Larry Pendleton, Jr. has over 10 years of accounting, tax, and auditing experience as a CPA. He serves as a Board Member of the Hunton YMCA in Norfolk and The College of William and Mary’s Athletic Educational Foundation. He brings over 4 years of real estate experience and has closed on multiple deals consisting of single-family and multi-family properties.
[00:00 - 05:44] Opening Segment
- Larry is from started his interest in accounting in his highschool
- 7 years ago, he started his real estate Journey
- Tax Losses Can Still Be Used To Your Advantage
- The 100% capital gains rate for losses on investments held for less than one year will decrease to 80% in 2023.
- Passive investors may not be able to take advantage of losses on 401K investments.
- It is important to be aware of your tax situation and consult with a professional accountant.
[05:45 - 11:07] Syndications May Not Be The Best Option For High Net Worth Individuals
- There are tax advantages to investing in real estate as a high net worth individual, but there may be limitations on what can be written off.
- Being a CPA can help bring additional value to the seller and to the buyers in a real estate transaction.
- Opportunities to acquire real estate remain available, even in hot markets, through direct mailings to director owners.
[11:08 - 16:29] Passive Investing Advice from a CPA Master
- Larry shares his advice on scaling a personal portfolio and giving bad or good financial advice.
- He also discusses the bonus appreciation fading out and the upcoming audits.
- Larry recommends reaching out to a CPA before making any major financial decisions.
[16:30- 16:57] Closing Segment
- Reach out to Larry Pendleton
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- Links Below
- Final Words
Tweetable Quotes
“Work smarter, not harder, and it hits harder once you realize that you’re taxed more on non-passive activity, like having a job or just running a business.”- Larry Pendleton
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Phone number (757) 535-8592.
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Want to read the full show notes of the episode? Check it out below:
[00:00:00] Larry Pendleton: I may not be able to get the losses against my W2, but I'm making returns. And I'm not being taxed on those returns because I have these losses to offset. So I don't wanna be all doom and gloom in the situation, but there's a positive light to it where like, you're still increasing your net worth.
[00:00:17] Larry Pendleton: You're still bringing in income. That's not being taxed. You're just being taxed on the income. That, that your, whether it's your main business or your W2,
[00:00:26] Sam Wilson: Larry Pendleton is a real estate investor and CPA with a passion for adding value to fellow investors.
[00:00:43] Sam Wilson: Through tax consulting and accounting services. He says his mission is to help people achieve financial freedom through real estate investing and tax strategies. Larry, welcome to the show. Thanks. Thanks for having me. Hey man, pleasures, mine. There are three questions. I ask every guest who comes in the show in 90 seconds or less.
[00:00:58] Sam Wilson: Can you tell me, where did you start? Where are you now? And how did you get there?
[00:01:01] Larry Pendleton: started in north Virginia. I guess from a CPA perspective, I really started in my accounting in high school for my high school crush on, on an accounting teacher. turned into a CPA certification accounting degree there.
[00:01:16] Larry Pendleton: So I been doing that for over, over a decade now didn't work out with the teacher, so that's no reason going down that path, but, started up in real estate roughly seven years ago. My partner Terry con was already investing. I didn't think I can do it. Just limited mindset. He basically put a property in my lap.
[00:01:33] Larry Pendleton: Get an FHA loan. Still have it today cash flowing 300 a month. And like I said, been able to take that and expand that to grow my portfolio and grow the tax business to be more real estate focused.
[00:01:45] Sam Wilson: Gotcha. That's really interesting. Yeah. I think, you, I guess you, as the, you, as the student can have the crush on the teacher, it's the other way around that you get in trouble with the law, right?
[00:01:55] Sam Wilson: yeah, exactly. Oh, that's hysterical, man. Thanks for that. That's. That's a good laugh at a great place to kick this off. I guess when it comes to the accounting side of things, what are you seeing right now in the in the marketplace, as you're talking to different investors and you're talking to different people, like what are some things going on right now in the accounting world that we should be aware of?
[00:02:16] Larry Pendleton: One, I think most people are aware of is that the a hundred percent bones appreciate that. A lot of people have been taking advantage of over the past five years. It starts to phase down in 2023, it goes down to 80%, 60% and so forth. Waiting on to see if the IRS is gonna make any changes just amendments of before it completely phases out or would be back at 50% like we were before 2017.
