How to Pay Less Tax on Real Estate | Proactive Tax Planning for Investors

Kevin Schneider (00:00)
So what we’re doing is we’re cost segregating on the front end, but we’re gonna get a bigger result because instead of where a cost seg, you might write off thirty percent of the property.

I’ve seen clients we’ve been writing off eighty, ninety percent of properties. If I can get a allocation in the contract, get an allocation and work with them, you might be able to get an eight hundred, nine hundred thousand dollar legal tax deduction on this one short term rental property if we can allocate that purchase price under ten sixty, in the facts and circumstances align. And there’s a lot more nuance to it. Not every client can do it, not every purchase can do it because there has to be tax treatment.

Quentin Edmonds (02:10)
Hello, everyone. Welcome to the Real Estate Pros Podcast. I am your host, Q Edmonds, and I am indeed excited to be here today. My guests sometimes have a way of right before I come on, there’s like this connection that we make that really just

Actually puts me at ease sometimes. And you know, I know I do this all the time, but it’s always good to know we have someone on the other end that kind of see things the way you do, you know, worldview. And so, man, I’m so excited for us to get to talk to this gentleman today. Is a CPA company is a CPA. They want you to maximize on your taxes, and y’all know how I feel anytime we can talk about.

Proactive ways when it comes to tax, I’m all for it, especially within the real estate space. They have a podcast, they’re doing some great things. They they are really kind of getting ahead of the curve. And so, from his words, it’s so much people can do with their taxes. And so I’m so excited to peek through his lens, the gleam through his experience. And I want to introduce you all to Mr. Kevin Schneider. Mr. Kevin, how are you doing today, sir?

Kevin Schneider (03:19)
Man, I’m doing so good. Thank you for having me here today. I’m excited. I know tax could be a it it’s not a boring conversation. Well it it’s not a topic people wake up in the morning be like, you know what I want to do today is I want to just some Google some tax strategies or talk tax with my buddy. It’s like it’s not one of those topics that really hit at across the table at dinner. But man, it’s so impactful to people’s lives. It could make such an impact on how fast you build wealth, how you build wealth.

And taxes are honestly, it’s one of the biggest expenses on everyone’s balance sheet, typically. If you just are a budgeter and you go out there and you put your income on a on a sheet of paper, you put your mortgage, you put your utility bill, your food, your clothing, you put all those costs on there. If you put your taxes, your income taxes, on that list, and they’re typically hidden behind withholding, so you may not even feel them sometimes. And the government does that intentionally. But

Those taxes could be the biggest expense on your profit your personal profit and loss statement. And think of all the things we do to eliminate expenses in our lives. And sometimes people don’t even go after their biggest expense, which is taxes. Yeah. So man, I’m happy to be here and just talk how do we attack that biggest expense item.

Quentin Edmonds (04:34)
Absolutely.

Well, so we already know what your main focus is. The main focus is taxes. Like we know that it is about the business. But tell me a little bit about how you are helping your clients. Talk me to a little bit of your origin story, kind of how you got into this space, if you don’t mind. And then tell them, you know, where you are, like centrally, like what market or which state, you know, where you’re really helping people at. And so so help me out and talk to me a little bit, Kevin.

Kevin Schneider (04:59)
Yeah. So I’ve been a CPA for a little over about 20 years now. How I got into it, I actually I went to TCU, Texas Christian University, over here in Fort Worth. And I went there because I wanted to be a youth pastor. I like, you know what? This is gonna be great. I already I I know what I want to do. I love people and I already know all the answers. The answers to all the questions are gonna be Jesus. So I was like, this is gonna be easy. So I get there and I actually end up failing my religion courses because I was like,

There’s actual s like historical things you have to know. Genealogy. I was like, this is I don’t know if this is my calling. And so how I actually chose accounting is I was sitting around with my roommates playing video games and I turned to my roommate at the time. I was like, hey man, like, what are you doing? And he’s like, I’m doing accounting and finance. I was like, all right, cool. Let’s do that. So I signed up for accounting and finance in college because my roommate did. So it’s not some like grandiose, like, I had this vision and I want to be an accountant. It’s just kind of I fell into it.

But then as I started working my career,

I found that people see that it’s just so underserved in the tax side that a lot of people’s relationship with their tax preparer is here’s my documents. Let me know what the damage is. And I hate I I sat across the table from those types of clients who would, and that’s the kind of firm that I work for at the beginning of my career for the first like five or six years. They would just say, Hey, here’s my documents. I’d prepared their tax return.

