Featuring: Eugene Gershman (EG Real Estate Developer Podcast) & James Bohan, CPA, MRED

This conversation originally aired on the EG Real Estate Developer Podcast (Land to Legacy), hosted by Eugene Gershman, a show dedicated to breaking down the mechanics of development, finance, construction, and long-term wealth building.

In this episode, Eugene brings on CPA, fund CFO, and fourth-generation real estate developer James Bohan to explain why real estate developers pay almost zero taxes legally, and how changes in K-1/K-2/K-3 reporting transformed compliance forever.

James also dives into partnership tax, entity stacking, modular development, PACE financing, fund formation, and why most syndicators fail due to back-office mistakes. Whether you’re a developer, fund manager, or sophisticated LP, this episode is a masterclass in advanced real estate structures.

Summary:

This episode reveals how professional real estate operators legally pay minimal taxes, and why the U.S. tax code is designed to reward developers.

You’ll learn:

• How depreciation, leverage, and qualified non-recourse debt shelter income

• Why developers can pull out tax-free cash while growing equity

• What K-2s and K-3s reveal about investor allocations and global compliance

• Why tax reporting complexity just increased 10×

• LP vs LLC vs S-Corp vs C-Corp (and why C-Corps almost never belong in real estate)

• Entity stacking and management company design, the backbone of fund strategy

• How cost segregation changes for developers vs buyers

• Active vs passive income, what most CPAs mis-explain

• Real Estate Professional Status (REPS) and grouping elections

• Modular multifamily development: speed, cost, QC, financing, and risk

• PACE financing and lender compatibility

• What it really takes to raise a professional real estate fund

• Why back office failures destroy more deals than bad investments

This interview is a must-watch for developers, fund managers, family offices, and high-level operators who want institutional-quality structure and elite tax planning.

Watch the Full Episode:

FAQ's

1. Why do developers legally pay almost zero taxes?

Because depreciation, leverage, and qualified non-recourse debt allow income to be sheltered and cash to be pulled out tax free.

2. What’s the difference between K-1s, K-2s, and K-3s?

K-2s and K-3s break out detailed components of income for international tax compliance, making reporting far more complex.

3. Why don’t developers use C-Corps?

C-Corps trigger double taxation and are structurally inefficient for real estate.

4. What makes modular multifamily attractive?

Speed. Faster delivery increases IRR, and assembly-line construction reduces risk and improves quality control.

📞 Book a Tax Strategy Call with James:
https://calendly.com/jamesbohan/book-a-call

📨 Connect With James:
LinkedIn: James Bohan, CPA, MRED
Instagram: @jamesbohancfo
Website: stonehan.com

Chapter Breakdown With Timestamps:

00:00 – Cold Open: Trump, Zero Taxes, and Why K-2s and K-3s Exist
01:31 – Introducing James Bohan: CPA, Developer, Investor
01:52 – Why the Tax Code Favors Real Estate Development
02:47 – Depreciation, Debt, and Pulling Out Cash Tax Free
03:35 – Why DIY Taxes Fail: Complexity, Software Limits, and International Investors
05:02 – 199A, K-1 vs K-2/K-3, and the Rise of Global Tax Reporting
07:06 – Cost Segregation, Structure Strategy, and Entity Design
09:40 – Active vs Passive: What the IRS Really Means
12:49 – James’ Portfolio: Motel Conversion, Storage, Multifamily, Modular Projects
14:48 – Modular Construction Explained: Volumetric vs Panelized
16:06 – Inspections, Codes, and How States Adapt to Modular
17:45 – Costing, GCs, Risk Mitigation, and Prototype Modules
21:25 – Where Modular Saves Time and Boosts IRR
22:56 – Financing Modular: Draws, Liens, and Getting the Right Lenders
23:39 – PACE Financing, Leverage Stacking, and Tax Assessment Mechanics
26:23 – Depreciation on New Construction vs Buying Existing Assets
27:31 – Raising Equity: Family Capital, Funds, and Institutional Partners
28:46 – What It Really Takes to Raise a Fund
29:56 – Why Back Office Failure Kills 50% of Funds
31:30 – Institutional Reporting: NAV, Fair Value, Debt Share, REO Schedules
32:11 – How to Work With James (Contact Info)

Original Episode:
This conversation originally aired on EG Real Estate Developer (Land to Legacy).
Watch here: https://www.youtube.com/watch?v=7qyNDI5cFHw

Full Transcript:

00:00 – Cold Open: Trump, Zero Taxes, and Why K-2s and K-3s Exist

James (00:00):
Everyone here says Donald Trump pays zero in taxes. That is because the tax code is set up for real estate developers to pay zero taxes. The government is getting so aggressive, they have started to ask for these things called K-2s and K-3s, where they start to break out different items of your return and how it is allocated to you.

