Having helped thousands of investors across the US to save on taxes, Matt MacFarland and Amanda Han are founders at Keystone CPA, Inc. As both tax strategists and real estate investors, Amanda and Matt combine their passion for real estate investing with their expertise and knowledge in tax strategies. Their goal is to help investors with strategies designed to supercharge their wealth-building using entity structuring, self-directed investing, and income offset opportunities to keep more of what they make.
Amanda and Matt’s highly rated book Tax Strategies for the Savvy Real Estate Investor is amongst Amazon’s top seller list.
They are also frequent contributors, speakers, and educators to some of the nation’s top investment and self-directed IRA companies. Their cutting-edge tax strategies have been featured in prominent publications including Money Magazine, Realtor.com, and AllBusiness.com. Matt and Amanda were speakers at “Talks at Google” that features influential thinkers and creators. They have also appeared in CNBC’s Smart Money Talk Radio as well as BiggerPockets podcasts.
Matt and Amanda specialize in bringing top-notch tax-saving strategies that are traditionally only available to high net-worth clients to everyday investors nationwide. They both have experience working for the “Big 4” CPA firms specializing in the real estate and high net-worth individual specialty groups. Amanda is a graduate of UNLV and Matt is a graduate of UCLA with a Master’s Degree from USC. Both of them are certified by the CA State Board of Accountancy and are members of the prestigious American Institute of Certified Public Accountants (AICPA).
Episode Notes:
Narrator This is The Norris Group’s real estate investor radio show the award-winning show dedicated to thought leaders shaping the real estate industry and local experts revealing their insider tips to succeed in an ever -changing real estate market hosted by author, investor, and hard money lender, Bruce Norris.
Bruce Norris Thanks for joining us. My name is Bruce Norris and today we have two special guests that have been with us many times before Amanda Han and Matt McFarland, they’re founders of Keystone CPA, having helped 1000s of investors across the US to save on taxes, Matt McFarland and Amanda Han. As both tax strategists and real estate investors, Amanda and Matt combine their passion for real estate investing with their expertise and knowledge and tax strategies. Their goal was to help investors with strategies designed to supercharge their wealth building using entity structuring self directed investing in income offset opportunities that keep more of what they make. Amanda and Matt’s highly rated book Tax Strategies For Savvy Real Estate Investor is amongst Amazon’s top seller list. They also frequent, our frequent contributors, speakers, and educators to some of the nation’s top investment and self directed IRA companies. Their cutting edge tax strategies have been featured in prominent publications including Money Magazine, Realtor.com, and AllBusiness.com. Matt and Amanda were speakers at Talks at Google that features influential thinkers and creators. They also have appeared in CNBCs smart money talk radio, as well as BiggerPocket podcasts. Matt and Amanda specialize in bringing top notch tax saving strategies that are traditionally only available to high net worth clients to, to everyday investors nationwide. They both have experience working for big CPA firms specializing in real estate and high net worth individuals specialty groups. Amanda is a graduate of UNLV and Matt is a graduate of UCLA with a master’s degree from USC. Both of them are certified by the California State Board of Accountancy and are members, other prestigious American Institute of Certified Public Accountants. Ah, that has grown over the years.
Amanda Han Oh, man, sorry. Where did you find that bio?
Bruce Norris Welcome, you guys. That’s funny. I’m just curious, what’s the mood of the taxpayer this year, as compared to the past?
Amanda Han The mood of the taxpayer? Um, gosh, I don’t know, for this past tax season, I think pretty good. You know, we’ve been in arms of last year about all the pending tax changes that may or may not, you know, may or may not happen in 2021. And ultimately, none of those proposed changes became reality.
Bruce Norris That’s right.
Amanda Han Somewhat celebratory.
Bruce Norris So, in prep preparation for this, I was like, okay, all the tax changes for nightmare 2021. Pretty, pretty not, not a very long list. But okay, I want to ask this. I would think most of your clients own their own home. Would that be accurate?
Matt MacFarland Yeah, probably a hard yeah, 100 percent, for sure.
