Advanced Real Estate Tax Strategies for Funds and Syndications
Featuring: Matthew Owens (Masters of Real Estate Podcast) & James Bohan, CPA, MRED
This episode comes from Jamesβ guest appearance on the Masters of Real Estate Podcast, hosted by seasoned operator Matthew Owens. This show dives deep into the tax, operational, and financial strategies real estate investors use to build long term wealth.
Matthew brings James on to break down advanced tax planning frameworks, the same ones used by institutional operators, fund managers, and sophisticated GPs. These go far beyond write offs, end of year deductions, or generic cost segregation advice.
If you are raising capital, managing assets, running a fund, or building your own real estate portfolio, this conversation gives you a roadmap to keep more income legally while protecting wealth for future generations.
Summary:
Real tax strategy is proactive, not reactive. In this episode, James explains:
Why tax planning must happen before December 31
What real year end strategies look like for fund managers and GPs
When cost segregation accelerates wealth vs. when it backfires
How state rules, bonus depreciation, and recapture can shift returns
How high earners qualify for Real Estate Professional Status
How to convert income into passive income strategically
UBIT/UBTI inside IRAs and 401(k)s (the hidden retirement account tax)
How family offices structure entities to preserve wealth through generations
Why some families still lose tens of millions to estate tax
What James looks for when evaluating operators as an LP
Boutique motels, farmland cost segs, and BRRRR plays in Idaho
This episode is ideal for fund managers, private credit GPs, family offices, syndicators, and investors who want to structure more intelligently and stop overpaying the IRS.
Watch the Full Episode:
FAQ's
1. Why does tax planning need to happen before December 31?
Because almost all strategic moves affect the current tax year only if executed before year end.
2. When does cost segregation backfire?
When properties are held short term, sold quickly, or located in states that do not conform to bonus depreciation.
3. Who actually qualifies for Real Estate Professional Status?
Those who spend 750+ hours per year in real estate and more time in real estate than any other profession.
4. How does a CPA evaluate operators before investing?
By reviewing books, controls, balance sheets, and operational practices to ensure financial discipline.
π Book a Tax Strategy Call with James:
https://calendly.com/jamesbohan/book-a-call
π¨ Connect With James:
LinkedIn: James Bohan, CPA, MRED
Instagram: @jamesbohancfo
Website: stonehan.com
Chapter Breakdown With Timestamps:
00:00 β Introduction, and Year-End Planning
01:37 β How Year-End Planning Multiplies Tax Savings
02:14 β Simple Year-End Tax Strategies Most Investors Miss
02:52 β Cost Segregation Benefits and Hidden Risks
03:35 β When Cost Seg Backfires: Recapture, State Rules, and Addbacks
05:10 β Turning Active Income Into Passive Income Through Structure
06:10 β Understanding Real Estate Professional Status
06:59 β The Retirement Account Trap: UBIT and UBTI Explained
08:10 β The Moral Case for Minimizing Taxes
10:41 β The Reality of the American Tax Burden
13:54 β Family Legacy, Real Estate Background, and Estate Tax Lessons
14:47 β How James Revived a Motel Into a Tech-Driven Asset
16:11 β The Idaho BRRRR Deal With Built-In Equity
17:17 β Short-Term Rentals and Dual-Season Demand
18:16 β Interest Rates, Inflation, and Macro Risk Indicators
20:20 β How Strong Operators Build Downside Protection
23:11 β Creative Financing and Ethical Red Flags
25:22 β How James Evaluates Operators Before Investing
27:33 β Why Most Investorsβ Financials Are Wrong
28:02 β Institutional-Level Back Office Standards
29:14 β What a Real CFO Does in a Real Estate Business
30:11 β Contractor Theft and a $500K Loss Lesson
31:36 β How to Work With James and Where to Find Him
32:54 β Closing Thoughts and Investor Resources
Original Episode:
This conversation originally aired on the Masters of Real Estate Podcast.