[00:02:38] Larry Pendleton: We're also seeing. The IRS pump a lot money. I mean, the government pump a lot money into the IRS which technically means there's more audits coming as they're trying to reup lot the money that they've been paying out over the past couple of years. So for those investors, especially those that qual that's been trying to qualify real estate professional status, or have been qualified with the professional status, making sure you're tracking your hours.
[00:03:00] Larry Pendleton: And from, I'm also seeing, from working with a lot of syndications and funds for those that are limited partners just being sure that whatever losses or the tax losses that your operator or syndicated is promising or offering, like, can you really take advantage of that? In the current year, in a lot of situations, we're seeing a lot of people not being able to take advantage of them.
[00:03:22] Larry Pendleton: Wasn't aware of that until they get their K one S and file their taxes. And it is like, well, no one told me I couldn't claim these losses you, I thought I could have. So it was like just getting informed up front from your operator or from your tax advisor or from a tax advisor that knows real estate and how that may affect your taxes.
[00:03:40] Larry Pendleton: Let's talk
[00:03:41] Sam Wilson: about that for a second. What are the situations in which a passive investor cannot take advantage of a loss on a K one?
[00:03:48] Larry Pendleton: So if you're if you're not, if you're, if your income is over $150,000, then you're limited to the passive loss limitations under four section 4 69, the TA IRS tax code.
[00:03:58] Larry Pendleton: So that means. I mean, unless you can qualify for as a real estate professional, which means it's the 750 qualifying hours and more your half, half your work time in real estate. But if you're a doctor or or a business owner, that's not really, that's not in real estate. It's kind of hard to prove that you have.
[00:04:18] Larry Pendleton: The qualifications to, to claim those, to claim real estate professional status, and then show that you material participated with those properties as a limited partner, you're not really making any management decisions. So that's where you kind get hamstring in certain areas and there's strategies around it.
[00:04:34] Larry Pendleton: If you're doing short term rentals and you have your own properties, Somewhat group group all your activities together. But if you're just kind of just one syndication here or just, you're only doing LP investments, you may be limited to how much losses you can claim.
[00:04:49] Sam Wilson: What, when you, can you break that down?
[00:04:51] Sam Wilson: I guess, give me gimme a hypothetical example. Let's say you're a doctor and you make a half million bucks a year. How much? And you get a K one and, you say you invested a hundred thousand dollars in the deal and you get an $80,000 right off the first year. Again, we're just making stuff up here.
[00:05:05] Sam Wilson: Right? What percentage of that? Could they actually take as a write off, if any.
[00:05:11] Larry Pendleton: So in, in that scenario in year, one of that syndication the answer is. if all they have is if they have their W2 and over that $150,000, and then they invest in this deal and they got this $80,000 loss now, it's, it is important to bring up that even though you can't use it.
[00:05:29] Larry Pendleton: In year one, that doesn't mean it disappears, right? It is suspended and rolled forward inter into future years, which means that it's going to offset future gains or passive income and passive gains from many passive activities or other rental properties. Syndications that individual may be involved in.
[00:05:47] Larry Pendleton: And also when that property goes full cycle, any losses that's been built up along the way, then become active and now will help offset the capital gains on the back end. So if your goal is to really get into these losses offset in your w two and you're a, are a high net worth individual, you may be a bit may be outta luck.
[00:06:06] Larry Pendleton: From that stand.
[00:06:08] Sam Wilson: Right. And that's something I think. And thank you for taking the time to clarify that, there, because I think that's something that is often touted in commercial real estate, especially in syndications is, Hey, there's tax advantages here. But yet I think there's a lot of ambiguity, especially as it comes down to, the example we just set forth of like, Hey, what can someone.
[00:06:26] Sam Wilson: Actually take as a write off. And it sounded like you said somebody could group that too. So short term rentals that did make a bunch of money, maybe then they could go ahead and claim the full amount there. However works. I know everybody's, situation's unique, but
[00:06:38] Larry Pendleton: yeah, it's also important to bring up where it's like, it's a mindset where like you can take the offense of the, off the offense into this, where, okay.
[00:06:45] Larry Pendleton: I may not be able to get the losses against my W2, but I'm making returns. And I'm not being taxed on those returns because I have these losses to offset. So I don't wanna be all doom and gloom in the situation, but it's like, there's a positive light to it where like, you're still increasing your net worth.
[00:07:04] Larry Pendleton: You're still bringing in income. That's not being taxed. You're just being taxed on the income. That, that your, whether it's your main business or your W2, that's the part you have to deal with other strategies to offset that. But there's still a bright side of investing in real estate as a LP and be able to make more money.
