Ep 190: Answering Your Question - How to Save Money on Capital Gains Tax - More Knowledge, More Wealth

  📍 📍 Good day. This is Gabriel Shane, certified financial planner and your host of More Knowledge, more Wealth here on every weekend, talking about all important topics of personal finance. Our goal is to give you the knowledge you need to increase your wealth Now to the listener, you can always reach out to myself or anyone of my colleagues here at Falcon Mall Planning.

Our phone 📍 number is (855) 963-2526. That's 8 5 5 96 Falcon like the bird, or feel free to send us a message that we can either answer your question by sending it@radiofalconwp.com or we can play the audio message if you send it audio message on your phone. To radio falcon wp.com. Now folks, I'm the president of Falcon Wealth Planning.

We are the only non-commissioned true fiduciary where we talk about anything that involves a dollar sign. Folks, that's where you are today. Taxes, investments, estate planning, insurance, folks, you name it. Anything that involves a dollar sign we can help you with. And folks, we are offering a free financial assessment where we can help relate this.

Show to your specific situation, give us a call. We got offices all over. We help people all across the country. Got offices scattered throughout, and our headquarters is here in Southern California. Our phone number is (855) 963-2526. That's 8 5 5 96. Falcon like the bird where we can help answer the questions that you have, folks that is stirring in your mind, and just like John from San Diego, California.

He asked a question saying he recently sold a property that his family, his dad, excuse me. I had for 30 years. Let me a, let me actually just read it for you. My father, my father recently per uh, sold a property that he's had for 30 years and sold it for 3 million worth. Most of it being in capital gains.

What can I do to reduce taxes? Keep in mind, this gentleman, John, is in California, so not only is there. Federal tax, but there is state taxes. So the question is, what can he do to reduce taxes? My goodness gracious, there's so many answers to that, but we're gonna keep it simple, folks, because here's the thing, capital gains is subject to a special taxation.

Assuming you had the property for over a year. Well, John's father had it for 30 years. In a situation like that, he is. Not only getting a preferred tax rate on the federal level because he held it over the year, but he also has to factor in depreciation recapture. Now, because this property has been depreciated, cuz it was a rental property, uh, I'm assuming was a rental property, uh, he has to pay taxes on the depreciation that he's written off over time.

Now, keep in mind that is just, let's say they bought it for 300,000 and they depreciated down 250,000. They have to repay tax on what they wrote off. Okay. In addition to that, there is the growth on the property. If the property's worth 3 million now, and it was bought for 300, there's 2.7 million in capital gains tax, just a capital gains tax alone.

And the state of California is a million bucks. Are you? I mean, yes. Not including the depreciation we capture, depending on their tax situation, they can be paying over a million dollars to sell this property, whether they have a mortgage on it or not. Because some people do cash out refinances. Woo. Crazy situation.

Now, here's where it gets unique. You also have to factor what is the taxation? What is the income, what is the taxable income of dad in this situation? John's father's income is important in this because, and his age is important. I'm assuming he's older because he is had it for over 30 years, but you have to factor in.

If there is any ways that you could save money. For example, if John's father is working, he could save and try to maximize as much in a retirement account. He could save in the state of California, not only the 37% on the federal level, on ordinary income, plus the 3.8% surtax, uh, that they have the Medicare surtax, but that also the 13.3% California tax folks we're looking at like, what, 54 cents on the dollar.

Okay. Now, if you live in a state like Texas and you sell a property, all you have to worry about is a federal tax cuz there is no state tax in Texas, in Nevada, in Florida, in or uh, Washington. Get what I'm saying? So, Let's not digress. Too heavy here. So what strategies are available for this person? Well, a very popular one for capital.

Now, by the way, the first recommendation is assuming they needed a home, assuming it was a rental, assuming they wanted other investment property, they could have done something called a 10 31 exchange. This is why it's extremely. Popular this strategy to sell a property and buy a like kind property because you get to defer the taxes later.

You get to pass 'em over into a new property. So that's recommendation number one. But let's talk about recommendation number two. There are some investment mechanisms that you could do through something called an opportunity zone. Now, the benefit of this is you could sell that property and your proceeds are 3 million and put into.