Watch here: https://www.youtube.com/watch?v=eiNx_kb-1YE
Full Transcript:
00:00 β Introduction and Year-End Planning
Matthew (00:00):
Hey everybody and welcome to Masters of Real Estate. My name is Matthewhew Owens, and I have one of my favorite people on the line today. James Bohan, who is also a CPA, also hates the government like myself, and that is how we get along with anti-government memes and things like that. But welcome, James.
Matthew (00:00:25):
Thanks so much for coming on today. I really appreciate it. It is a good time to do this given tax time is coming. It is time to protect your money from the government and save as much money as we possibly can through some of the strategies that, quite frankly, I am a CPA but you have taught me a ton on taxes.
Matthew (00:00:42):
I am focused on real estate a lot more, not deep diving on every aspect of some of the most complex transactions that I have seen you deal with and help us with on the tax structuring and things like that. So welcome to the show. I appreciate you coming.
James (00:00:57):
Thanks for having me on, Matthew. It is a great time to be on. Everyone thinks about tax season being that January through April time of the year, but really this November and December time is when you can actually make moves. Because in the next few months when the calendar changes to 2025, you are just looking backwards and it is really hard to make any moves that affect 2024.
01:37 β How Year-End Planning Multiplies Tax Savings
Matthew (01:17):
Yeah, I agree one hundred percent. People do not realize, and I do not do tax planning like that for other people, but I can tell you right now that every time I have done tax planning with CPAs in the past it always saves me triple, quadruple, or way more than that in tax savings.
Matthew (01:35):
You realize there are quite a few things you can do to decrease your income or shift expenses. Having that plan in place early is super key. Even now at this time of the year, with about a month left, it is difficult to implement things quickly. Buying property, shifting expenses, having the cash to do these things. It is super important.
02:14 β Simple Year-End Tax Strategies Most Investors Miss
Matthew (01:52):
So what are some of the things you see that real estate investors or other people are doing to mitigate their taxes at year end? When you are doing typical tax planning with people, what are some of the main strategies you like to see and implement across the board that are pretty common?
James (02:14):
I think the most common one for people in any type of business, and if you are a cash-basis taxpayer, is looking at what you can pay in December that will apply to future years. I have some clients who have a marketing team, and they are talking to them about prepaying all of their 2025 marketing expenses in 2024.
James (02:33):
When you do this, you might even be able to get a discount by paying it all at once. That is a super easy one for people to implement. Buying property, doing a cost segregation study on that property, those are things you can do before year end to take advantage of deductions in the current year.
02:52 β Cost Segregation Benefits and Hidden Risks
Matthew (02:52):
That is awesome. And when it comes to the cost segregation study, obviously what that is, is taking a property and breaking it up into a bunch of little pieces away from the building portion. Usually it is broken up into land and building. You break it away from the building portion and turn a chunk of it into five-year property, seven-year property, and fifteen-year property.
Matthew (03:12):
Then you can front load a lot of that depreciation with bonus depreciation. But there are some dangers to that that people need to understand, especially if you plan on reselling right away. Can you talk about some of those issues? I love cost segregation and I use it, but there are dangers people should be careful of.
03:35 β When Cost Seg Backfires: Recapture, State Issues, Addbacks
James (03:35):
I think the first thing to think about when doing a cost segregation study is whether you are actually able to take advantage of those deductions. That means asking if you can qualify as a real estate professional and take full advantage of the losses.
James (03:48):
There are also a lot of state tax considerations. Not all states conform to bonus depreciation. New York is one example that comes up a lot. If you take a bunch of losses on your real estate or other activities, sometimes those get added back as an excess business loss. Then New York will add back the bonus depreciation on top of that.
James (04:12):
You could really end up upside down if you are in one of these more aggressive tax jurisdictions. Another point is recapture. Things that are bonus depreciated are recaptured at ordinary income tax rates, compared to section 1250 recapture which is taxed back at 25 percent. Anything above that that gets you back to your original basis becomes capital gain if you hold the property for more than a year.
05:10 β Turning Active Income Into Passive Income Through Structure
Matthew (04:39):
Gotcha. So there is recapture at ordinary income tax rates up to your original basis. It depends on what your tax rate is when you sell it versus what it is now, and how long you can take advantage of the extra funds you get now versus later. Fix and flipping and doing cost seg is not a good idea. You will be constantly recapturing.
