$600K in Tax Savings: Real Estate Investor Tax Advice You Need Now

Bobby Mucka (00:00)
there’s something called the RV strategy where you utilize section 179, assuming that the RV is over 14,000 pounds, you’re able to, and it’s 100 % utilized for business, you can fully write off the vehicle in that year by having it as a vehicle itself. And that’s because it’s qualifies as personal property.the moment that you hook up utility lines to it and you put it on the ground, then unfortunately it’s gonna be either qualified as a transient unit if it’s being short-term-rentaled or it’s a dwelling unit as a long-term rental. So obviously if you’re gonna put RVs on land for a glamping business or something like that, you’re gonna want to utilize it as a straight-up RV rental first. Get it rented out a couple times.

and then 100 % for business. then once the depreciation is taken, you’re still utilizing it for business, but just in a different capacity. So we’re transitioning it over to a short-term rental or long-term rental, kind of however you want to see fit. And that is the best way to kind of get the most tax deductions that are actually state tax deductible. Because a lot of people don’t talk about this, but bonus depreciation does not really help with state income taxes.

Dylan Silver (01:10)
Yeah.

Hey folks, welcome back to the show. Today’s guest is a Frederick, Maryland based enrolled agent who works with investors across a wide range of verticals. Please welcome Bobby Mucka. Bobby, welcome to the show.

Bobby Mucka (03:00)
Well, thanks for having me, Dylan.

Dylan Silver (03:01)
I always like to start off at the top, Bobby, by asking folks how they got involved working with real estate investors.

Bobby Mucka (03:08)
Okay, well we kind of had a very humble beginning. I started this company, you know, just as a bookkeeping firm. It was just to make a couple hundred bucks extra at the end of each month. And we actually didn’t start out in real estate. We started in the non-profit space. So I was my first client, who I still have on my actual client list today. We just don’t charge them as much, but…

For that, eventually I branched out. I started getting into tax. it was a big jump from there, because I had to learn a whole bunch of different tax law and everything about all this interesting stuff on real estate, because there’s just so many different areas that you can work in. You can go into real estate lawyers. can talk to other accountants.

talk to realtors, short-term rental, long-term rental, construction, the possibilities are nearly endless, wholesaling even.

Dylan Silver (04:04)
Yeah, I mean the real estate avatar for an investor is not one specific thing. Whenever I have guests on here, you know, who are in one super niche area, like for instance, distressed real estate wholesaling, I kind of say, well, this is awesome that you’re doing what you’re doing. And I have personal experience and I can say this, people have to pivot seemingly every five years. And even in your business, you talk about pivoting. And so I want to ask you about that.

A lot of investors, I would say, may have a strategy that might work now, but it didn’t work five years ago or vice versa. I know a lot of fix and flippers out here in the FW may be seeing the margins are slimmer and slimmer or they may be moving more towards ground up construction, new builds. In your business, how much of it is kind of analysis and an advisory versus a strategic, hey, let’s mitigate taxes.

Bobby Mucka (04:37)
Mm-hmm.

Gotcha, so it is a, I would say it’s about 40-60. When we’re talking about consulting area, which includes the strategy and consulting in like one umbrella, yeah, would say 60 % is people just asking questions, and then 40 % is going to be, and next 60 % includes financial analysis, making sure that these properties will indeed actually potentially make money.

unless something goes completely awry. And then 40 % would be that tax mitigation, which I’m proud to say that last year we saved 20 of our top advisory clients in aggregate about $600,000 at this point.

Dylan Silver (06:27)
Yeah, unbelievable.

Congratulations. One of the things that I think about is, and we talked about this before the show, Bobby, is sometimes people think, well, you know, who do I go to for tax strategy? Because there’s so many different options. Tax attorney, enrolled agent, CPA, unlicensed people, right? And it’s kind of analysis paralysis, especially as someone myself who’s been in the business for two years.

before getting into the business, didn’t really know anything about tax strategy. It was very overwhelming. how do folks really find their ⁓ right people to align with in the tax strategy space?

Bobby Mucka (07:06)
So, first thing, don’t go unlicensed, ever. It’s just not the wise choice to make. Now, honestly, not all tax lawyers are tax strategists. I have a couple of lawyers in my client list, generally, a CPA or EA, we’re gonna be more aligned with strategy, but it depends.