Maybe an opportunity zone investment or a fund or whatever the case may be. Now you have to be careful, there's a lot of advisors out there selling some of these funds cuz they could get some pretty nice commissions of roughly 10%. Now, here at Falcon Wealth we're fee only non-commissioned true fiduciaries.

So if you invested a million, you would invest in a million, you would've only invest 900,000 cause you didn't have to pay a 10% commission. You know what I mean? So let's go in more. So if you have a $3 million in, assuming they didn't need it, And they're looking to save money taxes, you could put that 3 million in an opportunity zone fund.

Now, here's the benefit of that. You don't pay any taxes right now. You're deferring it and as long as you hold onto the investment for 5, 7, 10 years. But if you hit that 10 year mark, I don't care about the 10% tax free, the 15% tax free, I'm caring about the a hundred percent tax free on the growth that you have from the 5 million.

And let's just say in 10 years it doubles. Cuz that's kind of the goal to get that 7% and it goes to. 10 million. You get tax-free growth if you keep it for 10 years. Between that five and 10 million, between that. Uh, as long as you hold it for at least 10 years, that is substantial. And then you later pay the tax.

I want you deferred earlier on the 5 million of capital gains, or in this example with John's father, 3 million. So this is crucial. This could be very important, especially if you already recognize the event. Now, here's the thing. You'll only have 180 days after the property is sold or after the capital gain event is recognized.

So you have to be very cautious of this. Some people are worried about the tax, and then here's the thing, if you're still working, if John's father is still making additional taxes or whatever the case is, well that can be an issue. And the reason that can be an issue is because of the simple fact of you are able to look at.

Your situation, you are able to see what tax event you're in now and what you may be in later. This could be crucial for tax buying cuz ideally you're in a higher tax bracket now, which is why you're not recognizing it, and later on you might be in a different tax situation. Why the Bay folks, if you're just joining me, you're listening to the Gabriel Shaneen Certified Financial Planner, and you're hosting more knowledge, more Wealth here on every weekend, talking about all important topics of personal finance.

We are discussing with you on a question that we had from John and San Diego about his father's property being sold for a $3 million, uh, or I assumed $3 million, uh, capital gain in this example. And so how to reduce taxes. That was the biggest question. Had it for 30 years, how to reduce taxes. So the biggest thing, the biggest question is, is what's your income situation today and what it will look like tomorrow.

So that is tax planning. And most accountants out there just do tax preparation that you meet with 'em once, twice, maybe three times a year. That's a tax. Prepare not a tax planner, and this person doesn't know every single thing about your financial situation. They don't understand the assets that you have, the debt that you have.

They understand that you may have a mortgage. They don't understand how much is it, what your payments are. They don't understand how much you're saving into a retirement account. Which retirement account are you saving into? There is so much that matters, like your future social security, potentially pension, windfall, elimination provision.

Those who have it know what I'm talking about. So my point is, is this is why it's crucial to talk to a professional and in a situation like this, just asking a simple question is, what can you do to save in taxes? Sure. 10 31 could make sense. Sure, an opportunity zone investment could make sense to defer the taxes, but there are multiple other ways to do it and we just don't see people doing that.

Most of the time they are just doing of what their heart and soul feels they should do. This is why they get stuck with the tax bill and they get grumpy. This is why they say they wanna give their money to charity, but guess what? They give it at the end of their life. Well, there's no tax benefits at the end of the life.

I'd rather have you do something today to get the tax benefits today. Get what I'm saying folks, if you need help with us, give us a call. This is something that we specialize in. This. We do have done this hundreds, thousands of times. We've helped thousands upon thousands upon thousands of people. We have 800 people calling us a month.

We are blessed to be in a situation where we don't have a lot of competition, cuz we are fee only, not commissioned true fiduciaries that truly focuses on helping you increase your net worth, which is why our specialty is tax planning. You may not know this, it's the biggest tax that you pay. Folks give us a call.

We would love to help. We'll offer you one to two meetings, one to two hours of our time at no cost. Our phone number is (855) 963-2526. That's 8 5 5 96 Falcon like the bird, where we can put together a personal assessment to help. Answer these questions for you and factor in what makes sense and I'll can't stress this enough, there are situations where other people are not, and I'll repeat, are not taking advantage of some of these tax benefits.