Matthew (05:10):
I thought for the longest time that interest income was passive income, but it is considered portfolio income. What are some ways people create passive income in different structures, like creating royalty income or creating more rental income in different ways?
James (05:36):
Interest income can become passive income if you are investing in something that is in the trade or business of lending. Then it comes through as ordinary income on line 1 of your K-1 instead of line 5 interest income. Another way is when people who have traditionally been business owners start taking a step back. We can sometimes get some of that flow-through income, which used to be non-passive, to qualify as passive if others are now running the business.
06:10 β Understanding Real Estate Professional Status
Matthew (06:10):
Awesome. That is awesome. And I think there are also income limits on the other side for how much you can actually take against your ordinary income if you are not a full-time real estate professional, with phase-out rules and things like that. Right?
James (06:21):
I think you are talking about the active investor status. There are basically three categories people fall into when investing in real estate. The first is your normal passive person. You invest in someone elseβs deal and you are very passive.
James (06:24):
If you buy a rental property in your own name and you manage it and you have ongoing activities, then you reach that active threshold. But to get normal apartment rental activity to qualify as non-passive material participation, that is when you have to qualify for real estate professional status, which requires over 750 hours in real estate and no more hours in any other activity.
06:59 β The Retirement Account Trap: UBIT and UBTI Explained
Matthew (06:58):
Gotcha, gotcha. So be careful when doing these things and understand your specific situation to make sure that you can actually take advantage of the benefits and that they make sense for you.
A lot of people ask me whether they should do a cost segregation study inside their retirement account. You do not need to. You are not paying taxes on that right now. But many people self-direct their retirement accounts into real estate, and there are tax components with that too.
Matthew (07:14):
You need to be really careful about unrelated business income tax. If you are deemed to be running a business inside your IRA or 401k, it can be taxed heavily. So be very careful in those arenas. Is that the right tax rate? It might be corporate tax rates. I cannot remember exactly.
James (07:44):
I believe it is corporate tax rates on the Form 990 for retirement accounts.
James (07:50):
Unrelated business taxable income, UBTI or UBIT, is just a way for the IRS to level the playing field between tax-exempt entities and taxable entities. For example, if you have a pizza shop on one side of the street owned by a nonprofit, and a pizza shop on the other side that is for-profit, the nonprofit has an automatic advantage because they do not have to pay taxes.
James (08:10):
So the IRS created UBIT to level the playing field so the nonprofit cannot unfairly compete by lowering prices simply because they do not have a tax burden. It is important to understand the policy reasoning behind laws and what the government was thinking when these rules were created.
08:10 β The Moral Case for Minimizing Taxes
Matthew (08:41):
No, they are just thinking, how can I siphon more money out of Americans' pockets and the rest of the world. That is really the whole goal of the federal government. State and local governments are not much better.
Matthew (09:02):
The idea behind having different states was to create choice so states would not become monopolies. But the federal government is basically its own monopoly now. When they waste money constantly, giving it away or spending it poorly, we have to think about how we can mitigate the financial losses on our side.
In my eyes, it is almost our responsibility to pay as little tax as possible to give them less power.
Matthew (09:19):
I sometimes joke that no one should pay taxes. If we all stopped, what would they do?
James (09:45):
I have been saying for years that it is your moral responsibility to pay as little tax as legally possible. The government wastes so much. I call it the debt and death cycle.
James (09:56):
They are paying so much of your money to the Federal Reserve, which is a private entity that prints our money, lends it to the government, and the government pays it back with interest using our money. Then they use more borrowed money to fund the military industrial complex and bomb people we have never met.
James (10:14):
It is absolutely insane. When it comes to taxes, I actually enjoy paying Idaho taxes. They run their state well. I even voted to increase local taxes to pay for schools and infrastructure because I see the direct benefit. When potholes appear, they are fixed within months. When a government runs efficiently at a small scale, I do not mind paying a small amount to Idaho.