Bruce Norris Okay. I wonder if the mood would be different if you’re a renter. Because if you have that, if you have goodies, if you have assets, that you probably enjoyed, you know, the last year and a half extremely well. And if you’re on the other side of that, you probably didn’t, be my guest. But I’ve just wondered what your clientele basically, you know, how they, how they had, how their mood was, I know, Susie Leivas, who does taxes in Riverside, you know, it was interesting, you know, she could take temperature, like 2006 Everybody was refunding their home twice a year, and it was just a bird’s eye view of what was going on. So, yeah, most of us are pretty happy that nothing dreadful happened.
Matt MacFarland But I think it’s also probably also depends on whether the person happened to have to pay taxes for the April 15 deadline or not, right. So, you know, we have a lot of clients that extend their tax rooms are waiting and K ones waiting for different things. But, uh, you know, a lot of our clients file their returns and, you know, clients pay their, pay their extension taxes do as well. So I, to some extent, for sure, there’s a lot of people that actually had bounced back years after COVID. And they, you know, weren’t necessarily expecting that for whatever reason. So, you know, even though no, tax changes happen, per se. I think some of them were still kind of, you know, not quite expecting what was coming, you know.
Amanda Han I do you think last year 2021 was year the refi, like you said, you know, the homeowners, the investors. Gosh, the vast majority of our clients had refinances on homes, on rentals, you know, pulled cash out. So, that was good. I would, it was also the year of 1031 exchanges too. We probably did more 1031 exchange calculations, than, you know, most recent previous years as well, just people moving their assets, you know, into other real estate. So, yeah, it’s funny, we kind of joke, you know, in the midst of tax time, we’re saying, hey, for some of our newer staff, you know, which tax returns can we give to them, right, the easier returns and we almost couldn’t find any there were no easy returns, everybody had refinances pulling from one property and reinvesting in another. Everyone had 1031 exchange where you sold one California bought, you know, five Florida property. So, no real simple returns for this past year.
Bruce Norris You know, what’s interesting about what you said, so, you talked to them about them refunding, let’s say, their rentals, did a lot of people in the last couple of years refi their residents? And do you think that will alter their selling habits going forward, if you have a two or 3% mortgage in place? What would be the motivation to get a five or 6% one going forward? Do you think that’ll make people retain their home maybe longer than they thought they would?
Matt MacFarland I think it’ll definitely play into the conversation and the decision making process for sure, right. And we had clients refine their primaries to, you know, use the money for rental properties, we, you know, you know, some clients are reifying rentals and use that money to buy rentals or doing improvements on whatever you know. So, it’s, it works both ways. They were just people were tapping into the equity they had built up over the last year and a half. So, yeah, a lot of money was moving a lot last year for sure.
Bruce Norris In your client base, according to California Association of Realtors, about 33% of sellers left the state, which is really a high number in percentage to me, your client base did they would percentage sold and did they stick around?
Amanda Han I mean, we haven’t ran the numbers to see what percentage but a noticeable percentage, I would say, last year as well as this year, we have a lot of clients who retired, right, that don’t need to be in California anymore. So, moving on to states, we also have a lot of clients in the tech industry. A lot of them, you know, Northern California, who no longer needed to be here because their employers didn’t require that anymore. So, yeah, I don’t know the actual percentage, but definitely noticeable. And, you know, I would ask them, because I you know, we’re still in California. So, I always ask them, like, do you miss it? You know, what do you miss about California? Most people say they don’t miss California, which makes me sad, but I guess that’s a good thing. You know, they like wherever they moved to.
Bruce Norris They miss the tax bill. That’s what they miss.
Amanda Han They don’t miss the tax.
Bruce Norris Just for fun. I have a presentation tomorrow. But so I had to calculate U-Haul cost. And I am not going to remember that exactly. But this is U-Haul going from San Jose to Austin. So, the tech, the tech world. Okay. So, San Jose to Austin is approximately $9,500. The reverse strip is about $1,400.
Amanda Han Wow, that sounds about right.
Bruce Norris Anyway, I wanted to kind of start off with a worst case scenario tax bill. So, I make my money, self employed, let’s say. And I make more than the maximum for federal and state numbers. So, I’m going to get taxed as much as there as it’s possible. So, what is my tax rate? I’m just curious. So if I, if I am self employed, I pay Social Security up to what amount?
Matt MacFarland Social Security pay up to approximately $140,000.