They wanna give their money to charity. God bless you for doing so. I respect that tremendously. But my job is to make sure you get the most money and not the irs. And there are tax strategies you could do two day. I don't care what your income is. We just had a client this past week. Who has a $50,000 taxable income that's pretty low, and they have no kids, no heirs, no nothing.

They wanna give all their money to a charity, to a nonprofit when they passed. But there are tax strategies you could do today where you could still live off your money, where you could still have the income, where you could still have access, and you get a tax right off today. Now, in this situation, this person has.

Between the both spouses husband and wife, they have $250,000, $250,000 in retirement accounts. Well, how cool would it be to take their net worth of $3 million put into a vehicle where they can get a $300,000 write off, still live off the income for it because they have more money than they need, and then they still get a $300,000 write off, which, oh, by the way, they can then do a Roth conversion.

And that would be essentially a tax-free Roth conversion because they got a tax write off by earmarking, not giving earmarking the money of the charity, which, oh by the way, they live off the income folks. So many ways to save money if there's a will, there's a way, if there's a strategy situation out there, I promise you there's a strategy.

There's so many times I see that the IRS is winning. I listen, I've been kind of born into a sports family, played sports my whole life. And everything I look at is as a sport winning and losing, and it's a competition, okay? As, and you have to play fair or you go to jail, that means you get excommunicated from the league, okay?

You don't want that, so you have to win and you're competing against, in this case, you can be com ideally yourself, but there are somebody always against you. And in this case, I don't wanna say it's the government cuz the government is supposed to be. Your friend, but in this case it's the IRS because you have to pay them to participate.

All I'm recommending is for you to save more money in taxes. It's your biggest expense. If it's not the IRS, then it's your property tax. You get what I'm saying? There's always a way. Folks, we're gonna go on a quick break. We're gonna be right back. We're gonna talk about more tax savvy saving strategies and also a little bit about investments.

When we come back after a few words,

📍 📍 Welcome back folks. This is Gabriel Sheen, certified financial planner and your host of More Knowledge, more Wealth here on every weekend, talking about all important topics of personal finance. And today we decided to talk about a question somebody had about saving money on taxes. Now, there are ways to save money on taxes, but one is pre-planning, one is post-planning.

What does that mean? So if you are in fact in a situation where you know you're gonna sell a property, there are things you could do today with retitling properties, assuming that, uh, You are looking to live off income and not reinvest the uh, property into another property, assuming that your situation warrants it.

You could take advantage of a tax exempt trust, which allows you to put your money where you get a ride off today. Live off the income. And this is crucial. That can make a lot of sense for you, depending on your situation because remember, there is no secret around taxes. But the way I look at it is we're all here in a partnership and our partner is the irs, and there's only one way to get outta that partnership, and it's the buy amount, and there is a way to do it on.

Your IRA and retirement accounts, and there's a strategic way to do it when you have money in something that has high taxation and the way I look at it, this, your money goes three places. It goes to you, which makes sense. It goes to your heirs or it goes to the irs. Um, oh, excuse me. You and the heirs are the same person goes to the irs.

The last person goes to is charity, so you have to choose two of the three. So you are utilizing the charity bucket to your financial benefit, to your advantage. This could be a fantastic way, folks, for you to be able to get tax benefits today, live off the income, and still be able to help charity. If that's something you're excited for.

I've also seen people that have put their money towards setting up their own foundation. Now there's two type of 5 0 1 , right? Two types of charities. There's an organization like the Y M C A where you have employees. You're actually providing a service, so on and so forth. The other one is a foundation where you're distributing maybe 5% of your assets, two people who need it, two scholarship funds, two people of need.

This is another form to help. My whole point is this, if you could get a full on tax benefit by putting your money into a private foundation and you're able to help people, the only loser here, the irs, and so most people don't mind them being the loser. You get what I'm saying? So yet again, if there's a will, there's a way you have to be able to play and be strategic with putting your money to work Now.

I'll take it a step further. I'll also say that not only is it to save money on taxes, but you have to grow your money as well. And the problem that some people have is you have to put this money in an account. Well, that account just can't sit there earning zero point nothing. Suddenly, you may be really excited to earn 4% on three and a half to 4% on a money market right now, but that's right.

