Maximize Your Returns With The Big Beautiful Bill Tax Breaks

Most people don't realize some of the biggest expenses in their lives are their housing, their car payments, and taxes. So if you can figure out how to play those three games and lower those costs, you're going to be miles ahead of most other Americans.

Welcome to Truly Passive Income. I'm Neil Henderson.

And I'm Clint Harris. And today you are stuck with just the two of us. We're going to be jumping into.

We're going to be jumping into a conversation that, frankly, we've been meaning to have for a while and we've held off because we wanted to get a little time for. For the dust to settle.

We're going to be talking about the big beautiful bill, which is the tax structure that was written up and put into place recently. That is a lot of jargon. It's very, very heavy. It's dense reading. But there's some real value there and some real, real opportunity.

Yeah.

And it. And it took a little while for things to start implementing, and now it's pretty robust.

We actually just had a fantastic interview with a Qualified Opportunity zone specialist, and my anticipation is we're going to need to find one of those specialists about this before too long.

But for today, what Neil and I would like to do is walk through some of the top items, specifically three things that everybody as an investor should be aware about in the Big beautiful Bill. And this has nothing to do with politics or where you stand, but there is real value here that we should be discussing. So discussing disgusting.

Not disgusting. So, anyway, first of all, we'd like to welcome you to the show today. We appreciate that we are diving into the big beautiful Bill.

This is a massive piece of legislation. There is a gold mine in here. I would just point out. Last thing I'll say. This is a blueprint for active savings through passive investments.

Keep in mind the tax code. I know how easy it is for your eyes to glaze over when you hear that tax code is written as an economic incentive.

They are pushing people to spend dollars in ways that are going to drive the economy.

So if you realize that it's a carrot and a stick and it's the levers that the government is using to drive people to push money and to grow the economy, it kind of frames the way you think about it a little bit differently. And this is a blueprint for you to achieve active savings through your Passive investment. Yeah.

I also want to point out that most people don't realize, you know, some of the biggest expenses in their lives are their housing, their, their car payments and taxes. So if you can figure out how to play those three games and lower those costs, you're going to be miles ahead of most other Americans.

The big beautiful bill, it's huge. It's complex. It's big, beautiful, and boring, frankly.

But we're going to try and distill down some of the three most critical actionable items that we think you need to know about today, or at least to consult your CPA about. And that's residential upgrades, commercial incentives, and then the new construction bonuses. We'll even clearly define the specific tax codes.

So grab your pen. I'm not saying you need to know these tax codes, but at least you need to know the designation to take that to CPA and ask them the question.

That's right. And right before you. I'm going to let you jump into that key point number one before we do. You just said something powerful, Neil.

The biggest expense that people often have is taxes and their living expense. The average person right now is spending between 30 and 35% of their income on their living expense.

And we are huge champions of the idea of house hacking and getting rid of that expense. There's really very limited ways that you can get rid of your tax expense legally.

These are some new loopholes and actionable items that have been put out there. So again, think about how hard it is for you to get your employer to give you anything above a 10% raise.

A 5 to 10% raise is not that easy, and you got to work hard for it. By eliminating your housing expense, you can give yourself a 30 to 35% raise.

And with your taxes, this is an opportunity to give yourself a raise significantly higher than what you're likely to go get from an employer. And if that hasn't made your eyebrows perk up, then I don't know what else we could do.

But this, this is an area where if you realize that it's one of your largest expenses, then it has the opportunity to be the. One of the biggest swings on your personal P and L just by focusing on this. So that's why we're digging into it.

All right, so we're going to dig in first on the residential and personal property efficiency. So these are tax credits that incentivize existing homeowners on their primary residence.

We'll start with the simplest savings, focusing on your primary home or property you plan to flip to. And These are the 25C and 25D as in dog codes.

That's right.

Now go ahead. Sorry.

Let's cut through that government jargon. I if you would, please.

Let's nail down the core differences between these two for the listeners because frankly, I had to read it probably three or four times before I got down to a definition that helped me understand it a little bit more clearly. There's two definitive different types here. So let's break those down.

