This post is part of a series:
Part I Part II Part III Part IV Part V Part VI Part VII Part VIII Part IX
When we left off yesterday, we were borrowing dollars against our Bitcoin to buy real estate.
By doing this, we didn’t have to pay taxes on our capital gains. We could leverage their entire value into acquiring assets that produce monthly cash flow.
That’s the key. The cash flow has to pay off the debt.
This is just one way in which debt and taxes go hand-in-hand. And as I mentioned yesterday, real estate is an incredibly tax-advantaged asset.
The way the tax code is structured, we should never have to pay taxes on our rental income. No kidding.
What’s more, there’s a way to generate massive paper losses for tax purposes using rental real estate. By paper losses, I mean non-cash losses. They go on the tax return, but you didn’t actually lose money. In fact, you made money.
Think about what that could look like…
Imagine writing off $100,000 against your active income. That means whatever the gross income number at the top of your tax return is, you subtract $100k from it. Then you pay taxes on whatever’s left.
That’s the power of rental real estate, if done correctly.
Now, this requires a good CPA and advanced tax planning to do. It’s not something that happens automatically.
But as long as you go by the book, this is 100% legal. It’s all right there in the tax code.
So really what we’ve done here is we have used debt to buy assets that reduce our tax liability even more. Debt and taxes.
Now, I know some people will hear this and think – that’s not fair! Shouldn’t everybody have to pay the same taxes on their income?
Not if we want to be financially independent.
Here’s the thing – the tax code is really just a set of incentives. This is why real estate is tax-advantaged. We need people willing to buy houses and rent them out to those who can’t or don’t want to buy them.
That’s because real estate investors take on all the risk. When something gets damaged, they have to fix it. If the HVAC unit blows out, they have to replace it.
What’s more, real estate is a major economic driver in the United States. A lot of people derive their income from real estate.
Real estate agents, mortgage brokers, title companies, insurance companies, appraisers – they all get paid every time somebody buys a house.
My point is this… the tax code is 100% fair.
If you follow the rules, you get the designated result. No matter who you are. It doesn’t matter what your net worth is. It doesn’t matter what your political beliefs are. The tax code is the same for everybody.
Now sure, there are plenty of things about the tax code that I would rather be different.
For one, W2 wage earners absolutely get the short end of the stick. And that’s most people.
This is a big reason why so many people are stuck in the rat race. Every time our W2 income goes up, so do our taxes. That makes it incredibly hard to break free.
But there’s nothing we can do about that. We can’t change the tax code. All we can do is play by the rules as they exist.
And yes, there’s always a chance that the current system could change drastically at some point. Life isn’t risk-free. It’s all a journey.
And this is why we better have hard assets and Bitcoin on hand. If everything falls apart one day, we better be ready.
But until that day comes, all we have to go by are the current rules. And they say that we can use debt to reduce our taxes tremendously.
That’s why debt and taxes is the name of the game. And there’s one more important nuance to all this. We’ll bring it home tomorrow…
Until then, don’t forget to check out our new video workshop: Finance for Freedom. It’s all about adopting a system that pairs a cash flow wealth strategy with a comprehensive tax strategy.
The goal?
$10,000 a month in extra income, tax free. That’s what financial independence looks like.
For more information, you can access the video workshop right here: https://phoenicianleague.com/workshop