So it’s not so much on the credential, it’s more of who you actually get with. So for example, I specialize with tax strategy, and then I also offer tax preparation. But there are CPAs and other EAs out there that just do the tax work. They just do specifically preparation, that’s it. Or they’ll do accounting, auditing. Because CPAs, they’re more generalized.

necessarily have to focus tax. Some of them, I have CPA clients that I file their tax returns because they don’t really do that. They’re working in big four. And then I’ve got friends that are CPAs that focus solely on tax and they do amazing work.

Dylan Silver (08:10)
Do you find that a lot of people who are getting tax advice and tax strategy are oftentimes being pulled in a couple different directions and then kind of end up deciding on their own? Because I see a lot of this at the level that I’m at, which I would say is, I haven’t done 100 deals, but I’ve done 20 plus, and so I’m kind of seeing behind the curtain. And one of the things that I’ve noticed is I’ll go to someone who seems to be

saving a lot in taxes but I’m realizing well that’s not exactly 100 % by the book and then I’ll go to someone else who’s really overpaying in taxes as far as I can tell and I’m saying well they would be saving you know tens of thousands of dollars if they want a different direction so what’s kind of the line that people should toe in your mind when it comes to you know what they claim as deductions?

Bobby Mucka (09:30)
Gotcha, so you want to focus on people that are aggressive in their tax strategy, but within the confines of the law. So the goal for most of that stuff is to have the appropriate documentation to make sure that you’re not lying and know, fibbing about, I drove X miles when it’s actually Y and it might be a little bit lower. You also want to make sure that

everything that you do is recordable and you actually document it. If you’re not documenting things, then I can’t really help you very much. Like I can put stuff that you, like if you give me like, I have 50,000 miles or never put exact zeros, anything as with zeros on the tax return, tip number one of like audit red flags, but because nobody drives exactly 10,000 miles. It’s very rare.

10,001 is less suspicion than exactly 10,000. But I’ve had people do that to me, and I’m like, OK, what did you actually drive? He’s like, I don’t have records. I was like, OK, well, I don’t know what you really want me to do here, because I’m supposed to put what you actually drove. If you can backtrack and figure that out, that’d be great. And ideally, stuff like that for a log book, you’ll want to make sure. What I tell all my clients is,

Dylan Silver (10:28)
Yeah, okay.

Bobby Mucka (10:43)
January 1st, at the start of the year, you’re going to write down what’s on the odometer for your business vehicle. And then you’re going to document every time you use it for business. Now that’s going to be date, where you’re going, who you’re meeting, kind of like why you’re going there, and then the mileage. If you can do that, great. And then last year, in the last day of the year, December 31st, you’re going to go ahead and write down the odometer again. That’s going to give you

your total miles driven, so beginning and ending of the abdominal reading, and then all your business, so then you have your personal miles too. So then we can come up with a ratio of business to personal use.

Dylan Silver (11:19)
What do you think about Mile IQ?

Bobby Mucka (11:21)
It’s helpful.

Dylan Silver (11:22)
It’s a good one, right? I’ve spread their kind of gospel. think it’s helpful to have. It’s like 90 bucks a year. say, if you can save thousands of dollars doing this, it’s helpful to have it. It runs in the background. I want to pivot a little bit here, Bobby, and ask you about when folks are scaling a business, should they reach out to attack strategists? I mean, I think a lot of people kind of kick the can down the curb until they’re thinking, well, when I’m making X amount of dollars, this is when I should do it, or when I’ve closed this amount of deals, or…

Bobby Mucka (11:23)
Yeah!

Dylan Silver (11:49)
You know, at this point in the year, if someone is a newer entrepreneur, when should they start thinking about tax strategy?

Bobby Mucka (11:55)
would say when you start a business, you should consult with one at least for like an hour just to kind of get your bearings. If you’ve never done a business before, it can be a big shock that you have to keep track of all these things because you actually have to do additional work. I mean, there’s a reason that you’re your own boss. just to get what incomes are, deductions are, the basics. You could meet with me for an hour.

my initial consults are only like $200 for the first time you meet with me, then it goes, bumps up to 300 an hour. But once we get that baseline down and you kind of have an understanding, great. Like you’re off to the races, you probably only need to see me once a year at that point, unless you’re making over 40, $50,000 a year in net profit. Once you hit that point, then there’s additional tax planning that we can start talking about, as in,

going getting an S corporation and then looking into other deductions as well once we get that. But then after that, you’re going to want to be in probably the $150,000 to $200,000 net profit area or at least total income area before you really want to have regular meetings with a tax strategist such as myself. And that’s because we need capital and we need time.

to invest, and you’ve got to pick one or the other or a mix of both. Because obviously, if your goal is to become a real estate professional, you need to put a lot of hours into that, at least 750. Meanwhile, if you want to do short-term rental, the requirements are a lot less. It’s 650 hours less, or maybe a little bit more than that. And then if you wanted to do totally passive whatever,

Like, there’s really, you just need more capital for that. So the capital and time, the more capital you put in, the less time you have to put in usually, and vice versa.