Bruce Norris Okay.
Matt MacFarland It does change every, change every year a little bit, but.
Bruce Norris Yeah, and the percentage of that is about what?
Matt MacFarland 15.3%.
Bruce Norris Okay. But only for first 140.
Matt MacFarland Yeah. And then after that, it’s only like, you know, 2.9% of all 3%.
Bruce Norris Now, why do you say that? Is that, is that have to do with Medicare?
Matt MacFarland Yeah. So, after 142, Medicare, Medicare taxes, you know, basically unlimited self employed earnings.
Bruce Norris Right. Okay. And then California’s top rate is?
Matt MacFarland If you make I believe over a million bucks, you’re, you’re taxed at 13.3%.
Bruce Norris Okay. And the federal is like 30…
Matt MacFarland Currently, it’s 37% for the highest rate.
Bruce Norris All right, but that’s only for after 500 and some 1000. Is that right?
Matt MacFarland Yeah, yeah, approximately.
Bruce Norris Okay. All right. I just wanted to look at those numbers. That’s a…
Matt MacFarland Let’s let that sit in?
Bruce Norris Let me, let me not earn money in that category, please. Which is, which is kind of amazing. We have, we have some tools that allow us to not do that. So, it’s nice that those still exist. And so some of what we’ll talk about is what’s maybe next because there’s a lot of, there’s always been a lot of talk about what to tax next for people that have assets and wealth, but they haven’t gotten around to it yet. So, let me just ask a couple questions about the state of California, then we’ll leave that. Social Security, I have not taken a Social Security yet. But I have to in November, because I’m 70. Is that taxed? I’m not in California, but if I was, was that going to be taxed? By the state of California?
Matt MacFarland No, the state of California doesn’t tax that, so.
Bruce Norris That’s cool.
Matt MacFarland Yeah, the IRS does, obviously, but the state of California does not.
Bruce Norris Okay. I didn’t know that. That’s good. Is the capital gain tax in California different than regular earnings? Or is it the same?
Matt MacFarland Same for California, California doesn’t have any special capital gains rates, you’re just gonna pay whatever your marginal California tax bracket is.
Bruce Norris Okay. So, no benefit. All right. So what are the changes that actually occurred in 2021? This is going to be a very boring small list.
Matt MacFarland Yeah, I admitted it actually is it’s trying to think back, you know, we were so inundated with the Cares Act and COVID and everything that there’s so many changes happening in that 2020, right, that 2021 had a had a few things, but nothing, nothing major, because it was always the threat of what’s coming, what are they going to change, and they just didn’t get around to changing of 2021. I know that the CARES Act, or that was American rescue plan, one of those they, they made a lot of student loan forgiveness to be tax free. So, that was kind of new for 2021. We saw some taxpayer, some of our taxpayers trying to think of their big picture stuff that…
Bruce Norris There virtually isn’t any.
Amanda Han Yeah.
Matt MacFarland I mean, that’s, that’s the only one that comes to mind off the top of my head but.
Bruce Norris When you have a retirement account, you know, it’s, I think it’s 72, you’re supposed to start withdrawing. And then they kind of paused that, because of the downturn of the stock market and everything people having to force sell assets that were sort of way below where they were. Did that continue? Or is that been reenacted where you have to take, you have to take the income?
Matt MacFarland Yeah, that was that was brought back into play. So, it’s back in a reenacted. So, you do have to start taking your required minimum distributions. They did change that age, as you noted, from 70 and a half to 72. I believe, you know, in the past year, there’s been some talk about extending that to 75. But I don’t know if you know, whether or not that gets added back or not, you know, who knows, obviously, but, but currently, it’s 72 years old, and you do have to start taking RMDs again.
Bruce Norris You know, what’s interesting about that, I don’t know if you’ve ever taken a look at the chart of how that progresses. But if you think about life expectancy, the maybe we’re what at 82, or something like that. You think if you started 72, you’d be taken 10% of whatever it is.
Matt MacFarland Yeah.
Bruce Norris It’s nothing close to that.
