file for a PUA? What’s? Oh, waiting to hear back on the PPP, so that must be unemployment And the answer is yes You can file for unemployment as an independent contractor,

it only took me four hours to do it, what state was that, John, you’re gonna have to let us know that, because a lot of people are having trouble Let’s keep jumpin’ in PPP is only for salaries below $100,000.00, question mark No, it actually isn’t So I’d just make this one really simple You could only use up to $100,000.00 of salary to do the calculation So if you’re making $200,000.00, and you’re the sole owner, and you’re paying yourself a salary of $200,000.00, you can’t base the PPP amount, the two and a half times the average monthly salary, on your $200,000.00 salary, you reduce it to 100 Which means your maximum loan is gonna be $100,000.00 divided by 12, multiplied by two and a half And I think you add in salary, I mean retirement plans and health insurance, things like that, but for a sole proprietor, you’re not gonna have any of that that you’re able to do just ’cause as a sole proprietor, you’re not gonna get a health plan like that, it’s just not gonna happen It’s usually 10 or more employees Somebody says is the picture of the guy in your Q & A slide Clint? (chuckles) No I was thinking of the Lion King picture I have of Clint, I should have put that up I don’t know if I’ve don’t that to you guys yet, but Clint Coons’ my partner, he’s got a really good picture out there with a lion Um, all right, so my wife and I are both on social security with no outside income We’re not required to file a tax return We are looking forward to the stimulus check of $1,200.00 each All websites said we automatically get, this social security direct deposited Um, do you know much about that? I think that they don’t have to file a return, and there’s a special site where, – [Jeff] So yeah, if you are on social security, I mean we’re assuming just social security direct deposit, which I think is the only way you can get it You were suppose to be receiving a stimulus check automatically – [Toby] With the paper check, or the automatic – [Jeff] No, they’re automatic – [Toby] I think they’re gonna line it up with social security to go to the right– – [Jeff] However, something has gone wrong with that There was a notice that came out yesterday about if you’re a social security recipient, you may want to check this out I think that was on the IRS website – [Toby] Okay, so you’re gonna want to look at that, David, and maybe Google just IRS social security checks, ’cause apparently, somethin’s going on with it It was suppose to be automatic, and originally they were gonna make you file a small return and then they said oh, we’re not gonna make you do it if we have your data And now it sounds like, you think they had a techno-glitch? – [Jeff] Yeah, I’m not sure exactly what happened, but something didn’t smell right – [Toby] Yeah It doesn’t surprise me, they’re trying to do so much so fast with so few people – [Jeff] It’s hard to give away a couple trillion dollars that quick – Yes Let’s just give it out regardless of need, let’s just give the money away – [Jeff] Just (mumbles) held accountable – [Toby] What could go wrong? All right, I have my small business, and also own a few rental properties I applied for EIDL for my business, received an EIDL advance Those are, we’re about to April 4th or 5th right now, just so you know, so if you applied back then, applied for my EIDL for business, received the EIDL advance Can I now reapply for EIDL as rental properties owner? Do I qualify? So the answer, (mumbles) is no, you’re not suppose to, ’cause it’s an affiliated business You should have done one EIDL for all of those businesses, ’cause they have the affiliated rules That said, I’ve seen people do it I just, they were suppose to be turned away as soon as they saw, as soon as they saw that you were on two or more applications, but the SPA, again, has been broken And here’s somebody saying can you keep the questions up on the screen (tsks tongue) They’re always doing it to me, Jeff They just want to test me They want to test me – [Jeff] Can’t make everybody happy – [Toby] You’re hurting my heart All right, we have a loan for new construction, I’m just teasing I don’t show the questions that come in because the names are attached to ’em, and I don’t want to have you guys seeing a whole bunch of you know, nobody’s gonna write if everybody could see what you wrote, it’s just not gonna happen, so it’s just the way this works, so I’m not gonna show all their names, and I also like to, some of these just don’t make any sense, so I’m trying to make them into some version of something that I can understand We have a loan for new construction which has been delayed due to Corona, I assume it’s the Coronavirus and not because they’ve been drinkin’ too many six-packs Although boy they do that too Does that qualify under EIDL? Yes, that does So you’ll be able to apply for that,

and again, the EIDL is based off of your, this is gonna be a weird word, gross profit, which just means your gross income minus your cost of goods sold, which is the cost of your employees, you know, the people that are working on your job So if you have a good accountant, good bookkeeper, they’re keeping track of those things for you If you don’t, then go back with a time machine and make sure you get one No, you just gotta make sure that you do it right And we’ve been telling people for years, but you gotta do, you gotta do, and they always look at us like oh I got somebody who can do it, I got a guy for that, or I got a gal for that And she’s really good But you know, again, this is why you have to keep it in a certain format, otherwise you just get nailed It’s frustrating All right We have so many questions that have come in I have a trust, and want to decant my trust in Nevada, is there a tax advantage? It depends on where the trust is located If you’re decanting a trust that’s an irrevocable trust from like California, then yes, you could actually move that trust to Nevada, and there’s a huge tax benefit because if you have a Nevada trust and you have a Nevada trustee, and that’s where the monies are managed, then you don’t owe California taxes until you distribute the money to a beneficiary – [Jeff] Now isn’t there weirdness with California that if the trustees are in California, they can still say it’s a California trust? – [Toby] Exactly, so there’s actually a case on this where there’s a California trustee, and a Nevada trustee And half of the money now is taxed in California from the trust But if both trustees were in Nevada, there’d be zero tax But then when they distribute the money to the beneficiary, the beneficiary pays California tax If they’re in California Isn’t that weird? – [Jeff] It is weird – [Toby] But yeah no, Richard Oceans is killing it, stockpiling billions of dollars here for all the rich folks in California saying hey, I don’t want to pay California tax on all my growth, and they’re putting it in a trust, and see how it works It’s only funny ’cause it’s true There’s a whole bunch, is there a reason I only got $1,300.00 for two adults and one kid? Our AGI was below the requirement, so the only thing I can think of, Ellen, is that you were on a phase out ‘Cause if it isn’t a yes or a no but it’s a partial, depending on what your income was So I would look at your income for 2018, and if your 2018 was above like, if you were married it would, if it was over 150, you phased out If it was below that, then that makes absolutely no sense ’cause you would have been entitled to $2,800.00, or $2,900.00, right, it would have been $1,200.00 per adult, and one child If assuming