Send it off and say, here’s what you owe or here’s your refund or whatever. There’s no intentional strategy at all. So I there is a better way to do it. And that’s when the bug started hitting me is because you can see the light click on the clients’ faces when you call them ahead of time and say, Hey, what if we did this in your business? What if we bought this asset? What if we bought real estate and were able to make this rental property you just purchased depreciate against your active W two income? There’s ways to do it. And then you go, I can do that. And then

Just seeing the lights turn on and then them actually growing wor net worth through appreciating assets such as real estate, which is a tremendous asset to be in. And at the same time we’re reducing taxes. I was like, What other investments are there out there? There are some, but man, real estate’s so hard to pass up. And so that’s that’s kind of what we do. We like to get in front of transactions with our clients. So a lot of CPAs are retroactive and

I’m not going to dog on all the CPAs, they’re not all that way. But what we try to do is if a client’s going into a real estate purchase, hey, we need to know. Call me, email me. I want to see the contract because a a common error we find is, you know, if you buy a a short term rental property, you’re going to buy the it’s if it’s turnkey, you’re going to buy the F F and E. You’re going to buy the furniture. You’re going to buy all the supplies and all that stuff with it. So it’s turnkey and it’s ready to go.

Quentin Edmonds (08:29)
Yeah.

Kevin Schneider (08:29)
Well, most of the time the lenders just put in, hey, we’re gonna sell all the equipment, all the furniture for ten bucks because the bank wants to lend on the actual house asset. They don’t wanna see two hundred thousand dollars of FF and E in the contract and then the house on top of that, then it’s gonna create lending issues. And so but on the tax side, I don’t want a ten dollar bill of sale in the contract because that’s a ten dollar tax deduction when we could get creative in the contract, get creative in the allocation of things.

and get that ten dollar bill of sale removed. And then it increases the amount of deduction we’re able to take if we can allocate sales price differently. And that can only be done before you close. Yeah. So that’s what we try to really get with our clients and add value on the front of transactions instead of retroactively when it’s too late.

Quentin Edmonds (09:15)
Yeah, yeah. Now I mean thank you. Thank you for taking me to the story. And listen, we’re gonna talk some systems and operational things, but it’s funny, I have to say, in another life I I was a mailman, right?

And I was a young guy, just you know, starting a family. And I went to the post office with the mindset, I’m not gonna be here long because I’m gonna be a pastor. My dad was training me, training me to be a pastor. I was like, I I know this is gonna happen. I stayed with the post office for 14 years. Like he didn’t God honestly had other plans. So when I listen to you talk, I’m like, listen, I hear you, I hear you loud and clear.

Kevin Schneider (09:50)
We

have a plan, but indirect steps, you know, it’s kinda man.

Quentin Edmonds (09:54)
Absolutely. Now I I ask most of my guests this. I’m gonna love asking you this because I feel like at the center of our businesses is us, the business owner, right? And so I often say destiny has no wasted moments. We’re borrowing from every leg of the journey. We’re borrowing from the failures, from the success, from the pivots. We’re learning we’re learning from it all. So I would love to know about your journey within to get into the space that you’re in. And now that you’re in it, you’re being successful. What has the moments taught you?

about yourself? What have they revealed to you? Has it revealed discipline? Has it made you more humble? Has it increased tenacity? Like what has the journey revealed to you about yourself?

Kevin Schneider (10:32)
That’s a very deep question. I would say, you know, as you as as I get tax returns from other CPAs, I gotta check myself because I can often get arrogant. So that may not be the answer you’re looking for, but I’ve noticed that about myself is I’m like, how does this guy not do it this way? How does it not do it? And you have to check yourself because at one point you were there. At one point I didn’t know. Maybe the client

wasn’t able to give all the facts and circumstances to their CPA and that CPA just did what the client gave him and, you know, maybe he could have done some more digging, but I’ve I’ve noticed that creep up in me as time goes on and I gotta check that ’cause I wanna always stay humble. I wanna stay lowly in a way that I’m not, you know, thinking of myself higher than and I don’t view myself that way. It just I I can notice as I get clients who have been underserved, I can see that creep up. So

That that’s one thing that’s kind of a it’s been reflective of me as a as a person just seeing that I never knew it was in me. I’ve always viewed myself a I’m just an accountant. No one really cares like, you know, it’s just who am I? And then but as a as you start developing a network and growing, it’s kinda like you gotta watch yourself and make sure you’re not arrogant.