10:41 β The Reality of the American Tax Burden
Matthew (10:41):
I understand. That was the whole idea behind taxes in the first place. If the money goes straight into the community and supports it, then great. But when you have theft and concentrated power at the top, corruption follows.
Matthew (10:51):
States and cities eventually got controlled through debt, and now you have these big government monopolies.
Matthew (11:18):
When you look at the full tax burden, we are really paying close to 75 percent in taxes when you add everything together. I live in Southern California where tax rates are extreme. I am a CPA and avoid a lot of taxes because I know the strategies, but the average person gets destroyed.
Matthew (11:35):
Between state taxes, federal taxes, payroll taxes, sales taxes, property taxes, gas taxes, it all adds up. If you make 400 or 500 thousand a year as a W2 earner, taxes take a massive portion.
Matthew (11:55):
After taxes and California living expenses, a middle class household is not as wealthy as it appears. People who say, make the wealthy pay their fair share, do not realize the wealthy person making 500 thousand may only be keeping 250 thousand.
13:54 β Family Legacy, Real Estate Background, and Estate Tax Lessons
Matthew (13:29):
That leads me to the strategies. You invest actively and passively. As a CPA helping people with tax mitigation, I go to you with all my stuff because you understand both tax structure and investing. Can you talk about some of the deals you have done and what you have learned?
James (13:54):
I come from a family of real estate developers. I am a fourth-generation real estate developer. My grandpa built a lot in California and Nice. They did not do estate tax planning, and we had to pay a disgusting amount of taxes in the tens of millions as that estate passed down.
James (14:19):
I have been focused on helping myself, my family, and clients structure their estates properly. Estate tax is one tax you did not mention earlier. It is one hundred percent, and they tax you when you die.
James (14:39):
I learned from my family about apartments, property management, tenant management. My dad has built office, retail, and multifamily. I understand the asset class from the owner-operator perspective.
14:47 β Reviving a Dilapidated Motel With Technology and Vision
James (14:47):
Up in Idaho, I have started to be the key principal on some projects with my family. I turned the first house I bought here into a single-family rental. We bought a seven-key dilapidated motel that I have been slowly redeveloping over the years.
We were originally going to tear it down and build a bunch of apartments or a big hotel, but as interest rates and construction costs rose, I leaned into running a boutique hotel instead. It is amazing how you can operate a hotel with minimal staff when you leverage technology.
Guests get an automatic door code. We run it very similar to an Airbnb model. They show up to a clean place, and if they need extra towels, we have someone on-site for a few hours a day. We are also putting in a guest closet so that people can use a keypad to grab sundries or supplies.
James (15:37):
And instead of blowing it up, we are adding three more rooms this winter and working on getting a liquor license to bring a bar and event center into town as well.
15:52 β The Idaho BRRRR Deal With Built-In Equity
Matthew (15:52):
Nice. That is awesome, man. Really cool. And I think you are working on a deal right now. Tell me about that strategy. I believe you were talking about doing a BRRRR refinance type project. How does that work?
James (16:11):
Exactly. I am closing on this in a couple of weeks. We are buying it super under market. It has an unfinished basement that can be finished and permitted. When you look at our basis, we are buying at about 130 dollars per square foot while duplexes in the market are trading around 260 dollars per square foot.
So we are walking into equity from day one.
James (16:32):
We are going to do the BRRRR strategy: buy, renovate, refinance, rent. In Coeur dβAlene, where I live now after escaping California, it is easy to do this. We can rent some units as short-term rentals.
James (16:54):
This is an amazing market. In the summer, everyone wants to be here. My hotel rooms were full all summer long. And we are one of the few markets with a winter season too. There are three mountains nearby, so we get consistent activity.
James (17:17):
It is one of the best short-term rental markets in the country because it is dual-season.
17:23 β Turning a Farm Into a Tax Strategy
Matthew (17:23):
That is awesome. I keep wanting to go to Idaho for the freedom more than anything else. During COVID, I was thinking, how do I get out of California? I bought water barrels, food supplies, all of it. Toilet paper like everyone else. I wanted a farm in the middle of nowhere.