they’re under 17, then that would be 500 bucks Is that right? – [Jeff] That’s right – [Toby] So you have a net $2,900.00, so Uh, la la la la la I made $50,000.00 as a 1099, and I received $10,400.00 for PPP, can I just write myself a check for, and get the deduction, is that too good to be true? Zayshawn, it actually, like I don’t know if I’d just write myself a check for $10,400 What I would do is I would pay it out over eight weeks And you can’t do it all as income because you got two and a half times your monthly income You would pay your expenses with it, and then you would take your normal draw out They’re not gonna let you prepay money They’re gonna say what was your average monthly, that’s what you can take out So in your scenario, using reverse engineering, I think you’re pretty close to $4,000.00 So I’d pay yourself like $8,000.00 for the two, for the eight week period And I would pay other expenses And yes, it sounds too good to be true, til the IRS tells us that you can’t do it, the way that they wrote it is, it’s, I’m telling you the way the law is Which is, this is not an exempt income, this is not immunity bond, this is not anything like this, this is an expense, or excuse me a debt forgiveness that would normally be taxable, that they the said is not taxable, it’s not included in your income, that’s all So it doesn’t say that you lose any of the deductions for the business, it just says that you don’t have to recognize that And yeah, fun stuff Jeff What is the recommended way to file taxes for income property that is partially rented and partially used by the owner? – [Jeff] Um, if it’s like a duplex and you just split it based on the square footage, what expenses are personal, what expenses are business Now if it’s a property that, say a vacation home for you, so you’re renting it out half the time and staying in it half the time, it gets a little funky You’re actually computing number of days

that was used personally versus number of days it was used for a rental property Some of your mortgage interest and real estate taxes are gonna go to your Schedule A, some’s gonna go to Schedule E for the rental property, it gets a little weird – [Toby] It does get weird, because some of it is, if you’re there and you’re living there for like six months, then you would get, and let’s say you used half the property for six months, and you rented out the other half Then you’d have half the year, and then you’d have to take a look and say all right, I was there for another half of the year and if I rented it out, then I would get another quarter of the year, so you ended up with three quarters being treated as rental property, and the rest of it is yeah, so your depreciation That’s why you hire guys like Jeff It is kind of funky though I’m glad somebody asked a tax question, ’cause I was beginning to think today was all about non-tax, – We CARE – [Toby] Yeah, all the CAREs All right, somebody says, this is a good one My question is, under the CARES Act, it’s all right, they said something that had to do with the CARES Act, but this is a tax question Could a rental property, approximate value of $85,000.00, be taken out of a traditional IRA and put into a regular business entity, paying taxes over time? In other words, can I take the money out of an IRA in the form of an asset What do you think? – [Jeff] You can, it’s gonna be kind of a pain, but, – [Toby] I still think it’s cool – [Jeff] Yeah, you can get, you’d have to get it appraised – [Toby] You get it appraised, but you take it out at, right now it’s probably got it beat up a little bit, it’s good, nobody’s paying any rents, right? Or that’s what they say It’s not my experience, but So let’s just say that it’s not $85,000.00 or whatever that value is, you took an early withdrawal and you wouldn’t have any penalty, you give ’em the little magic letter that says I’m suffering from Coronavirus, not that you have it but that you’ve, you know, that you’re experiencing hardship, and then you, instead of putting the property back, you put cash back Or, you don’t put anything back and you spread it out over three years, the tax So you’d recognize 20-some thousand dollars a year for three years Or, you could recognize it all in year one if you wanted to Isn’t that wild? I just think that stuff’s fascinating I’m in the middle of a cash, oh look at this, I forgot to, we already did this, I have to put my little question and answer so people know that I’m answering questions All right Let’s see, I’m in the middle of a cash out Refi on my rental property Do I have to wait for it to finish before I apply for unemployment? Uh, no You would, that has nothing to do with it So you can go ahead and do your cash out refi What they’re doing now with the PPP, ’cause like the LA Lakers got a PPP loan, Harvard, Penn, Shake Shack, Ruth’s Chris, along with a litany of other – [Jeff] Carnival did not, but the Fed bailed them out – [Toby] Fed gave them, yeah They got, they raised a bunch of money But anyway, there’s all these big boys that weren’t suppose to, that weren’t small businesses, ’cause like, the Small Business Administration, I think that some people forgot about the small part, and they just said hey, let’s get on some of that free money and the banks couldn’t help them fast enough Anyway I just, I don’t wanna go down that path, I’d just get crunchy on it There’s one other thing here But anyway, those things have nothing to do with whether you’re getting cash Now right now they’re suppose to say that they need it All right, we have an LLC tax as a partnership that sends K-1s to partners, subject to self-employment tax, so that’s kind of interesting So they must be participating We applied for PPP but Chase auto email said they need different docs Do we get 940, 941 as partnership? No, you would use your K-1s And that’s exactly what they said, Eva They said, in a guidance by the SBA, they said that the partnership itself applies for the PPP, and for the partners that materially participate, they use the K-1s Am I saying that correctly? – [Jeff] You are – [Toby] Can you go over the payroll credit if you don’t get the PPP loan? All right, so there’s two types of things that you can have underneath the CARE Act, one of them is that PPP loan where they give you two and a half times your payroll costs that can be forgiven, either fully or partially That partial forgiveness, by the way, is reduced by the percentage of employees that you no longer have So like if I had 100 employees, and now I have 50, then whatever my forgiveness is, I would subtract 50% of it off as non-forgivable, stays as a loan You have an either/or