Quentin Edmonds (12:30)
Yeah. Now I’m I’m gonna tell you why for me that res that rings true here.

Because, you know, as entrepreneurs, business owners, you know, there’s always a leadership aspect of it. Most of the time, you’re leading people, you got a crew, you got a team. And I always say there’s a difference between a self-aware leader and a self-confident leader, right? A self-confident leader, he knows who he is, but he will steamroll everybody because he knows himself. So it’ll be at the detriment of everybody. But a self aware leader, he’s at the complement of everybody. He knows who he is and he allows the skill set to breathe so everybody else’s skill set can breathe.

Breathe right along within the community that they build. So that’s why I really love your answer. And I ask these questions because so many people that’s listening, you are a leader. And it’s sometimes you got to take self-evaluation of yourself because sometimes you can be the clog. You can be the bottleneck yourself. You know what I’m saying? And so that’s why I really appreciate that self-reflective answer. I really do. I really, really do.

Kevin Schneider (13:27)
Yeah.

Arrogance in our industry could be very dangerous in the fact that because we view the way I view the me and my partner Mike, who’s not here, we view the internal revenue code as I guess opportunities. It’s it you view them as an incentive-based system. So there’s a lot of gray in tax code. And if you get arrogant and say, this is the only way I know, this is the best way to handle it. And you know, I don’t know why they would do this or structure it this way. And

At the end of the day, I’ve been wrong before, you know, and you have to to be able to say, Yeah, that was actually a better way to do it and learning and adapting to other professionals. And that’s why, you know, iron the iron sharpening iron, that’s why me and my partner Mike, we bounce ideas off. And I’m like, dude, does this work? And he’s like, No, but this does. And I was like, I don’t think that you know, we push on each other. And you have to have that that partnership is really good and key because working in a silo can be hard. I don’t think we’re meant to work independently. We’re built for relationship, we’re built for community.

And it just that’s the way I think it should be done. And now there is a room for soul practitioners, but it’s man, that’s a hard life and it’s not one I would wanna do right now.

Quentin Edmonds (14:35)
Yeah, man. So I I mentioned on this podcast a lot, you know, healing happens in community. And I get that from James 5 16. You confess your faults one to another so that you can be healed. Healing happens in community. Like you said, iron sharpens iron. And you know, I love the the amplified classic version. So when I when I go to that, it says that happens through discussions. And so that’s how it happens. So I love it, man. And so I can clearly see because you use this word a lot, structure.

And so I can clearly see there’s a lot of structure in what you and your partner Mike does at the business. And so I want to see if we can pull out maybe one operational thing that you two have in place that really helps you do business. Now I want to see if you can pull something out that way maybe, because I’m, you know, different industries that a lot of us are in, all of us are not in Texas, but still, what’s one operational thing you think people could put in place that will help them?

Kevin Schneider (15:31)
On the real estate side?

Quentin Edmonds (15:32)
Yeah, on the real estate business side, I mean of course we talking with real estate here, but I but

Kevin Schneider (15:37)
I got a good one for you on real estate. If you give me a give me a three-minute runway, I’ll kind of set it. So in business tax, if you were to buy or sell a business, let’s say you’re gonna be buying my CPA firm, right? Let’s say you give me one million dollars for my firm. There is an internal revenue code, it’s internal revenue code 1060. Internal revenue code 1060 governs the buying and selling of trader businesses. What all it says is that you and I have to agree.

Three, how to allocate that million dollars across what you’re buying. Because you could be buying furniture, you could be buying real estate, you could be buying my client list, you could be buying my software, you’re buying all these assets for that million dollars. So you and I have to negotiate and work out how do we allocate that million dollars? We take internal revenue code 1060 and we apply it to real estate transactions in the way that if you are buying a trader business.

i.e. a short-term rental. If you buy a short-term rental property that has an average lease time of seven days or less, and you materially participate in the management of that short-term rental, it is by definition a trader business. So if you’re gonna go buy a trader business, why can I not apply 1060? And 1060, the benefit of it is I can go to that seller and say, hey, I’m going to buy and I want to structure this sale and buy this rental, this short term rental property for one million dollars.