Matt MacFarland No, it’s I think it works out like a push, pushes you into your 90s for sure, right? If I…
Bruce Norris No, it’s 104. Last time I checked, I was looking at it because I’m thinking again, I’m 70. So, I think okay, well, I’ve got to do some of this. And then I saw the amount I had to take, which was basically going to be the interest on what I get. So, it’s not really a withdrawal of anything. It’s just that was funny. And then it kind of progresses, but it went past 100. So, I just thought, Okay, well, that’s…
Matt MacFarland Well, I don’t know, I just saw, I just saw a headline recently that the world’s oldest person at 190. And you just passed away. So, maybe the IRS knows more than you do. I don’t know.
Bruce Norris If he was on Social Security, man. You made out…twice, yeah, literally almost twice the age. All right. So, let’s talk about some of the things that are being contemplated. Are they going to get resurrected? You know, and or is this an election year? We’ll probably have nothing happened again. So, what, what’s on the list and what do you think, has a chance to change the game?
Amanda Han I like how you use the word resurrected, because it definitely feels like that. You know, when the original proposals that came out in 2021, we thought they were sort of gone for good, because they were eventually removed but now with the you know, 2023 budget. A lot of the previous proposal look to be back again in the original format. So, you know, increasing the top income tax bracket to 39.6%. And that’s for single taxpayers making $400,000 or more. And we still have that marriage penalty, which for married people in the highest bracket kicks in at 450. Instead of, you know, like 800, you know, a number like 800,000, or something like that. So, that’s almost exactly the same as what was in the previous proposal. Capital gains, I think that was also you know, same, same as the previous proposal, capital gains qualified dividends for those people making over a million dollars of taxable income to effectively tax that at 37%. Instead of the, you know, 20%.
Matt MacFarland Probably actually 39.6 If they go out and change the rate, right. So, yeah. So, basically doing away with the preferential the capital gains rate for the, it’s for the amounts in excess of a million dollars, but still, you know, it’s, it’s changing.
Bruce Norris That could be one house in California.
Matt MacFarland Yeah, I mean, it’s changing the game, right? It’s gonna change the numbers significantly.
Bruce Norris What do you think the reaction of your client would be? Just say, well, we’re not selling? Is that, what that’s…
Matt MacFarland
That’s the thing. It’s, I think it’s a give and take, right? It’s, there’s one, there’s one avenue where it’s like, I’m just gonna hold it longer, because the exit cost is going to be a lot more, right. Or it’s gonna, people who are making over a million dollars, it might encourage more short term trading, because the incentive to hold things longer than a year is gonna be gone, right?
Bruce Norris Right.
Matt MacFarland So, I think it just depends on you know, what the situation calls for?
Amanda Han Yeah, and I people might accelerate some sales into this year, too, right? If we, if it’s looking like this change will, will be in effect, January 1, 2023, you might see a lot more movement before the end of the year just for people to lock in that 20%.
Matt MacFarland
That is an interesting point, actually, is because some of this stuff, everything we’re hearing, you know, some of it is proposed to take place January 1, 2023, assuming it passes between now and then. And some of it actually may be effective as soon as the law is passed. So, like we’ve heard, we’ve heard the capital gains might be January 1, but we’ve also heard that might be effective, that might be the one that’s once a law is passed, signed by the President, it’s affected that same day. So, you know.
Bruce Norris The word retroactive hasn’t come up has it?
Matt MacFarland Not so much but.
Amanda Han Yeah, but also, you know, before there was talks of 1031 Exchange, right, being eliminated, repealed or limited. And so we all celebrated when that seemed to have gone away. And now that’s also resurrected as part of the budget proposal to cap that per year per taxpayer to $500,000. So, you know, you can basically…
Matt MacFarland 500 for single, right?
Amanda Han And a million for married. Yeah, so if you sold the building, you had, you know, several $100,000 worth of gain, you could still defer 500,000 via a 1031 exchange, but then you, you would have to pay taxes on the excess, right, and the remainder 200,000, it would be taxable. So, I think that’s something that could really impact investors decisions on when to sell, you know, when to sell maybe 1031, before the end of the year with before there’s limits, or maybe just not doing it, you know, if you have a large gain, that, you know, you can’t sell, you know, part of a property right part of a building, then they might be more, you know, open to keeping the property and just doing refinances to pull out the equity.