If you get the PPP, you can’t do a tax credit But if you don’t get a PPP, you get a tax credit of up to $5,000.00 per employee And the way it works is, for any quarter which you’ve been partially shut down or shut down from the virus, that quarter, you would get 50% of the payroll expenses, including retirement plans and yes, DD plans and things like that are part of that calculation Health insurance, you add all that up for somebody up to $10,000.00, and you divide it by two So it’s up to $5,000.00 per employee, and you have all the way til the end of the year, but obviously if you get shut down, it’s only for that quarter, but if your income has gone down by 50%, then you get that quarter plus the quarter until you make over 80% of the previous year quarter over quarter So I know that’s complicated, but it’s, you get up to, basically you’re gonna get $5,000.00 per employee If you’ve been massively affected, like if you’re a restaurant or whatnot, I’ve actually done a number of calculations for retailers and for restaurateurs, they’re almost always better off doing the tax credit than the PPP, even though they keep going out and getting these PPP loans I’m like, yeah, you’re not gonna bring ’em back, you’re not gonna open All right I have a California corp and a wiring LLC, I was wondering if the day cares for, okay, I don’t know what this is Have any of the franchise tax fees or the Secretary of State payments been delayed And the answer is, no, not that I’m aware of – No, not that I’m aware of either – [Toby] Yeah All right, let’s keep going on Some of these I can’t even read You guys are killing me, you’re killing me Smalls All right, can I write off 100% of my loss due to the Coronavirus? – [Jeff] Well, my first question would be what kind of loss are we talking about? – [Toby] Yeah – [Jeff] If it’s a loss on your rental property because you’ve lost renters or they’re not paying their, you do have a loss but it’s probably a passive activity, and you’re not gonna be able to write it off – [Toby] If it’s passive, you’re just never, unless you have passive income – [Jeff] Capital losses aren’t gonna be able to be written off except $3,000.00 a year – [Toby] Up to whatever your capital loss – [Jeff] Right, I always forget to say that – [Toby] Yeah so, you know, so let’s say that you lose a bunch of money in the stock market and you got freaked out and you sold your stocks And then a bunch of ’em come back and make some money You’re well served to sell those at the end of the year, the ones that went up, to get full advantage of your losses, and then just buy them right back again This is not a wash sale rule where you’re taking a loss, you’re actually doing the opposite, you’re taking the gain and buying ’em right back so that you have a, so that you get stepped up to the new purchase price And that way it just makes life so much easier for you going forward because now you have a new higher basis, and I don’t know – [Jeff] So if you’re a active sole propretor or a S corporation owner or an active partner, those losses that flow through to you will all be deductible against other income you may earn And as we said before, if you have excess net operating losses, you can carry those back to prior years where you may have had more income – [Toby] Absolutely, and that’s what a lot of folks are looking to do Especially this year, real estate professionals, or if somebody took a hit and they’re sole proprietor or S corp or whatnot, they’re looking to take that loss, and take it back, and we go all the way back, so if you did it for 2020, you’d go back to 2015 If you did it for 2019, and some of you guys still have that choice, like we might make a change to the accounting methodology, take an accelerated depreciation, do a cost seg on some property if you know what that means Anyway, we’re gonna accelerate the depreciation on things so we can create a bigger loss, so we can go back and get some of the money we’ve paid in the last five years And that’s one way of getting money under the CARES Act Net operating loss, if you had loss in 2017 and ’18 and did not pay enough taxes to be able to use your net loss, can you now amend your taxes? – [Jeff] The ’17 loss can only be carried back for two years, the ’18 loss can be carried back for five years – [Toby] Yes, so Andy, the answer is yes, they took away that weird percentage thing – [Jeff] Oh yes, the 80% limitation, the 90% whatever it was – [Toby] Mm hm, all right so, then we can go on I don’t know what question we’re on, but we have a whole bunch of these things I received $2,400.00 apparently for my wife and I Should I still receive bank deposits

as social security recipients? Yeah, you receive the stimulus but would they still get their, it has nothing to do with social security, does it? – [Jeff] No – [Toby] Yeah, yes, it is Uh, people have asked about these recordings, yeah, you’ll get a recording I know sometimes this stuff gets deep, and sometimes there’s pieces where you have to go back and re-listen So absolutely you can come back, we make these into little podcasts too As per CARE Act, if a non-U.S. citizen gets the $1,000.00 economic impact payment by direct deposit, is that considered public charge for emigration purposes? I don’t think so, that’s a tax credit So, do you have anything on that? – [Jeff] No – [Toby] Yeah, I don’t think so This is a tax credit, this is only for people that are actually filing, so you know, if you’re a non-U.S. citizen, it sounds like you’re a resident alien, so then no that wouldn’t be the, I don’t think it’s the public charge Somebody says, I am a W-2 physician, income over $300,000.00 I own rentals under an LLC So it’s a single member LLC, it’s going right on their Schedule E, and pay a property manager, so they’re paying somebody else to run the property, can I apply for the SBA loan and grants since both rental and W-2 income will be affected? Your W-2 income, no That’s for somebody else, that’s for the employer, whoever’s paying you the W-2, they’re eligible for the PPP and the EIDL, it has to be the business As an employee, no, you get none of it You do get access to your retirement plans and things like that Can I apply for the SBA loan for the rental though? The EIDL, yes, absolutely So what he says, is a property tax consultant, a real estate professional, and I’m gonna say no No, you actually have to be involved in the purchase and sale Sorry What about wholesalers? Yes, they could be If you’re wholesaling properties, absolutely That’s involved in the purchase and sales, so you would absolutely be a real estate professional as long as you can get the time requirements in, it’s 750 hours, and more than 50% of your work time, so Is any of the EIDL loan balance forgivable if I have a 2020 operating loss? They’re not referring to the emergency advance, and the answer is no, that’s just a loan It’s a 30-year am, now I’m forgetting whether it’s a, how long is that loan for? Oh, I’m gonna have to take out a cheat sheet and have to look at it I can’t even see it anymore Let’s see, what is it EIDL, I want to say, no it is 30 years I keep thinking it’s like, less but it no, it’s 30 years, it’s paid over a long period of time So you’re good Do you get forgiveness for a Schedule C filer by paying distributions? Yes You absolutely do, so if you’re getting the PPP and you’re a sole proprietor, that’s exactly how it is It’s any of your distributions to yourself, which technically is your net profit, but you file that little piece of paper saying what it was used for If my S corp was a loss in 2019, no salary was paid to me in 2019, can I still apply for EIDL? Yes, absolutely And, technically you could still do the PPP if you paid yourself any salaries in 2020 ‘Cause it’s either you use the 12 months prior to January 30th, 2020, so it’d go January back to February, or you’d use January, February to the end of February, so January and February to do the calculation if you’re doing it ‘Cause some people just set up in January, and if you were set up before February 15th, you actually qualify, so Let’s keep jumping through these I think we’re on slide three (chuckles) – [Jeff] All right, I gotta go – [Toby] Yeah, what time is it? Oh, it’s not too bad Is it a good time to convert traditional IRA to Roth IRA since there’s a loss in the stock market? Jeff – [Jeff] What I said was March 23rd would have been a great time to convert because the market was down 19,000 points Yeah, if you believe the market’s gonna go back up, and hopefully you do believe that, you’re gonna make money If you had converted on March 23rd, today by now you would have already had a 28% profit in your Roth IRA – [Toby] Man It’s on the date that you convert So, and the way the rules work,