Now, it may not be like that forever. And so you do have to invest. And some people that are new to investing that may be like this person in San Diego or their. Father sold a property after 30 years of owning I made up it was 3 million. Well, they might not be comfortable with investments cuz all they know is real estate.

So you have to understand how it works and how money works and what you should be doing. And you have to not be intimidated by the things you don't fully know that you're not knowledgeable on. You have to look at the history of it. And I understand real estate has a longer history. Real estate's been a around as long.

As anybody can remember, that's all every people were fighting for back in the day was land. Everything is land from 2000 years ago during the Mesopotamia era to even 5,000 years before that. The idea. Is that I understand that your comfort level is real estate. In this situation, you would have to put your money into something that's more liquid, more predictable, and easy to value.

And this is why the stock market is helpful in something like that. Now, you don't have to go choose individual stocks, right? Because companies can go to zero, but indexes can't go to zero. The s and p 500, which is the target in the SE that most people look at, averages 10% rate of return. Now the recommendation is to be globally diversified, to not have just the largest 500 companies, but the medium, maybe 600 companies and the small 2000 companies is to have the total of the global US market.

And then you want to add international to that as well, because you don't know what's gonna happen. We could be seeing another 10 years like we did from 2000 to 2009, or because of the tech bubble and the 2008 financial crisis, a million dollars in 2000 in the s and p 500 went to 900,000 by the end of 2009.

In 10 years, you lost a hundred thousand dollars, so your money didn't even grow and it was eroded to inflation. But if you had a globally diversified portfolio, you actually doubled your money in that period. You get what I'm saying? So yeah, you may, may lose money on the upside. But you make money on the backside over time.

Diversification, that's the key. Now, diversification doesn't always work. What does that mean? Well, it always works, but there's periods of times where you maybe get punched in the face. For example, the s and p 500 might be up 10% for the year. Well, small caps have gotten really punched. Historically speaking.

Small sized companies outperform large cap companies. Why it's easier for them to grow. It's a lot faster to grow from $10 to $20 versus 1 billion to 2 billion. You get what I'm saying? So historically speaking, it does over a 12% rate of return, but because of the whole regional bank failures, small cap companies have significantly underperformed and done very poorly.

So what does that mean? Do you get out of small caps? No. What you do is you get into that. I could argue it's a great time to do it. I'm not telling you to go buy and put all your money in there. Right. Not giving any investment recommendation. But what I'm saying is you don't wanna be fearful. This is the time to be greedy.

When everybody's fearful, as Warren Buffet says, that's when you be greedy. It's when everybody's greedy is when you should be fearful. And it's almost like the idea where in 2019, 20 and 21 tech companies did fantastic. But then last year in 2022, tech companies did extremely bad. They did poor. Why is that important to know?

Because by the simple fact is, is that every, a lot of people sold out. You saw a massive outflows of like the Q Qqs of the world and some of these other ones of the, of these tech funds. So what's happened this year? It's, its up 20% now. It's still significantly down from 2022 to now, right? Cause if you have a hundred thousand and lost 40%, you're at 60.

Who cares if you've made 20% on the 60, right? You only made. 12,000, you're still at 72,000. You're not back at a hundred. You get what I'm saying? You're still down 28%. But the point is, is you don't want to freak out. And in high interest rate environments, tech does significantly struggle, but it's recovering from what it did last year, which is why you never sell everything.

Okay. By the way, folks, if you're just joining me, you're listening to Gabriel Shaheen, certified financial Planner and your host of More Knowledge, more wealthier on every weekend. Talk about all important topics of personal finance and say, we're just talking about the whirlwind of taxes and investments and putting your money to work, and there are ways to legally avoid taxes.

Always. You just have, you can't have it all right? You can't just say, Gabriel. Take you or Falcon Wealth, take this magic pen and just boom, make taxes go away. It doesn't work like that. So you have to be strategic with this and as long as you know you can't have your cake and eat it too, it doesn't work that way as long as you know you have to be strategic of how this stuff works.

Then you're able to truly take advantage of tax strategies. The issue is, I see most people not doing it, not wanting to change, not wanting to affect anything different than what they've already done. But how are you supposed to progress? You know, taxes are inevitable. You know, there's nothing you can do about it.