Yeah, so great idea. So we've got 25C, which is an energy efficient home improvement credit. So here's what it covers. It's for making your existing home use less energy.

Think of things like quality insulation, exterior doors, windows, and high efficiency AC furnaces or heat pumps. I'm actually about to replace some windows in my house. I'm going to talk to my CPA and find out whether or not this, this qualifies.

There's a dollar limit capped annually. That's an annual cap of $1,200 for most general improvements with a separate $2,000 cap for high cost items like heat pumps.

What kind of home does it qualify for? Must be your primary residence, the home you live in most of the time. And the credit is not for pure, pure rental properties or second homes.

All right, let's take a pause there. There's nothing that exciting about that. Okay, great. Primary residence. You can take up to 3, $200 a year in deductions for energy efficiency.

That's not really groundbreaking or liberating or changing the velocity of anyone's life. But I think it's really important to know that when we're comparing it to 25D because there's a very distinct difference here. The.

Sorry, before we move on to that, I just want to talk about the like on 25C is that it's sort of an annual thing for some of those like manual annual maintenance things that you may be sort of putting off on your existing home. This is sort of incentivizing you to take care of those.

And you know, and you can basically wait until, hey, you know, I've got a pretty tax, I know I'm going to have a pretty big tax hit coming up so I can try and pour some money into my house and lower my tax burden.

It Might even be worth breaking that up over time knowing you can only take $3,200 at a time, depending on the big ticket items or anything else you have going on. So there's a little bit of a game, a cup game to play there.

Sorry, let's move on to 25D.

Well, that's important. That's the one that affects everyone, right? Everyone has to have a place to live. So if you own your house, that's coming into play.

25D however, has broader implications, especially for the investor base. So this is a residential clean energy credit.

What it covers is this credit is for equipment that creates or stores clean power, solar panels, wind turbines or battery storage systems. The dollar limit is uncapped, It's a straight 30% of the cost and there is no maximum dollar limit per year and it carries forward.

So this is the game changer. So if the credit is more than your tax bill, you can carry the excess forward to reduce taxes in future years.

For instance, if we put solar on a very large project, you can take up to a deduction of 30% of that cost and it carries forward.

So just to be clear, this is on residential. Right now we're talking about residential with.

A little bit of a caveat. Here's the home requirements to your point, Neil.

It can be on your primary residence or a second home used as a residence, not for pure rentals, but it can apply to a second home that you have decided to use as a rental. It can't be a property that you've purchased specifically as a cash flowing rental property.

But you can have a property that you buy or that a rental property that you lived in for a period of time or if at any point in time it was part of your primary residential strategy or a second home strategy and has since become a rental. 25D is an option there. So you want to give me an example of what that means?

Yeah, so. Well, the big thing about this is the carry forward. I mean that's really the big wealth generator.

If you installed, let's say like a $30,000 solar system, that's a $9,000 credit.

If you only owed $2,000 in taxes this year, congratulations, you'd have a $7,000 carry forward that you can use to cut next year's bill or the year after. It's just carries forward goes into a deduction bucket that you can use at any time.

If you have a want to write off to clarify, you can use the 25C that we mentioned earlier for some of the Smaller annual upgrades like we were talking about, and then reserve the 25D for, you know, any kind of big renewable energy investments. All right, so let's move back to the big leagues with some of the commercial property tax incentives.

Right. It's important to understand how that works on the base level.

But then our goal is to extrapolate that and what's the highest and best use of this new allowable tax, you know, quote unquote loophole. So the key takeaway number two, commercial and multifamily construction. Now, Neil and I primarily focus on self storage.

There's going to be some overlap here, but for everybody, this is really good to know. Even if you're just passively investing with other operators, you need to be asking about this and find out if they're utilizing it.

The deductions and credits for high efficiency new construction and major retrofits. So let's dig into this. This is where the really big dollars are. Commercial and multifamily construction.

If you're building, syndicating, buying a new asset, you need to understand 45L and 179D codes. So we talked about 25C and 25D. The other two that you need to know about 45L and 179D. So 45L is the new energy efficient home credit.