and some of these, I know they ask another question about this farther down The way it works is if your taxes are gonna go up, like if you’re gonna let it sit there and cook for a good 20, 30 years, then if you’re in a higher tax bracket now than when you retire, then it’s not worth it If you’re in a lower tax bracket now than you will be when you retire, then it’s worth it So for young people, it’s almost always worth it to do a Roth, for middle aged people it’s almost never worthwhile to do a Roth This is one of the few times where you might say hey, I’m about to convert it when I’m down, and I’m willing to take the hit because I know it’s gonna bounce back, but it takes a long time to recover, and the easiest way to look at it is if I had to pay tax on somethin’, depending on what my tax rate is, that’s a pretty big hit, like I take 20% tax, that’s essentially gonna take me probably four or five years to even come close to make up, and that’s just to bring me back even, that’s not counting the fact that that money has been growing in the other deal – [Jeff] But if you’re also taking a hit in other income areas, whether it’s W-2 or your business has taken a hit, where like you said, your total income is down, and you’re a lower bracket, it– – [Toby] It’s not necessarily bad, I always just tell people like look, especially when I work with younger folks, I’m like, if your taxes are going to go down, like you’re in a high tax bracket, then when you retire you’re gonna go down, you’re almost always better taking the deduction If you are in a really low tax bracket, you’re not making much, and you think your tax bracket’s gonna go up, you’re almost always better saying let’s pay a little bit of tax now rather than a lot later And I have all those numbers, I’ve done the calculations numerous times on 20 and 30 years, and it’s identical If the tax rate doesn’t change on a 30 year, 7%, the number’s identical, so it doesn’t matter Anybody who says, no that’s not true, I’m happy to show you the numbers Do it all the time All right, so that’s a really good question Somebody gets a star on that one All right, should a, should a partner’s income in an LLC taxed as a partnership, not be calculated the same pay as a solo proprietor? No, you do the same thing, even if you’re a partnership but you’re doing it for the partnership So you’d add ’em both together So again, you’re looking at the net income for a partnership, and people are asking a lot of questions about the sole proprietor Here’s the sad thing about the sole proprietor is you guys couldn’t even apply for the first tranche until almost the last day We didn’t have guidance It’s really tough, really tough All right, if my S corp has a loss in 2019, oh you already did that one If we just started in our real estate business but have not flipped a home yet, but have lots of training expenses, can we still apply for a PPP to pay ourselves? No, it’s based off of what you’ve past done You could still do an EIDL though, Mark, so you could still do that EIDL and say how many employees you have In minimum, you’re gonna get a thousand bucks That’s pretty much what they’re givin’ everybody that’s got one or none Is a sole member LLC or an S corp able to use their 139 deduction? So the S corp can, the sole member LLC cannot for the proprietor They could for another employee Somebody says, for a net operating loss in 2019 for a real estate professional, did I hear it has to be done for 2014 and forward, and backward is possible? No, it is, you start, you go back to the five years, the earliest tax year, five years from the date of the loss I’ll just keep going on We have a lot, look at these things, Jeff I haven’t been scrolling through all of them, these people like to write books – [Jeff] Those are really long questions – [Toby] Those are really long questions, so no it’s not, we’re not, there’s good ones We’ll get to ’em Just like everybody else, I want to know your thoughts on how do we come out of this way ahead and thriving? So I use a little chart, and I want people to know, they call it black swan events and things like that, but if you wanna take a look and say hey, what do we have for history, what does history show us? We’ve had lots of epidemics before, and probably nothing like this This is a really nasty pandemic, but if you look, even under Zika, Ebola, MERS, SARS,

the only one where we had a loss six months later was in HIV, the AIDS crisis And so when you look at those little stretches of six months, you see that the S & P usually comes back The only reason I’m telling you that is ’cause there’s a lot of doom and gloom, and again, there’s American’ts out there all over the place, and they’re gonna say how everything sucks and you know, or this time we’re gonna really face-plant and all this other fun stuff And you just get it out of your head, it does nothing good for you Nothing good for you In fact, all it does is cause anxiety The death rate, the real death rate has actually gone up in this society a lot more than the Coronavirus has impacted us, it’s almost twice as much and I think a lot of that has to do with the stress, and the number one killer in the United States, and you’re not hearing this probably on the news, although some places are talking about it, the number one killer in the United States is actually poverty And it kills about 800,000 people a year, and what we just did is we just cast a whole bunch of folks right into poverty, and I think it’s horrible So, I like to gripe And then I watched our mayor go into the, and get hammered by Anderson Cooper Miss Goodman, our Las Vegas mayor, and whether you like her or not, I just felt, I looked at her as I would my mom, and I wouldn’t want somebody talking to my mom that way And I didn’t like it Whether they like what she said or not, and I get all these, yes we have to be careful and all that, but I don’t, boy oh boy People just seem really hell bent on making sure that everybody’s locked away First time in society, I think, that you’ve actually locked away the people that aren’t sick to protect them from themselves I don’t know Everybody has their point of view, I believe that you do things prudently, but there are civil liberties, and we may not want to trample on them so easily We’re not gonna get into all that All right, more stuff Jeff looks at me and goes, stop it, Toby Taxes, taxes My mom would not take the interview to go to into the firing range I have not done my 2019 taxes, can I still apply for CARES and other government bailout programs? Yes We would just use something as a backup Now that we’re in the first quarter, we’re beyond the first quarter, what do we need to do as far as taxes are concerned? No, we’re in the second quarter So, nothing I don’t know Let’s see, I don’t know what that question really meant Toby, you are the best See, that’s what I love, that’s when people do that During your CARES Act, there was an item that has an expiration of June, and that was the 10,000 out of the IRA? No, I think that you have the 10,000 up until about September I want to say, and the PPP is what’s actually June, but it keeps running out of money, and they’re gonna keep throwing more money at it So the day to do it QRP partnered with a couple that are not using retirement funds, what’s the best way to cash out, taking into consideration I need non-recourse loan for my QRP Is they don’t have a mix of IRA or not, yeah So you’re not gonna be able to do any sort of loans with an IRA, but if you do a 401K, then the 401K, which is a QRP, can actually have debt you don’t have to worry about unrelated debt finance income So that’s probably where there’s a little bit of a mix, ’cause if you’re talking to your IRA people, they’re gonna say oh no, we can’t do that, you can’t do that Somebody’s going one hour and counting, well we’re long past there If taking $100,000.00 out of an IRA now with a plan to pay it back within three years, does this $100,000.00 need to be reported as income? Johnathan, the answer is right now, I would say no ‘Cause it doesn’t make any sense that they’d make you pay tax on something that is a trustee to trustee transfer But they haven’t given us guidance They still may come back and try to say, well it’s about 50/50 out there, but just using the black letter language of what they said, no Somebody says that the IRS website keeps saying, what is it, says payment status not available I think it’s just, it’s so, – [Jeff] It’s probably overwhelmed – [Toby] It’s overwhelmed, yeah All these systems were not built for this We did, we’re still, we did more SBA loans in 14 days than they’d done in 14 years combined, previous 14 years combined All right, how does the stimulus affect taxes for property owners? – [Jeff] Uh, very little except for the potential