So how can you expect to have a different outcome when you don't change your input? So this is why it's important to talk to a professional folks to take a look at your situation and let you know what you should do. Not all financial advisors, just like not all properties are made equally. You have to understand that each one has a niche.

Now, our niche is tax planning. Our niche is investment management and overall wealth accumulation to make sure your net worth goes up. That's how we get paid. We get paid by making sure that we take a look at your situation, whether simple or complex, and making decisions to make sure your network goes.

Now we don't quote a fee unless we can save you much more than what we quote you. But the fact of the matter is simple. Help our clients. We are offering one to two meetings, one to two hours overtime at no cost to help answer the questions that you may have. To save money legally in taxes and make sure you are invested properly and not chasing the bandwagon of what may sound good right now.

You have to be smart and diligent about this and understand Rome. It wasn't built in one day, and you have to take the ups and downs, just like in life. You can't only have happy times, you have to have the ups and downs to appreciate the good. And on top of that, you learn more from the bad times than you do the good times.

It's human nature, it's natural, it's common sense. So factoring all of that, what are you doing now to better your current situation? Take a look at the negatives that are happening currently right now to see how can you make those into positives. Take a look at a high tax situation to see how can you lever, leverage other mechanisms in your financial situation, whether it's real estate, whether it's retirement accounts, whether it's cash, whether it's charity, to make sure that you are maximizing the tax.

Optimization to making sure you are winning and not the irs. You wanna do things legally, folks do. You do not wanna just make things up cuz you will get caught. The IRS may not be the smartest out there, but they're not the dumbest. You get what I'm saying? So do not play that game with them. You're gonna wish you never did.

So you wanna make sure you're clean, you wanna make sure you're smart, you wanna make sure you sleep well at night because of it all. My point is, is you have to be strategic and that's what we can help you with. We talked about tax saving vehicles. We talked about just a couple of 'em. We talked about tax exempt trust, we talked about opportunity zone, we talked about a 10 31 exchange.

There's some oil and gas plays that you can do that gives you 85% write-offs on the front way on the front end. We talked about private foundations. You can even set 'em up. You could set up your own private foundation, which takes money away from your estate, which gets you a tax write off. These can be ways to help significantly, assuming you're keen to giving part of your money away.

But remember, you're either gonna give it to the IRS or you're gonna keep it yourself, or you're gonna give it to charity. You can only choose two of the three. You get what I'm saying? Some people prefer charity, some of the billionaires in the world. The only reason I hate to say this, maybe I won't say the only reason, but a big reason they give a lot of their money is because they're either gonna give it to the IRS or charity.

They're thinking to themselves, might as well make a legacy of my situation.

And if you're not interested in a legacy, there's other strategies there where you can at least maximize your income that you're getting. Or if you're significantly wealthy, there is significant things you can do to also avoid estate tax as well. These are the things that we can help with, not just for the mega wealthy, but for us.

The normal people. The people out there that just, some of us are trying to get to financial security, they just want, they don't need to increase their lifestyle. They just don't want to decrease their lifestyle, retirement. They wanna maintain it. This is what we do. We focus on the mass affluent folks, and that's for people that their goal is just trying to retire.

That's who we want to help with. I grew up in a blue collar family, and that's all that we care about. We cared about health over wealth, being a good person and just feeling secure. Folks, if you need help with that, we would love to do it. Our phone number is (855) 963-2526. That's 8 5 5 96 Falcon like the bird, where we can help put a personal assessment for you yet again to answer the questions that you may have and to relate this 📍 show to your specific situation.

Folks, that was a fast, fast show. I wanna thank you for joining in with us this weekend. Feel free to reach out to myself or any one of my colleagues at 8 5 5 9 6 3. 25 26. That's 8 5 5 96. Falcon like the bird. And feel free to look at our website@falconwealthplanning.com. That's falcon wp.com for short.

And feel free always to tune in every weekend on Spotify or on Apple, uh, iTunes, uh, POD podcast where you can get this show in any one of our previous show. And remember, if you have a question, send it to radio@falconwpuh.com. That's radio@falconwp.com. Folks, I want you to thank you for tuning in with us.

have a great weekend, and God bless.