James (00:18):
I wanted to see what it would take to do my own taxes. I realized how difficult and complicated it is for a small business to actually file taxes.

James (00:28):
When you are building something, you know what you are building. When you are buying something, you do not know what you are buying. Most of real estate lives in the partnership tax world.

James (00:37):
That is usually a combination of LPs, limited partnerships, and LLCs. We just bought a piece of land here in Idaho that had this seven-unit boutique motel on it, and we were looking to redevelop that into apartments because when we have a hammer, everything looks like a nail. So we are multifamily people.

James (00:56):
Led to Legacy. I am part of a modular development team where we are building 205 multifamily units in Denver, and modular construction is really cool. You are saving a lot of time.

Eugene (01:11):
What does it actually take to raise a fund?

James (01:13):
It takes knowing a lot of people with money at the end of the day.

01:31 – Introducing James Bohan: CPA, Developer, Investor

Eugene (01:17):
Welcome to another episode of Real Estate Development Land to Legacy.

Eugene (01:22):
James Bohan. You are a CPA, you are a real estate investor, you are a developer. You do all these things. Sounds amazing. Thank you for being here.

James (01:31):
Absolutely. Thanks for having me on, Eugene.

01:52 – Why the Tax Code Favors Real Estate Development

Eugene (01:44):
So tell me, how does being a CPA and being a real estate investor and developer work together?

James (01:52):
They actually go hand in hand in such a great way. The real estate industry is one of the best ways to minimize your tax burden legally in this environment. Everyone hears Donald Trump pays zero in taxes. That is because the tax code is set up for real estate developers to pay zero taxes.

James (02:18):
The real estate lobby in America is one of the biggest lobbies, and when you look at it from an economics perspective, when people buy homes, they are hitting almost every sector of the economy. They are paying contractors, buying consumer goods, filling their kitchen with Amazon purchases. Real estate transactions are one of the biggest drivers of economic activity. That is why the tax code incentivizes development so heavily.

02:47 – Depreciation, Debt, and Pulling Out Cash Tax Free

Eugene (02:43):
What is an example of paying less tax?

James (02:47):
The biggest one is depreciation. But what people do not know are the nuances regarding debt. If you have an asset that appreciates a hundred percent in value, the only way to capture that in most industries is to sell and then pay capital gains tax.

James (03:03):
With real estate, you can use non-recourse debt for your investors or recourse debt for yourself to get more basis in the asset. Once you have more basis because of debt, you can pull cash out tax free. Qualified non-recourse debt has been protecting real estate investors for decades.

03:35 – Why DIY Taxes Fail: Complexity, Software Limits, and International Investors

Eugene (03:35):
I just have to share a story. Since our tax deadline for LLC extensions just passed, I conducted an experiment. I wanted to see what it would take to do my own taxes.

Eugene (03:54):
I realized how difficult and complicated it is for a small business to actually file taxes. At one point, I got so angry because not only do you need to understand tax code, you also have to fight the tools. The software I bought was not adequate.

Eugene (04:19):
I spent hours on it. That was my pitch recently to my friends: if you want to invest in real estate, invest passively. If you try to DIY everything, including the taxes, it gets complicated fast.

Eugene (04:48):
I used to be angry at CPAs charging me $5,000. Now I know why.

James (05:02):
Yes. Everything always looks simple until you start asking more questions. Maybe one investor is in China, so now you are dealing with international tax issues. The software sucks all over the place. I pay $10,000 a year for big-four-level software and even that is frustrating.

05:02 – 199A, K-1 vs K-2/K-3, and the Rise of Global Tax Reporting

James (05:31):
The tax laws are always changing. With the Trump Tax Act, 199A came out with a new 20 percent pass-through deduction. That added more reporting.

James (05:52):
Then came K-2s and K-3s. A K-1 shows your net rental loss after depreciation, but K-3s break everything out separately: gross income, depreciation, interest expense.

James (06:53):
These items get taxed differently by international regimes. When you have international investors, reporting becomes a nightmare. It is nearly impossible for even smart people to DIY now.

07:06 – Cost Segregation, Structure Strategy, and Entity Design

Eugene (07:06):
I grew up in construction. When we think about a building, we think materials, structure, how to build it. Do you analyze structure first when advising clients?