to get the EIDL loan for property owners If they’re real estate professionals, it allows them to carry their losses back – [Toby] Yeah, that’s the big one So if you are a real estate owner, I’m with you Jeff I’m like, it doesn’t really have much in there for you, except that you can get the EIDL, you’re absolutely right, which is a loan, but for taxes, it’s the net operating loss carried back And that’s only available to you if you’re a real estate professional So if you have passive losses, no benefit If you have active losses, you do Can a limited partnership, here I’ll just go to my little questions so you guys don’t think I’m reading the screen, there we go Can a limited partnership distribute appreciated stocks to its partners? Are there tax implications? Will the partner, will they pay tax when they eventually sell the shares? Yeah, so you have inside basis, outside basis, all these fun things So if you give a share to the partnership, it receives your basis, when it gives it back to you, it’s still your basis, nothing changed It’s not a taxable event – [Jeff] Yeah, partnerships distribute assets at the partnerships’ cost basis, whereas S corporations, corporations distribute assets at fair market value, and there’s gains and a whole bunch of other fun stuff on appreciated property – [Toby] Mm hm Somebody says, my new tenant can’t move in due to there being, they can’t pave the walkway because it’s considered a non-essential business This, in turn, is causing a delay, am I eligible for the EIDL? Yes Is it worth it to apply? Yes The EIDL is gonna give you a loan for 30 years at 3.75% based on your gross profit, which is your gross income minus your cost of goods sold Did I say that right? – [Jeff] Yep – [Toby] So There’s a beauty salon, I want to read that one, but it looks like she left Ah, I love when I, some of these people just got hammered away, I just feel so bad for ’em ’cause they just got shut down, and it’s just so not fair – [Jeff] We need them places to open back up I need a haircut – [Toby] Yeah, Jeff I’ll give you a haircut (chuckles) All right, if you take a distribution from a retirement account with the intent of paying it back within three years, do you ever have to report the distribution? And that’s the, right now I would say no, and I would say it defeats the purpose of it The IRS may come back with guidance If they don’t do a rough proc, I’m not gonna do it – [Jeff] Right – [Toby] And they can even come out with what they think, and you still don’t listen to ’em Because the clear letter of the law says, that it’s treated as a trustee to trustee transfer, it’s not a 60-day roll, it is considered a trustee to trustee transfer, which means it never went into your pocket – [Jeff] Yeah, I’d look for more guidance near the end of the year before the 2020 forms come out – [Toby] Mm hm, they may want to change it, but I don’t wanna listen to ’em If we have to, if it’s law, we listen to ’em Otherwise, it’s an opinion But gosh, they said ratably over three years, but if you pay it back before the end of the third year, it’s treated as a trustee-trustee transfer, so I could just select, I’ll pay it all in year three, but if I pay it back before the end of the year then I have no tax So I don’t know how they get around that – [Jeff] Stay tuned – [Toby] Yeah Always fun We just got some huge, how can you apply for EIDL if the site does not accept? They’re gonna reopen it They’re getting new money, so just hang tight, keep trying, it’s gonna happen But they ran outta money, they shut it down actually before the PPP loans, we knew that was coming We had staff entering transactions all night It was brutal, brutal, those two weeks Somebody’s making fun of us, we’re not even at an hour and a half yet, they’re not suppose to make fun of us I’m a new investor who operated as a sole proprietor in the last quarter of 2019, incorped my entity around February 28th, so that entity is beyond the February 15th Can I apply for the EIDL and PPP? Yes, ’cause you were a business before, but I would apply under its previous form – [Jeff] I would probably document under its previous form – [Toby] Yeah, make it easy for them, because that’s gonna be the, that’s gonna be the way that they’re gonna look at it Your documents that they ask, which is gonna be your Schedule C from 2019, that’s what they’re gonna want to see

I’m a small C corp, pay myself $4,000.00 a month You would qualify, depending on what, you know, what other things you, if you do a retirement plan or anything like that, but you’re gonna qualify for at least $10,000.00 under the PPP You’ll get about a thousand bucks under the EIDL, and have to take that thousand bucks off of the PPP, so realistically I’m probably just gonna do the PPP loan Does owning one single family home make you an active participant in the eyes of the IRS, even if the property management in place? Yeah actually, it does As long as you have, you’re the one who hires the property manager, you are an active participant, and that is, means you’re entitled to up to $25,000.00 passive loss against your income, but it phases out after $100,000.00 of just your gross income So it’s a phase out rule, so if you’re making less than $100,000.00 a year, fantastic, you get to write off up to $25,000.00 of your passive losses For my business QRP 100% loan, can I chose the interest rate and term? It’s a six year term, it’s one year of deferral, and the interest rate is gonna be right around 4% It’s gonna be prime plus one, right around in there, so It’s a reasonable interest rate and there’s not a hard and fast rule on it, there’s stuff going back and forth Actually, get into it with my partner once in a while I always look at the federal first, they had the lowest Why did they change that? – [Jeff] Yeah, what the IRS is mainly concerned with is this below market rates – [Toby] Yeah, and MDF federal AFR rates was what you’re, if you loan to a family member, that’s what you’re doing Let’s see, can I apply again for a PPP if I already did one with the bank and it has not been approved yet? Yeah, you actually can Absolutely – [Jeff] Until you sign the loan documents, you don’t have a PPP loan – [Toby] Yeah, they may not like that (chuckles) Do you or somebody you know help with setup of QRP for minor kids? It’s gonna have to be a UGMA, right, and you’re gonna have to set up an account for that minor I don’t think that they can, – [Jeff] I don’t think that they can contribute to it – [Toby] Right, you’d have a custodial account is what you’ll have, so And sure yeah reach out, like Patty can grab that name Give it over to Erik or somebody who