James (17:46):
I live on that farm now. One of my strategies was cost segregating my farm. When you look at a farm, there are fences, barns, land improvements. Trees and orchards show up in the report. It was really cool to apply tax strategy to my small-town farm life.
Matthew (18:09):
I am going to have you build me a bunker out there on a farm somewhere.
James (18:15):
That is the plan. We have a team for you whenever you are ready.
18:16 β Macro Market Risks: Inflation, Rates, and Recession Signals
Matthew (18:16):
And I see a lot of potential risk out there in the market. World War II-level tensions depending on what happens politically. Inflation creeping up. Interest rates changing rapidly. Credit card delinquencies rising.
We also do not have enough inventory. Historically, we are still massively undersupplied.
Matthew (18:32):
Affordability has crushed demand, but inventory is still low. What is your take on the overall market?
James (19:16):
The overall market is a bit scary for all the reasons you mentioned, but real estate is hyper-local. The micro factors in my market are very strong. Anyone who wants a job can have a job. Trades are booming. We do not have tech layoffs happening here.
I do see headwinds nationally, though.
James (19:54):
It is interesting to see federal funds rate cuts not translating to mortgage rate drops. Mortgage rates are now driven more by market demand. There is a disconnect. There is always a lag. Ken McElroy calls it the ripple effect.
James (20:11):
Bankruptcies and delinquencies take months or years to move through the system. You have to digest it over time.
20:20 β How Real Estate Moves Slowly Even in a Crash
Matthew (20:20):
Exactly. People think everything is immediate. Real estate moves slowly, even during crashes. A 5 percent correction in a year is considered a major crash. Spread over six months, that is only about 2.5 percent. Not catastrophic.
Unless you have a liquidity crisis, like Lehman Brothers.
Matthew (21:03):
Banks stopped lending because they had no funds. We saw bank issues again recently. I think that is one of the biggest risks.
Demand matters. Job growth matters. The types of jobs matter. Tradespeople are harder to replace with automation.
Matthew (21:38):
I want the robots that hang drywall. That will be amazing.
Matthew (21:55):
It is time to stay cautious but still pick smart investments. If you can buy, renovate, refinance, and build in equity from day one, you have downside protection. You keep leverage conservative. You can hold long term with strong debt-service coverage.
Matthew (22:12):
It is a great inflation hedge too.
22:38 β Dry Powder and Market Timing
James (23:11):
I tell people to get their dry powder ready right now. Keep looking at deals. Stay in the game, but build capital so you can act immediately when the right opportunity shows up. That is what happened with this under-market asset where we can execute the BRRRR strategy.
23:33 β Creative Financing: Smart or Predatory?
Matthew (23:33):
Yeah, BRRRR is awesome. I am seeing more people trying to buy properties subject-to existing financing because the old loans at 2 or 3 percent are so attractive.
Some are offering no money down or bizarre creative terms. Some of it feels predatory when sellers do not understand what they are agreeing to.
Matthew (24:14):
I have seen insane offers.
James (24:14):
I do not know who those people are getting these deals from. Everyone thinks they can do sub-two, seller-carry, zero money down. Someone countered us at 5 percent down and we still said no.
James (24:21):
People are crazy.
Matthew (24:32):
In my mind, 5 percent down, no interest, 30-year amortization, all principal payments sounds great for the buyer. But ethically it feels wrong because the seller does not understand the consequences.
25:08 β Why James Invests Passively Only With Operators He Trusts
Matthew (25:08):
These strategies exist. There are lots of different deals out there. But I think people forget that while you are active in the space, you also invest passively in different deals. When you are evaluating a passive deal, what do you look for? How do you make sure you are not getting in bed with someone who does not know what they are doing?
James (25:22):
I become their CPA and see how well they are actually operating. I have invested with clients in the past. It helps me build trust because I know who has real integrity and who takes their back office seriously.
James (25:38):
And sometimes I have fired clients not just because I did not want to invest with them, but because I was not on board with how they were operating. I cannot be your CPA if you are going to run things that way.