The definition is a tax credit provided directly to eligible contractors, which means the person who owned the property during construction who build or substantially reconstruct high energy efficient residential units. Okay, great. That's the definition. What's the investor application?

For passive investors, it means that new multifamily developments fundamentally are more valuable. The builder gets a credit of up to $5,000 per unit for meeting efficiency standards like Energy Star and prevailing wage requirements.

So this subsidy often translates to a lower purchase price or better financing terms that are passed on to the investor. If you are building things or upfitting things to be energy efficient, you can get a credit of up to $5,000 per unit.

You multiply that by a hundred or two hundred units in a small to medium sized multifamily property, it's significant savings.

And even if you're not the operator, you should know about that because that's something that's going to trickle down and affect the investors as well.

Yeah. All right.

And for our listeners that are holding existing commercial assets like office, industrial, high rise, residential, the 179D deduction is a renovation superstar. So what is 179D? It's for energy efficient commercial building deductions.

It's basically a tax deduction for commercial building owners or the designer who install energy efficient systems like lighting H VAC or high performance insulation. The building envelope. How do investors use this?

Commercial real estate investors can deduct up to $5 or more per square foot for certified energy upgrades. This is a massive dollar for dollar deduction that can reduce the taxable business income. And this is the primary tool for value add.

Commercial retrofits.

That's right. We have one of our self storage facilities that was non climate controlled with old very inefficient high pressure sodium lights.

And the strategy was converting those to LED which dropped the electrical bill by several thousand dollars a month and there were subsidies for that energy efficiency and then adding climate controlled ACs as well. If this had been around at the time 179d there would have been another added layer of value there. But the action steps are here.

So when you are performing your due diligence on an acquisition, ask the seller was the 1 79D deduction claimed on the property books? And that's actually telling you two things.

Number one is telling you what's their business acumen and did they leave value on the table or is there room for you to make improvements and take advantage of that? Or if they say that yes, the 179 deduction was claimed, that immediately tells you that you're acquiring a highly efficient property.

That that has probably already been done. There may still be improvements that you can take but they met the requirements for this to be considered an energy efficient property.

And that's going to be reflected in the value as well. And there's a very good chance you may get met with a blank stare.

Yeah.

Right. Like this is. This is not something that's widespread yet. Hopefully it will be sooner rather than later.

But if you are one of the people that knows to ask those questions, you're going to understand the seller a little bit better and you're also going to have a better idea of recognizing the value add that may be dollars that they left on the table.

Yeah.

All right, let's see. Neil, you want to break us into our key takeaway or key point number three here?

Yeah. So this is some of the permanent investor protections beyond the energy credits and the big beautiful bill.

They also brought back some much needed certainty to some of the other fundamental investor tax shields that were set to expire. One is the 100% bonus depreciation. We love that a long time. We love that long.

I guarantee you listeners on this episode are shocked that that's not what we talked about first. This is the 800 pound gorilla in the room. This is what everybody's talking about.

Yeah, it's a huge win. The bill made the 100% bonus depreciation permanent for qualifying short life property.

It means you can still immediately expense a massive portion of your property acquisition costs. And this pairs perfectly with cost segregation studies which we often always do on our self storage facilities or any new real estate acquisition.

That's right. And it can also create a lot of stability in the property. I'll give an example.

I have several multifamily properties at the beach that operate as short term rentals and I've done cost segs on some of them, not all of them yet. I was honestly waiting for 100% bonus depreciation to come back. But a short term rental property, I can take the depreciation.

Let's make sure get clarity on what that is first.

If you own a property, you're typically taking what's called straight line depreciation, which means over a period of time could be 27 to 31 years depending on if it's residential or commercial.

You're taking the depreciation off that property a little bit at a time every year and you're writing off the losses for the lifetime of that property.

Or you can utilize something called a cost segregation study, which is going to go in and assign value to the structure and everything inside of the structure.

For instance, with a short term rental, that would be the beds, the plates, the cups, the, the, the silverware, the sheets, the couches, the TVs, everything, it will wrap that up into one big number and then off of that number you are able to take a percentage for depreciation. And if you want to utilize what's called the bonus depreciation or accelerated depreciation, you can take it all at once.