does that stuff Somebody just wrote me this, a book Richard, you’re killing me Suppose your traditional IRA was worth $100,000.00 on January first If its value crashed along with the market, it’s now worth 17% less, or just $83,000.00 Are taxes on a conversion based on the account’s value at the time of conversion? Yes Would you go over again why we do not want to convert traditional to a Roth? ‘Cause it’s taxable But you might be okay paying tax on the 83 if it’s gonna immediately bounce back up to the hundred But it’s really tough to make that up So I’d just rather, like I probably wouldn’t do anything with it if it’s me What about you, Jeff? – [Jeff] Um, I mean I have a lot of traditional stuff, and I’m just gonna leave it alone and start taking out eventually Pay ’em the tax then – [Toby] Yep All right, somebody says, all right, so this is Richard, I am gonna try to answer this question, it is a long one but it says, when property is jointly owned by a married couple, there is a step-up in basis when the first spouse dies and another step-up in basis for inheritors when the final spouse passes on Uh no, kind of, maybe If you are in California, the property steps up If you are in a separate property state then only half of the property steps up, so if you’re in community property state, you get a full step up when first spouse passes So they could, they get to depreciate at a much higher amount – [Jeff] Now aren’t there some community property states where the step-up is only 50%? – [Toby] I don’t think, no, community property, I think you’re stuck Is it possible to restart the depreciation if it’s owned by the LLC, yeah it doesn’t matter, ’cause the property, your basis is, your step-up is based on the property in that LLC, when you own the LLC yourself So remember that we were just talking about the stocks going in and out, you get that basis? So your, the value of the LLC steps up, the value of its assets is therefore stepped up So if somebody passes, it doesn’t matter whether it’s an LLC, you’re still getting it And then they’re saying he, California held properties in Property 13 as an example, but upon the death of

the final spouse, inheritors will inherit the Property 13 tax basis No actually, it’s the step-up in basis, and California doesn’t adjust the basis of the shares when it’s inherited, I don’t believe – [Jeff] No – [Toby] They don’t, so if the inheritors transfer it, it doesn’t affect your 13, so don’t worry In fact, in all these situations, Richard, I’m just gonna put your mind to rest When you’re dealing with family members, and closely held LLCs where there’s no other beneficiaries, they look at the documents And they say oh, it’s still the same beneficiaries, there is no resetting of the Prop 13 So you can not have to worry about it Makes your life a little easier I have a $500,000.00 IRA account with Schwab, and I’m planning on taking $100,000.00 distribution With the $400,000.00 remaining, can I set up a QRP and set up a $100,000.00 loan? Yeah – Yes you can if you have a business to set a QRP up in – [Toby] Yes, and you need to have a sponsor of that, and then it goes right on over I’m just gonna go to the next question – [Jeff] Really? Oh, sorry – [Toby] Have you ever seen (talking together) All right, I own three LLCs, it’s because it’s four thirty-something I own three LLCs One of them just formed in mid-2019 and has zero in revenues What operating and startup costs can I expense to carry the loss forward without sending up any red flags to the IRS? – [Jeff] Well, first it depends on how you’re being taxed As we’ve talked about, an LLC is not a taxing entity So if you’re set up as a corp, any of your pre-organization expenses will be startup fees, and then any normal operating expenses to keep that corporation going will be able to be expensed Now if you’re operating as a personal, or a Schedule E, I’m a little more leery about taking certain startup costs because they tend to be a very large amount of expense against no income And that can sometimes draw the IRS’ attention – [Toby] Yeah, what’s always best is not to have a big, fat loss showing up somewhere on a active business So that’s why we tend to use C corps because even if there’s, the IRS doesn’t care that 80% of them zero out They either zero out, or have a loss Because the individual doesn’t get that loss, it just stays in there So they’re not worried about you doing anything crazy when you’re doing that What they’re looking for for you individually is they’re looking to see if you’re doing something that’s essentially a hobby that really doesn’t have the expectation of making a profit, and getting personal benefit by writing off your taxes with it So they get a little crunchy about that So here, you still take your startup costs As long as you are actually in operation, which if it’s real estate, you have to actually have it rented So there’s no such thing as zero revenues You would just carry that until you actually have revenues So I hope that helps And then there’s a bunch of questions that came in Can I apply for the PPP, this is me, I’m gonna go to the next one Can I apply for the PPP if I already did it with one bank that does not approve the loan? Yes, you can How much EIDL can I qualify for? How is it calculated? You can go up to $2,000,000.00 and it’s gonna be half of your gross profit Which is an actual term And any idea when money is deposited after signing the PPP loan? Yeah, so Joe, it’s actually 10 days after they give you an E-tran number, the bank has to fund So the day that they get it through to the SBA and the SBA says hey, we’re gonna buy this loan from you Mr. Bank, they have 10 days to document it, get you a loan doc, and sign it So I’ve actually seen it where they get you the E-tran, and have it funded within a day I have a corporation that started November 19th, I’m the sole owner, no employees I was going to elect S status for 2019, I haven’t filed taxes yet What am I eligible for? So they did it in November 2019, it’s gonna be too late to do your S status You would have to have done that by the 15th of the third month following – Of March Well, they couldn’t do it for ’19 or ’20 without doing a label action – [Toby] Yeah, so you could possibly do it but you’re still gonna qualify under the EIDL The PPP, it depends on whether you paid yourself payroll Wouldn’t it be better to take the tax credit at the end of

the year than to try to apply it for a loan, please explain In some cases The reason people do the PPP is because they may not have to pay it back The tax credit is limited to a certain dollar amount per employee, so if you have 20 employees, you could get a $100,000.00 tax credit If I have 20 employees, I might get a PPP that’s $180,000.00 and not have to pay it back So that’s it Here’s forgetting to answer the question about the inherited stock portfolio and its basis Did I forget to answer that? – [Jeff] Did we skip that? An inherit stock portfolio, I guess we did skip over that – [Toby] No, we did say that because we said is it the date of passing, or is it the date of, yeah, so we didn’t dive into it deep enough – [Jeff] So your basis is determined upon the date of death Now there is something called an alternative valuation method, which picks up the date six months later You don’t want that date I believe (both talking at once) of October, so six months would be now – [Toby] Yeah I’m sorry for forgetting that So yeah, so when somebody passes, the basis step-up is actually the date of passing And then usually somebody’s going and they’re saying oh, maybe later on, it’s gone up in value Then you do get to use the alternative date But this is what happened in 2007 and ’08 You would