But I want to buy all the qualified improvement property. I want to buy all the tangible personal property. I want to buy all that for 400,000. I want to buy your flooring, countertops, cabinetry for two hundred thousand. I want to buy the pool, the land improvements, the decking, I wanna buy all that for a hundred thousand. Then I’ll buy the shell of the building and I’ll buy the land.

So what we’re doing is we’re cost segregating on the front end, but we’re gonna get a bigger result because instead of where a cost seg, you might write off thirty percent of the property.

I’ve seen clients we’ve been writing off eighty, ninety percent of properties. If I can get a allocation in the contract, get an allocation and work with them, you might be able to get an eight hundred, nine hundred thousand dollar legal tax deduction on this one short term rental property if we can allocate that purchase price under ten sixty, in the facts and circumstances align. And there’s a lot more nuance to it. Not every client can do it, not every purchase can do it because there has to be tax treatment.

There in in

Typically in tax, there has to be a winner and a loser, right? Yeah. Yeah. So the winner would be my client. I want all this bonus depreciation. The loser would then in turn have to be the seller, right? Because I’m buying all this property, they’re gonna have a lot more gain, a lot more recapture at ordinary rates. So they’re gonna pay more tax, which strengthens my client’s position. So if in the fact that, hey, we’re we’re the winner and the client and the seller’s not really losing, they’re neutral or they’re selling their primary residence, it weakens our position.

So that’s why you need to speak with us on the front end. I need to know, you know, what kind of property you buying. Can we implement ten sixty to the sale and to the purchase? And if so, we can move that tax needle three times of what a cost egg is.

Quentin Edmonds (18:42)
Yeah. Thank you, sir. Y’all heard it. Now that was a nugget. That was a nugget, man. Yes, sir. Let me ask you, man, what’s next for you in the business? What are you looking to solve or scale next, Kevin?

Kevin Schneider (18:54)
I real estate is where I I’d love to play in real estate. I’m looking to always further my knowledge, kind of like with applying 1060 purchase price allocation work to real estate. I’m always looking at, and me and my partner Mike are both doing this. It’s how do I interpret the tax code differently to different facts and circumstances? So what I need, I need more education, which as a leader, as you said, you know, it’s like I just need time. It’s like I’m leading a team, leading a firm.

I need time to actually sit down behind my computer and look and sit in my cave and scan internal revenue code and develop new strategies that may not be out there. We have some very good tried and true ones. I mean the multi, multi-millionaires and billionaires, they pay the lowest amount of tax. They they they pay their fair share, but they are also investing millions of dollars into tax counsel, millions of dollars into attorneys and all this to limit this big expense that they have.

We can take those same strategies. We know the strategies they’re using. A lot of it’s in real estate and apply that to the common person. And so my biggest job is to make sure I can get in front of people who may never have tax planned before and open their eyes to this wealth building tool that’s available and that’s tax planning. And that’s my biggest goal. I just want to I just want to reach the people.

Quentin Edmonds (20:14)
Yeah, there we go. There we go. So listen, you talked about reaching the people, everybody that comes on. I always like to get their philosophy on relationship and relationship building, right? So what’s your philosophy on building good, healthy relationships within business? And what are some of the relationships that have helped help you and is helping you thrive within business?

Kevin Schneider (20:34)
Yeah, and we’re looking for, you know, light kinded relationships. It’s it’s life’s too short to work with people who are rude. Life is too short. If if people get get a little testy with with staff or they’re disrespectful or, you know, cross a line that makes my staff uncomfortable, we me and Mike will step in and manage that relationship and try to get it back on track, or it’s just say, Hey, we’re not the right people for you.

That’s happened before. So we protect our staff’s relationship. I’m never just gonna blindly trust a client for revenue. It is people at first in our in our firm. But I also want to understand my client’s situation. I want to know, like I have a client who’s has some children who are special needs. Their tax plan looks way different than someone who doesn’t. I mean, they have a special needs trust and we’re organizing things there. Someone

I just need to understand and know my clients a little more. And it doesn’t, it doesn’t I don’t have to know everything. I just need to know I know what I need to know to develop a personalized tax plan. So I can only help people when they also give me information. It information can be a two-way street. I can give all the information out there in the world, but if I don’t know you bought a business or sold a business or did something, I need my clients to also communicate with me on the front end. So the relationship that I like is that.