Instead of taking it over a say 30 year period, you could take it all at once and it could be a huge savings, sometimes hundreds of thousands of dollars. And you can use that to carry forward if you need to or immediately offset your other income.

So it immediately changes the fundamentals of some projects.

Like instead of just buying a project and looking at the net operating income divided by the cap rate to establish what the value of this property is.

Meaning you move the property into something you want to hold long term, put into a trust, give it to your family and that, that liability with the tax deferment goes away when your family inherits it.

Yeah. So I want to add one more thing.

Yep, that's right. And as long as you want to hold that one long term, you're good.

Yeah. All right. QBI is.

So this is the potential permanence for the 20% qualified business income deduction for pass through entities like most real estate LLCs, including syndications. It's a massive boost. This deduction was slated to sunset and its extension is a huge stability win for passive income wealth protection.

Yeah. So the final warning is this. The benefits are real. The rules are strict. Do not file without consulting your cpa.

Don't just listen to us.

Don't listen to the guy who talks too much and the one with the big head. Yep. You must meet the prevailing wage and other detailed requirements to unlock the biggest benefits.

So I think the step number one, understand the value that is out there. Become familiar with nomenclature like 25C, 25D, 179D and 45L. Those are subsidizing your multifamily opportunities for investment as well.

As your primary residence, second home, or homes that at one point were primary or secondary that may now be a rental. So to me, it feels like there's some gray area, loophole area in there.

And that's why I think it's going to be the smartest thing for us to do is let's let the dust settle on this and then let's find a specialist. And it's a classic who, not how scenario. We'll dig in. But for now, don't skimp over this and just wait until someone comes out with a book.

That's going to happen. But I would highly encourage everyone to start looking into this now.

Yeah, well, and like we said, you know, we said at the beginning, the earlier provisions we were talking about, really for individual listeners in your residential property, you know, we talk about now energy efficiency is what they're calling the new deferred maintenance. You can't, you know, a lot of us put off a lot of this deferred maintenance on our personal homes.

Well, now you've got a way to essentially use that deferred maintenance, put it into some energy efficiency to lower your tax burden.

Yeah. The government is paying you to do a better job of taking care of your property. Energy is going to become a huge problem.

Especially obviously, everybody knows about AI and how that's growing and blasting off and it's creating the need for these massive data centers.

But there's, it's not just the big, large language data centers, there's these edge computing data centers that are popping up and it's going to be a huge strain on our electrical infrastructure system. Everybody knows that. It's not just about capacity, it's also about efficiency.

This is the way that the government is looking ahead and leaning into this by saying, help us become more energy efficient. If you will take your properties and help us by making them more energy efficient, we will pay you.

And some of those, we will let you carry that forward and offset your taxes in the future. It's that important to the government that they're willing to pay you to do it.

And it's likely deferred maintenance that you are going to need to do anyway. So if you can do it in a way that does make your property more energy efficient and it's responsible both to the planet and to the infrastructure.

It's also a way that can create value for you because the government is willing to pay you to do that.

All right, well, that's all we had for today. Like I said, all of this should be, you know, all this is just for educational purposes. If you seek this out, please, please reach out to your cpa.

But we've given you a lot of the tools. At least ask the smart questions.

Yep. And we're still learning as well.

So if anyone has a a specialist that they think is doing a really good job of unpacking all this, we want to get to the point where we're creating a resource that people are willing to jump in and dig into this a little bit more than we are. So one of the reasons we host a podcast is because we learn too. Right?

And this is something hopefully shared a little information that can help at least raise an eyebrow and get you started on your journey. But in this year, 20, 25 and years moving forward, we have more opportunity to add value to existing properties than we've had in the past.

We want to encourage everyone to take a hard look at that. So thank you for listening. We appreciate your attention to detail. Catch you next time.

Thank you so much for listening and for watching.

Thanks.

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And remember, with Truly Passive Income comes freedom of time, place, and the freedom to pursue your higher purpose.

Sam.