have real estate fall off a cliff And they’re trying to sell it two years later, and it’s half of what the value was for estate tax Then they ended up with an estate tax that they owe, and they’re selling off the property and gettin’ pennies on the dollar for the property, ’cause they have this big tax bill, and it wasn’t enough to pay the tax bill I actually saw that more than once It was a pretty sad situation, but the IRS is really sympathetic – [Jeff] And the other good thing about the inheritance, – That was sarcasm by the way – [Jeff] The other good thing about the inheritance is, no matter when the person who passed away bought the securities, everything’s considered long-term to you – [Toby] Mm hm, that is a good one So yeah, so if you inherit, everything’s long-term automatically – [Jeff] Oh, we didn’t skip it, we just got to it – [Toby] Oh, I’m inheriting my, oh gosh I remember seeing it What is the basis of assets when the come, all right Oh, this is why I shouldn’t read the notes, sometimes I go crazy All right, so we just answered that one Let me see if I can make it go All right, can you expense a startup expense if you have an LLC taxed as an S and not a C? Yeah, it would just go into the S corp expense, and that’s an interesting one because you get to write off the losses on an S corp up to your basis So if you put the money in, then technically you could write that off But again, it comes down to when are you actually in business And if it’s real estate, it’s when you, if it’s investment real estate, it’s when you buy the real estate, you start generating income It’s not even when it’s vacant, it’s when it’s actually making money So we tend to use C corps just because we can capture that expense and just keep carrying it til we’re ready to use it Da da da da da, let’s see, can passive losses from cost segregation be taken on W-2 income if your spouse is a real estate professional? Yes Either spouse qualifies for realtor, as long as you’re married filing jointly Would getting my real estate license have more benefits for being a real estate professional? It depends on if you’re using it – [Jeff] Right If you’re just getting it hoping to look more like a real estate professional, it’s not gonna do anything for you – [Toby] It’s what you actually do, and it’s 750 hours in real estate, in real estate transactions, so that could work And this certainly helps, as long as that’s what you’re doing, if you’re making money at it Yeah, actually working Somebody says, oh this is a really good one Somebody asked about a HOA, this is great Can a home owner’s association, non-profit 503 apply? So a 501-C3, if that’s what you’re asking, could they apply for an EIDL, the answer’s yes Kinda cool, love that stuff All right, can I open my Solo QRP, do I have to file a tax return for it? – [Jeff] Well that depends, as long as the value of the assets is under $250,000.00, you do not have to file a tax return – [Toby] Yeah, if it’s under 250 grand and it’s a married couple, no return Now, there’s a reason to file a return if you have real estate in there, and that’s because it starts the audit clock ticking for three years Now, we’re not seeing audits of exempt organization I think I’ve seen one or two in 20 years But they do happen from time to time,

and if you want to shut that door, you just file the tax return on it, even if it’s 100 or $150,000.00 – [Jeff] And I’ve heard that often for any kind of tax return that you may not be required to file because it starts the clock ticking on the statute of limitations, and gets things set in stone, especially though on these QRPs that have hard assets in them – [Toby] Yes So sometimes, it’s better, is just filing it, even though you don’t have to, it’s a 5500, and they’re not horribly difficult Trying to move ahead, there we go Somebody says, my husband is a sole proprietor, and I own an LLC, can we each apply for PPP and EIDL? So, the answer is, you can both apply, depending on the type of LLC that is, you would both technically be able to apply for the PPP The EIDL, you have to look at the affiliation rules, and see if you’re gonna do one for multiple entities, or two different ones, it depends on their ownership So if you’re married, I would generally say, you’re an affiliated party and you would do one big return, and then the question is, you know, how you divvy that up when they approve it So that it’s, you know these ones, if it’s under $200,000.00 they don’t even require a collateral None of them, the PPP or the EIDL requires, neither of those require a personal guarantee, period All right, let’s see what we got left If I Airbnb my rental property, do I qualify for some type of unemployment? – [Jeff] You probably qualify for unemployment, and possibly PPP and possibly EIDL You qualify, and you can thank everybody at Airbnb who wrote in to congress to get this put in – [Toby] Yep And now the Airbnb, the big thing is is, it’s seven days or less average rental If you’re doing Airbnb where it’s two weeks, or you’re providing substantial services like you’re changing all the sheets, and you’re going in there and cleaning it every day and you’re basically a hotel, that might work Otherwise if it’s more seven days, so if it’s eight days average rental or bigger, then that’s passive And then you don’t But Airbnb averages about three days, so you should So somebody said, hey, the pandemic slide We didn’t shut anything down You are right And I’m cognizant of that, I’m just looking at it saying hey, history being the best teacher, as close as we can get, we always came back and bounced back globally Is it gonna happen this time? I just think that never in history has it not recovered Sometimes it takes a little longer, but it always, our economy always has recovered, so the graph of the S & P goes up over time, period Can you still qualify for unemployment if you have a 1099, by the way, yes, you can That’s through your state, but that was what was authorized under the CARES Act Do we have to use NOL in reverse order? Do we have to use it against the most recent year first, or can we go back to 2014 and then come forward? – [Jeff] Well as we said before, you have to go back to the earliest year If it’s an ’18 NOL, you have to take it back to 2013, ’19 to ’14, and 2020 to 2015 – [Toby] Mm hm, absolutely – [Jeff] And if it’s a newer corporation, you just take it back to the earliest year you can – [Toby] Yep Somebody said, I own a condo that is a, it has a hotel rental program, which is better: EIDL or PPP? You’re probably gonna have to do the EIDL, ’cause if it’s a rental program, it’s probably passive But it depends, if you’re getting a salary then you do both And then the way they relate, the EIDL, they give you an emergency advance of up to $10,000.00 and it’s based on the number of employees So if you have five employees, you’re gonna get $5,000.00 And that is subtracted from the forgiveness out of the Paycheck Protection Program loan I’ll be 59 and a half in three years, if I take a distribution from my inherited IRA, do I have to pay it back in three years? So Sherry, the question is, do you inherit it from a spouse, ’cause if so, that’s a little different, then you could roll it into your own, and then yes, you could do the three years If it’s somebody else’s, then I don’t believe you can even take the early withdrawal, can you? – [Jeff] They’ve changed some of the rules with the non-spousal – [Toby] Yeah, I know you can’t roll it for sure You might be able to take the 100 Sitting here today, I don’t know the answer,