Dylan Silver (14:30)
You know, and we were talking about this before hopping on the podcast. There is a benefit to, in some case, in many cases, showing a larger income, even if you pay a little bit more in taxes, because you can qualify for other types of loans. And so I’ve encountered this quite often on this show because I’ve spoken with people who’ve, you know, written off everything and now they can’t go the traditional route. So they have to do DSCR loans and creative finance and

so on and so forth. And so it is a little bit of a double edged sword because if you show that you didn’t make a whole lot of money then what are they going to base the loans off of right. And they’re going to have less less confidence there. I’m curious to get your perspective on a couple different real estate investments. And of course no one has a crystal ball and no one is is one size fits all strategy. But a couple of things that have really piqued my interest and a lot of the listeners interest on this podcast lately has been like land deals.

and I’m out in Texas, right? So we’ve got tons of land, but in other areas as well. And there’s even some plays like storage facilities where people can get SBA loans, because it’s considered an active business versus like a long-term rental property. So I’m curious to get your perspective. Maybe don’t give away all the gold, but maybe give us away a nugget. What are some strategies which may be better from a tax-saving perspective than others?

Bobby Mucka (15:50)
Gotcha. So when it comes to land, obviously we can’t depreciate land. So that’s kind of a wash right there. It doesn’t really help when it comes to taxes. But generally, you’re specifically you’re buying like kind of vacant land, raw land, stuff like that, you can rent it out as hunting land. You can do glamping, camping. You can park RVs on it.

And the RVs themselves, if you, well, this is like one of my favorite tax deductions, but

there’s something called the RV strategy where you utilize section 179, assuming that the RV is over 14,000 pounds, you’re able to, and it’s 100 % utilized for business, you can fully write off the vehicle in that year by having it as a vehicle itself. And that’s because it’s qualifies as personal property.

the moment that you hook up utility lines to it and you put it on the ground, then unfortunately it’s gonna be either qualified as a transient unit if it’s being short-term-rentaled or it’s a dwelling unit as a long-term rental. So obviously if you’re gonna put RVs on land for a glamping business or something like that, you’re gonna want to utilize it as a straight-up RV rental first. Get it rented out a couple times.

and then 100 % for business. then once the depreciation is taken, you’re still utilizing it for business, but just in a different capacity. So we’re transitioning it over to a short-term rental or long-term rental, kind of however you want to see fit. And that is the best way to kind of get the most tax deductions that are actually state tax deductible. Because a lot of people don’t talk about this, but bonus depreciation does not really help with state income taxes.

Dylan Silver (17:30)
Yeah.

Bobby Mucka (17:36)
⁓ Now, in Texas and Florida, where there’s no state income tax, sure, there’s no issue there. But in states like Maryland, where I live, yeah, and I get taxed like an effective 9%, and it’s very high. Also, high cost of living, so we’re actually looking at moving to Tennessee or maybe Texas, we’ll see. yeah, there’s a lot that you can do with Section 179, because basically every state in the union adheres to it.

Dylan Silver (17:52)
Yeah.

Bobby Mucka (18:02)
It just depends. But almost zero states adhere to bonus depreciation.

Dylan Silver (18:06)
think a lot of ⁓ RV owners will be happy to hear about that strategy. Just don’t hook it up, right? You can’t hook it up. But if you don’t, you can take advantage of some strategy there. Bobby, are coming up on time here. Where can folks go if maybe they’re in the Maryland area, the DMV area, or they’re anywhere in the country, and maybe you’re looking at some tax strategy or would like to reach out to you and get your feedback?

Bobby Mucka (18:30)
Yeah, of course. anybody’s well within the rights to reach out to me on my Instagram, @BobbyMucka. You can also go to my website, ⁓ www.thefinancialstrategists.com. And then, of course, I’m also all over Facebook as well. Same name.

And yeah, you can book me on my account. I think I have it on all of my website and my social media.

Dylan Silver (18:57)
Bobby, thank you so much for coming on the show here today.