Tuesday, April 01, 2014

Review: Aggressive Tax Avoidance For Real Estate Investors, 19th Edition

While I'm not quite an accidental landlord, since we got married we've had a rental property to manage. There are all sorts of issues with landlording, and I've covered many of the short-term solutions in a previous post. Aggressive Tax Avoidance for Real Estate Investors deals with longer term issues. Logistically, you can buy this version of the book from John T Reed's website, or you can buy a used 18th edition from Amazon. While there's unlikely to be much difference in content between the two editions, if you're running a rental business properly, there's no reason to cheap out since the book is tax deductible for your business.

A good measure of a specialist non-fiction book like this is the ROI. Within the first 3rd of the book I'd discovered that there was a certain approach that I'd not used because I'd succumbed to an old-wives tale and it would have saved 10X the price of the book. Live and learn.

The most useful part of the book is John T Reed's aggressiveness in approaching IRS issues. Basically, he tells you not to be afraid of tax courts, how to do research on tax issues, and how to fight the IRS in tax court if it comes down to it. This sounds really aggressive and it is. If you're renting out a room in your house, you're probably better off not being this aggressive, but if you have significant income from rental or run a multi-family rental property unit you want to take this approach as more conservative approaches would cost you significant amounts of money. John T Reed doesn't just assume this, but walks you through the Net Present Value/Expected Value Decision Tree for most of the approaches he espouses in this book. This is a very rational (one might say hyper-rational) approach to tax strategy and decision making as a landlord (or any other business owner), but you have to be capable of taking the mindset that Reed espouses. If you're easily stressed by the thought of an IRS audit, this is not the book for you, though you might want the managers you hire to read it and use it!

Reed not only walks through all the different types of tax courts, and the probability of the tax payer succeeding in winning the cases at the various courts, he also provides the probability of an audit, depending on the type of rental property you have and how much revenue and income you're generating. If you own any rental property, this type of information is invaluable and is worth the price of admission alone.

As a stalwart member of the 1%, Reed is definitely anti-Obama and anti-Democratic, and doesn't hesitate to write political comments throughout the book. I found this irritating, but tolerable given the usefulness of the information he provides.Then at the end of the book I came across something which just made me chuckle:
When you work at a job, you earn taxable income. Part of which, the government is entitled to confiscate. But if you work at increasing net worth---and refrain from selling the asset whose value you are increasing---the government has no right to confiscate any of the gain... It seems to me that if the taxes on work are too high---and they are---then you ought not to work for a living... (Page 180)
Sounds like a prescription for raising capital gains taxes and dividend taxes and reducing income taxes to me!

Anyway, if you own rental property that's more than just a room in your house, you need to buy this book. It will save you multiple times the cost of the book. If you run a business, you need this book just to understand the approach to taxes and how to do the NPV decision tree. Highly Recommended.
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