One that we’re routinely talking and that we are discussing life. We’re discussing taxes. I mean, all of that stuff comes to the surface as you get to know your client. So relationship. Oddly enough, you know, my firm is Revo, R-E-V-O. So our core values are REVO. It’s just very easy. Number one in the core value that we have in our hallway of our firm is relationship. R is relationship. That’s internal and external. And kind of we were talking earlier. It’s like,

Relationship is what what’s gonna separate us as professionals in the future as tech gets better, as AI gets better, AI is not up to speed on tax planning. I r I use it, but it is not. But eventually it might. In five years, AI could replace the knowledge that I’ve gained over the past twenty years quickly. So what separates me from an AI robot is gonna be the human contact, the human relationship. And so that’s why the relationship is so important to us is

That’s that’s what really clients want. They want to know, hey, Kevin’s my guy. I need to call him real quick before I do this. You know, I need to be top of mind. Not in a creepy way, just top of mind if you do something, you know, if you make a business deal, buy something, call me, let me know. And let’s see if we could do something with it, you know?

Quentin Edmonds (23:09)
Yes, sir. Man, I’m looking at the time like, man, where did the time go? You’re the type of person I feel like I could talk to for at least at least a solid hour. At least. But listen, let’s say if if if we had two more minutes, is there anything that you feel like you feel like our audience need to know? Like maybe you came in with a message on your mind. I kind of just want to make space that if you had something on your mind that you can definitely make sure you landed. Is it something like that?

Kevin Schneider (23:38)
Yeah, I would say just view taxes through a different lens. It is not it does not have to be a liability. We are it is good be a good steward of your money. Pay to Caesar what is Caesar’s. Do not cheat, lie, steal, to save on taxes. Do everything in good faith, documented, defensible. But at the same time, your legal tax obligation could be zero. And if we can legally get your taxes to zero, you are doing your civic duty because I don’t I

Just looking of the way the past few years with all the governmental fraud and all this stuff that’s come to surface, I am not going to tip the government and pay them everything that I think that they should they just steward money terribly, right? I my job is to make sure how do we legally reduce your taxes, get the money out of the government’s pockets where it’s being laundered, fr defrauded, number of things, just wasted. And put it into your own pocket for your family, for your kids, for your

generation for whatever you want to invest and grow in, that is what I want to really change people’s mind is. Some people just see taxes and they ostrich in the sand shut down. And it’s something we can lean into and actually get at and you can see wealth generation from it if you just speak to the right people.

Quentin Edmonds (24:54)
Man, so well said, sir. So well said. Listen, if someone wanted to reach out to you, connect with you, collaborate with you, learn more about what you’re doing, how can they get in contact with you, sir?

Kevin Schneider (25:07)
Sure. revotaxpayer.com, R-E-V-O Taxpayer.com. That’s our website. We also in on our website you will have a podcast link. You can click the podcast. Or you can go to YouTube, we’re the Hidden Money Podcast. My partner Mike and I, we talk about random tax things, our stories, our horror stories and good things, bad everything. We talk about everything. We drop one episode every Tuesday. So check us out there, subscribe to us there.

But yeah, we’d love to talk to anybody. If you go to revotaxpayer.com, you can scroll and find a schedule a consult and then you can speak with me or Mike. We do free fifteen, thirty minute consults. Just want to get to know you, understand your situation a little bit and see how we can add value to you. Yeah.

Quentin Edmonds (25:48)
Well listen, sir, let me say three things to you sincerely. First, thank you so much for your time. I appreciate your time. I think time is our most precious commodity. So thank you for that. Secondly, thank you for your story. Thank you for just showing up as your authentic self, even when I say like the gift of your vulnerability. I often say Jesus taught in parables, he taught in stories. And so I feel like our life.

Is one big allegory and one big purple that people can learn from. So just thank you, man, for the way you share and thank you for your mindset. Thank you for the way you think and sharing that mindset here on this platform. I greatly appreciate you coming on, sir.

Kevin Schneider (26:23)
Thank you for having me. It was fun.

Quentin Edmonds (26:24)
Absolutely, absolutely. Well, listen, y’all heard my friend Kevin. You you heard him. All his information is in the show notes. Let’s lean into taxes. Look, this is my brother, and I know the Holy Spirit was speaking to him because I got convicted a little bit when he was talking. So I listen, let’s lean in, right? Let’s lean in. And so I definitely look him up, check him out, connect with him and his partner, but definitely make sure you’re subscribed here because I promise you we’re gonna continue to bring up amazing people just like Mr. Kevin

So, sir, I say thank you again. And everyone else, y’all have a fantastic day.