25:50 β The Hidden Financial Weakness in Most Real Estate Businesses
Matthew (25:50):
Yeah, commingling, missing documents, or just bad back-office controls. And honestly, most investors do not understand how hard it is to vet a deal without financial background. The CFO function is critical: operational controls, payment systems, investor reporting, asset management.
All of that sits under the CFO umbrella, and most operators are weak in those areas.
Matthew (26:13):
It is not an easy part of the job. It is necessary.
And no one teaches financial education or how to run a business. I have met flippers doing 10 deals a month who hand me their balance sheet and income statement and say, can you explain this? I am not understanding.
Matthew (26:32):
We go line by line and I find properties listed on their balance sheet that were sold years ago. They never wrote them off. They sent huge checks to the IRS because they didn't deduct cost basis. We have to amend returns to fix it.
Matthew (26:54):
After running a lending company and property management company, you realize 90 percent of people do not have their financials in order.
Matthew (27:00):
As a CPA, you have probably fired way more than a couple of clients for that reason.
27:02 β Institutional Standards Every Operator Should Meet
James (27:02):
Absolutely. Coming from the institutional space, when I was at KPMG and later CFO of a fund, institutional investors always ask: who is your auditor, who is your CPA, who is your fund administrator?
You never hear that in the syndication world, but it is incredibly important.
James (27:32):
To the passive investors out there: start demanding this. Understand what the operatorβs back office looks like. Is there another set of eyes on the books? Is someone besides the operator preparing the financials?
You do not want a balance sheet prepared by someone who has never created one.
27:44 β The CFOβs Real Job: Protecting the Investment
Matthew (27:44):
Exactly. Operators can hire great team members, but they need to know what the CFO role actually does. Some CFOs are great in one industry but have no real estate experience, which is dangerous.
A CFO should be able to say: this asset is or isnβt operating efficiently, delinquencies are too high, vacancy is too high, timelines are slipping, here is the impact on cash flow.
Matthew (28:12):
They should be advising on whether an asset should be sold, held, improved, or restructured. That is all part of asset management.
Most operators have no idea that this is what a real CFO does.
Matthew (28:29):
And do not get me started on contractors. If you are fronting all their money, and the contractor is bad with money management, that is a disaster waiting to happen.
28:47 β The $500K Lesson
Matthew (28:47):
Most contractors are great at the work but not great at financial tracking. If they have money in the account, they think everything is fine. They do not know what they spent versus the budget.
I got hit with it myself. A contractor stole 500,000 dollars from us. Fake receipts, fake permits, fake sign-offs from the city.
Matthew (29:06):
I made a mistake. I was busy and not paying attention. It hurt.
29:26 β How to Reach James for Tax and Structuring Help
Matthew (29:26):
So how can people reach you for tax planning and structuring? You have helped me massively with entity design, estate planning approaches, all of it. How do people get in touch?
James (29:36):
I am available at stonehan.com. Stone like a rock, han like Han Solo. I combined my grandpaβs last name with my own to create the company.
James (29:45):
I am active on LinkedIn under James Bohan, CPA. I am also on Instagram at JamesBohanCFO.
James (30:05):
And to your last point, people need to make an honest assessment of where their skillset lies. There are great builders out there who are terrible at finance and accounting. Hiring a quality person is expensive, but it saves money long term.
James (30:21):
I am terrible at marketing, so I hired a firm. Entrepreneurs need to understand their weaknesses and bring in the right support to keep the ship running.
30:40 β Closing and Resources
Matthew (30:40):
All you have to do for marketing is post your Halloween costume holding a gun in an American outfit and you are set for life. You will get all the clients you need.
James (30:47):
Perfect. We are trying that now.
Matthew (30:54):
If anyone wants to learn more, we have a 200-point due diligence checklist available at matthewowens.com. That is Matthew with one T, because my parents could not spell.
Matthew (31:12):
We also have a quick analysis sheet and a full masterclass on raising capital, finding deals, and analyzing deals.
Matthew (31:28):
Thanks a lot, James.
James (31:32):
Thanks for having me on, Matthew.