James (07:36):
When you talk materials, the first thing I think of is a cost segregation study. You look at every component you are putting into the building and determine its tax classification.

James (07:46):
I also look at how the management company relates to the fund, and how the development company fits in. C corps, S corps, partnerships – these are all tools. My job is to design the structure that yields the best after-tax outcome.

09:40 – Active vs Passive: What the IRS Really Means

Eugene (09:40):
You mentioned passive versus active. What is the difference?

James (09:48):
Active income is where you materially participate. The IRS metric is 500 hours. Ordinary income can be active or passive. Investment income like dividends and bonds is not passive in tax terms. That is investment income.

James (10:45):
Do not confuse investment income with passive ordinary income.

James (11:11):
Passive K-1 income is income from a business you do not materially participate in. You can only offset passive income with passive losses.

James (12:05):
Real estate professionals can make all of their real estate activity active. They can also group investments so that deals they invest passively in become active for them.

12:49 – James’ Portfolio: Motel Conversion, Storage, Multifamily, Modular Projects

Eugene (12:45):
What kind of properties do you invest in?

James (12:49):
Traditionally multifamily. We also have storage and mixed-use assets. We bought a seven-unit motel in Idaho intending to redevelop it into apartments.

James (13:10):
But for many macro and micro reasons, it did not make sense to blow it up. Instead, we repositioned it, added three more rooms, got an events permit, and now operate it efficiently with AI and tech.

James (13:58):
I am also part of a modular development team building 205 units in Denver.

14:48 – Modular Construction Explained: Volumetric vs Panelized

Eugene (14:48):
What style of modular do you prefer?

James (15:15):
Volumetric, factory-built units stacked like Legos. Panelization is more like building walls piece by piece. Volumetric is simpler and more scalable.

16:06 – Inspections, Codes, and How States Adapt to Modular

Eugene (16:06):
States vary in their rules. How does permitting work?

James (16:26):
Our site is in Denver, but modules are built in Boise. Colorado inspectors fly to the Idaho factory to ensure everything meets code. States are adapting.

17:45 – Costing, GCs, Risk Mitigation, and Prototype Modules

Eugene (17:45):
How do you estimate cost?

James (18:46):
Back-of-the-envelope numbers first. If the deal pencils, we then get competitive bids.

James (19:45):
Modular requires GCs with modular experience. Factories also build prototype modules and fly the GC and subs out to inspect before production.

21:25 – Where Modular Saves Time and Boosts IRR

Eugene (21:09):
Does modular really save time?

James (21:25):
Yes. Factories build multiple floors at once. Also, draws come later, closer to stabilization, boosting IRR.

22:56 – Financing Modular: Draws, Liens, and Getting the Right Lenders

Eugene (22:23):
Financing seems tricky. How do you solve the lien and draw issues?

James (22:56):
Work with lenders familiar with modular. Traditional banks often cannot handle this.

23:39 – PACE Financing, Leverage Stacking, and Tax Assessment Mechanics

Eugene (23:39):
What is PACE financing?

James (23:48):
PACE is a nationwide program that finances clean-energy-qualified developments. It sits as a tax assessment, technically senior to the lender.

James (24:17):
But only the annual payment is senior, similar to property taxes.

26:23 – Depreciation on New Construction vs Buying Existing Assets

Eugene (26:23):
How does depreciation work for new construction?

James (26:55):
Nearly the same. You already know the categorized costs as the developer, so you may not need a third-party cost segregation study.

27:31 – Raising Equity: Family Capital, Funds, and Institutional Partners

Eugene (27:31):
Where does your equity come from?

James (27:49):
Family capital for Idaho. Institutional capital for Denver. We are preparing to raise a fund for future acquisitions.

28:46 – What It Really Takes to Raise a Fund

Eugene (28:41):
People say raising a fund is easy. What does it take?

James (28:46):
You need a securities attorney, a prospectus, relationships, and experience. I create the framework, tie up properties, then raise around those deals.

29:56 – Why Back Office Failure Kills 50% of Funds

James (29:56):
Half of hedge funds fail because of back office issues, not bad investments. Oversight and reporting matter.

31:30 – Institutional Reporting: NAV, Fair Value, Debt Share, REO Schedules

James (31:30):
Managers should report fair value, share of debt, and NAV-style updates so investors can complete REO schedules. This is standard in institutional finance.

32:11 – How to Work With James (Contact Info)

Eugene (32:02):
If anyone wants to reach you?

James (32:11):
I am available at [email protected]. J like James, B like Bohan, at stone like a rock and Han like Han Solo. Thank you for having me.