Using Socratic questioning, we take a look at some questions most folks aren’t asking, don’t know to ask, or don’t think important enough to ask. The answer discussed today is about whether or not to pay capital gains taxes. What?! Huh?
Transcript: Hi this is Jeff Brown the “BawldGuy”. Today we’re going to discuss a lot of the lessons my mentors taught me using Socratic questioning. I never really liked that method of teaching in school but at least my mentors, when they used it, gave me the answer to those questions without messing around with me. That way you actually learned. What we’re going to do is I’m going to ask three or four questions today. I’ll give you the answer to one and later on, we’ll answer all of them. I’ll start out with for all of them, “What if I told you?” Number one, what if I told you that opting to pay capital gains, in many cases, is preferred to executing a tax-deferred exchange. Think about that. What if I told you, number two, that being prohibited by the tax code from using available depreciation against your job income is actually, most often, a pretty cool blessing in disguise? People just aren’t aware of that. Number three, what if I told you that taking a loss on currently held property in order to move it to a superior region is almost always a long term plus for you? The last one number four, what if I told you that taking dollars from Wall Street investments and putting them into real estate at zero appreciation for five years is almost always better than trying to make up for horrible performance in the same place that put you where you are today financially? All this is to point out one thing, it’s the questions and the answers that are so easy to get this days on the Internet, those aren’t the ones that are hurting you. The ones that are hurting you are the answers to the questions you may never know to ask. Now let’s answer that first one, what if I told you that opting to pay capital gains can sometimes be a lot more beneficial to you than executing a tax-deferred exchange? Here’s why, if the capital gains you’re going to pay aren’t so painful as to make you wince, and an example might be, you sold a property that if you made six figures on it in cash from escrow, yet your capital gains would only be $15,000. That’s a lot of money, that’s five figures. I understand that. When you pay that $15,000, here’s what you’re getting for your money, you’re getting a brand-new cost basis. You’re not taking the baggage of a tax-deferred exchange with you to the next properties. What this means to you is that every year’s depreciation will now be significantly higher in terms of actual dollars. It means that when you sell, if the property ever goes up in value, your capital gains will be significantly less because according to their own formulas in the Internal Revenue Code, it means that you made less money due to a higher original cost. That’s just one answer to a question most people don’t know to ask. We’ll answer the other three in a few times out. I want you to remember, get the answers to the questions you don’t know to ask by hiring an expert. An expert knows the questions and the answers. This Jeff Brown, the BawldGuy. Thanks for joining me today. I’ll see you next time out.