Bruce Norris Okay. What about the, the going after the existing wealth, a wealth tax? Is that, is that something that’s…
Matt MacFarland Yeah, I think that’s probably one of his that’s probably one of his biggest ticket items is he’s looking to implement this kind of, yeah, minimum, minimum tax on wealthy people. You can call it a net worth tax, you can call it just this minimum tax, but basically, people that it kicks in when somebody has a net worth of $100 million or more. You know, maybe that doesn’t apply to obviously a lot of people, but it would apply to enough people that they’re contemplating passing the law, obviously.
Amanda Han What I think is really interesting is they, they called it a billionaire’s tax, but like I said, it’s only it’s not on billionaires, it’s on people with 100 million or more in net worth, and I think that’s the one that’s already gotten pushback from, you know, from the political parties on, you know, not really in favor of something like that also, you know, the CPAs the profession has come out and indicated this would just be something that’s going to be difficult to in force, right having to essentially get valuations on net worth. Because not everything is, you know, readily available for evaluation, right. So, that would be a difficult one that, you know, hopefully won’t get too much traction in terms of passing.
Bruce Norris Yeah, that’s a crazy thought, appraising everybody’s assets every year.
Matt MacFarland Yeah, part of it would include, you know, obviously, it’s on your net worth. So, that would include taxing people on unrealized gains, right any other way.
Bruce Norris That’s a whole another topic in a way.
Matt MacFarland All right. And the way they wrote it was like, they’re going to somehow keep track, the tax you pay in this, there’s going to be a portion related to certain assets, I guess. And then a portion related your unrealized gains, is going to be like a prepayment of towards taxes you would otherwise pay when you actually have a realized, realization event later on when you sell the asset. I mean, just think of it. The nightmare of complexity stuff.
Bruce Norris What’s the next year, let’s say a stock market. You could have a good year, last year, you could have a terrible year this year. So, what happens then do you get a check back from the IRS as a credit? I’m glad you’re in the tax business. And I’m not. Wow.
Joey Romero Chris has a quick question.
Bruce Norris Yeah.
Joey Romero So, you know, a lot of these things didn’t pass. But one of the things that had people up in arms also was the IRS hiring tons of agents and the thought that there was going to be increased audits and things like that. How did that come to fruition?
Amanda Han Oh.
Matt MacFarland Well, they’re outside your door right now, Joey.
Amanda Han So, yeah, the proposal was to allocate a lot more funding to the IRS. I mean, to be fair, they didn’t say was all for additional audits. Some of it was for audits. The others were for IT advancement and taxpayer services, so that when you call, someone will actually pick up the phone and answer your questions. So, I know that the IRS has already increased headcount. And they’re aggressively doing so even as we speak. Now, how many of those people will actually again before taxpayer services vs. audit? We don’t really know yet. But yeah, I don’t think that’s a stretch. I think that is still their plan, because historically speaking, every dollar they invest into IRS enforcement, typically results in four to $5 of tax revenue at IRS level. So, you know, it’s it’s a good use of funding from, from their end. And of course, whenever someone gets a tax bill, from an IRS audit, usually the states will get a notification as well. So, if you owe IRS money, because you, you know, had a wrong transaction or reported something wrong. It’s almost automatic that you know, California as an example, will send you a bill shortly thereafter…
Joey Romero To snitch on you?
Amanda Han For their share. I think they call it, I don’t think they call it snitch it’s more just…
Bruce Norris Is it? Is it a commission arrangement?
Matt MacFarland It’s just some… sharing agreement…
Bruce Norris Okay.
Amanda Han Yeah, but if any, it is helped government right, because when, when the states get additional funding from taxpayers, that’s less money that the, you know, the IRS or the Treasury has to allocate to the states for funding, so yeah, helps both of them.
Joey Romero Okay, that’s gonna do it for this week’s episode of The Norris Group, real estate radio show and podcast. Please be sure to tune in next week as we are joined once again by Keystone CPA founders, Amanda Han and Matt McFarlane. See you then.
Narrator For more information on hard money, loans and upcoming events with The Norris Group, check out thenorrisgroup.com. For information on passive investing with trust deeds, visit tngtrustdeeds.com.
Aaron Norris The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669. For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.