but I know that if it’s a spouse, so inherited it from dad, so I am worried, because that’s technically their IRA So it would still have their name on it, and you’re the beneficiary – [Jeff] Yeah, I think the problem with me inheriting my dad’s IRA and then pulling the $100,000.00 out, I can’t put it back anywhere – [Toby] Yeah, I don’t think I can So Sherry, that’s something you would talk to your custodian about I would say probably no But anyway, that’s a really good question, I may look that up just for my own sanity, ’cause I’ll start thinking about it In 2018, we put a new roof on a property in California, it cost $30,000.00 If we sell this property in the next year or so, do we lose the depreciation? – [Jeff] That’s not exactly how it works So you buy, put a new roof on it, it increases your own basis on that property by $30,000.00 – [Toby] And, you get a big loss – [Jeff] Right, so – [Toby] Tell ’em about the loss Accountants screw this up all the time – [Jeff] So I mean, you will depreciate it for the year or so that you have the property But that’s actually going to reduce the, when you sell it, it’s gonna reduce your gain on that property – [Toby] Yeah, but you also have the extinguish property So if I put a new roof, there was an old roof that I replaced And let’s say that I had that old roof for 10 years, which is about what a roof, some of these roofs, depending on where you’re at And in California, probably a little longer than that, right Indiana, it seems like you’re always replacing roofs But let’s just say that you had it for 10 years, and it was a residential property, so it’s 27 and a half year property, you’re gonna get to take the 17.5 as a disposition of that asset, right, so you’re gonna, the 17 and a half years that you didn’t take yet, you would take all and, when you put the new roof on – [Jeff] Right, I think the big problem with that, and why most of the accountants don’t do that is, they don’t know what part of the purchase price was for that – The works They’re missing out on so much – [Jeff] Like they should have done cost segregation on it – [Toby] They should do a cross segregation, it’s gonna pay you a ton Here’s kind of the fun part of, when you’re looking at this So if you sell the property, do you lose the depreciation? Kind of You’re gonna get a big chunk of the depreciation, you’re gonna be recapturing a big chunk of depreciation So here’s what you’re gonna do, you’re gonna do that as a 1031 exchange And you’re not gonna, you’re just gonna keep rolling forward your basis so that you don’t have to pay tax, it’s probably the easiest If you don’t care about that, then you’re just gonna pay tax, and you know, what you’re gonna end up with is, you’re gonna have disposed of an asset So you wouldn’t even have depreciation recapture on that, or would you? – [Jeff] You would still have depreciation recapture – [Toby] So on the disposal amount, so let’s just say that it was, let’s just say it was a $20,000.00 roof back when, and you had it for half the time, so you had it for 13 something years Then you would just take a deduction of the half, which is half of the 20 is $10,000.00 And now you have a new asset that you’re depreciating a 30 And you have one year of the one 27th and a half of that, right So with that, if you do a 1031 exchange, would you do cost segregation? Sometimes right before it, and the big question, and I think we lost so many there I like it when they do question mark The way it works is kind of like this, yes, you could do a cost segregation right before you sell, and we actually showed this before, where you, when you do a cost segregation right before it sells, sometimes you save 60, $70,000.00 Because you do not pay recapture on assets that have no fair market value and they’re beyond their useful life So carpeting, for example If I have carpeting, it’s worth five years But if I depreciate it over 27 and a half years, and I sell that property, I have to recapture that carpeting Whatever I wrote up on that carpeting is now taxable up to 25%, even though that carpet’s not worth a dollar When you cost segregate it, as long as I own the property more than that five years, I’m not gonna pay anything That’ll become long-term capital gains, but I have no recapture So it’s awesome – [Jeff] Yeah, and I think the big point here is, that $30,000.00 cost for the new roof, you’re not gonna lose that You’re either gonna depreciate it,

or you’re gonna deduct it from the sale, or something And then somebody says, what about doing a 1031 exchange even on a cost seg The cost seg you do so you can accelerate the depreciation Your depreciation isn’t gonna change when you do a 1031 exchange unless you buy a more expensive pieces of property – [Jeff] Yeah, ’cause, and we’ve run into that recently about doing cost segs on properties where the basis, because they’ve swapped several times, is so low, it’s not worth it – [Toby] Yeah, it’s not worth it, yep Yep, yep, yep, yep, yep Would you cost seg a single family costing $300,000.00? Yeah Yeah, so let’s just say your land value is 75 grand, you got $225,000.00, the average is gonna be about $65,000.00 in year one as a deduction if you’re a real estate professional, that’s gonna be a lot of money in your pocket If you’re not, you’re just not gonna pay any tax on any of the gain, the real estate profits, for a long time So it just depends on what your tax bracket is, and what other types of income you have It’s always worth calculating, and it’s free to calculate I always say that in anything financial, anything tax, calculate, calculate, calculate So Jeff has gone way over I can’t believe he did it again Come in and listen to some of our, I have to blame somebody, ’cause I have zero accountability – [Jeff] It’s not my fault, but you’re gonna blame me – [Toby] So this hour just became an hour and 53 minutes, give or take 53 minutes AndersonAdvisors.com podcast, by all means, come on and listen to some of the stuff that we put out There’s so much going on guys, and so what we care about is you guys staying in business, and it’s not just ’cause we’re benevolent I root for small businesses period, ’cause I am one But also, because we want you guys to be really rich so you can hire us to do work It sucks when we have clients with no money, right You want very, you want clients killin’ it and very happy, so I hope that we’re getting you some good information If you’re an accountant out there, fantastic that you’re joining us, and we love our accountants too If you love your replays, and you want to watch some of this stuff, if you’re platinum you get unlimited access, I think we always have three or four up there And it’s always rolling around, if you go to the podcasts you’re gonna see lots and lots of stuff, we always put Tax Tuesdays up if you like to listen to ’em Corey listens to ’em, and he puts ’em on one and a half speed, which is always, – [Jeff] They’re normally done in an hour – [Toby] Yeah, that’s done faster than you, you can always go and see all of our stuff on YouTube Clint speaks a lot slower than I, and Jeff’s fantastic, and he’s always a good sport So anyway, if you have any questions too, feel free to shoot ’em in to Tax Tuesday We get hundreds, we try to answer everything we can get our hands on And if you’re a client, obviously go through your platinum portal But don’t ever hesitate, if there’s good questions, we love to grab ’em and use ’em as part of our Tax Tuesday So we will see you in two weeks By that time, the PPP money is gonna be gone, and they’ll be onto the third or fourth tranche Don’t worry, our grand kids will be paying this stuff off (laughs) I hope they don’t try to make us pay the bill – [Jeff] We’re gonna have a bond drive – [Toby] I know Anyway, we’ll be selling a lot of chocolate bars to pay that off All right, thanks guys (upbeat music)