[00:07:20] Larry Pendleton: That's that's not gonna be, has less tax liabilities as W2 income.
[00:07:26] Sam Wilson: Right. Yeah, absolutely. Absolutely. What's it like being a, in a CPA and also an investor in real estate? I mean, do you feel like that brings you or gives you any unique advantage, in your, CPA side of the business?
[00:07:40] Larry Pendleton: Yes, cause it helps me find, be to bring more value to the seller where it is, if I can understand their pain points, where there's a deal in cums, Georgia, where the person didn't know what their capital gain hit was going to be.
[00:07:56] Larry Pendleton: and they either didn't have an advisor or their advisor didn't know. But so part of my role on that particular team was to go through and like, Hey, here's your option? I gave them three options. If you sell. At the price that we're asking if you sell or finance it to us, here's your classifications.
[00:08:13] Larry Pendleton: And if you just do a lease option with us here's your taxations. And the fact that he ended up selling at the full value cause he realized, okay, if that's my taxable gain, he just want to get out real estate, which is fine. We really wanted the the least option. Sure. Something we could have to bring in less money to the table, but it worked out, we still got the price and like he see, we see a lot of offers, but he wasn't the highest offer either.
[00:08:36] Larry Pendleton: So, so something like that was it's like, okay, I haven't, he respect to bring additional value. To, to the the least to the sellers and to the each, even to the buyers for the teens, even I'm on the GP myself, or just consulting from that standpoint. Cause I'm sitting, I'm not, as I tell my clients, I'm not on one side of the table and you're on the other side.
[00:08:54] Larry Pendleton: Like we're both on the same side of the table because if the deal looks good, like I may wanna jump in myself.
[00:09:00] Sam Wilson: Right. That's really that's an interesting strategy I hadn't thought about was especially, I mean, we're in an asset class right now in the RV resort space. That is almost exclusively mom and pop.
[00:09:12] Sam Wilson: and it is, it's one of those things where, you know, that opportunity for seller financing oftentimes exists because they don't know what they're gonna do with the money. But I think, that you give 'em $5 million and they're gonna go okay, now where do we put it? But it also unique and unique spot to be in.
[00:09:25] Sam Wilson: And in that, you could almost offer. A consulting call with an outside person, such as yourself and say, Hey, look, let me pay for pay. Pay Larry a thousand bucks to have a phone call with you. And then this will help you kind of lay down somebody I'm making up numbers here. You might be 10,000.
[00:09:38] Sam Wilson: I don't know , but whatever it is, have a phone call with a qualified CPA. If you don't have one, cuz this may help you decide what your next. Root is, based on what the tax ramifications are. So I hadn't really thought about that before, especially as we're dealing with, and I don't wanna use this word, but less sophisticated sellers maybe than what you would in some other asset classes.
[00:09:58] Larry Pendleton: Yeah. Especially, I mean, a lot of people in the, especially in the multifamily space or there's a lot of emphasis on the 10 to 80 units, cuz that's typically just those match your, his funds, like those similar words, like it's your mom and pops and they've been. Running this thing on their own for 20, 30 years and they just tired and they want to get out.
[00:10:17] Larry Pendleton: Right. But there's a fear of like, what's the other side of receiving a huge lump sum. off of this nest egg that you built over the years is what you built, but. There's a, the IRS is kind of waiting on the side. see what you do next. the
[00:10:30] Sam Wilson: tax man. Come that's for sure.
[00:10:32] Sam Wilson: That is for sure. Tell me on the acquisition side, how are you finding opportunity right now?
[00:10:37] Larry Pendleton: A lot of as I mentioned, like I've worked with a lot of different investment groups and so what I've seen is always a lot of Meers. Especially when it's a hot market, it's tough to go through brokers on any asset class.
[00:10:49] Larry Pendleton: So there's a lot of just mailers trying to get to director owners as much as possible. As cliches, it sounds driving for dollars is still a thing and still, and just happen to drive past something. It was like, hope put in reverse to get this address written down whether it's a house or it's a vacant light or empty building.
[00:11:07] Larry Pendleton: So, so yeah, there's a lot of different ways. And how people are sourcing these deals. And I have unique respective being able to see the multiple ways of people doing it,
[00:11:16] Sam Wilson: man. that's awesome. When you look back on either your CPA career or your investing career, has, has there been bad advice that you received along the way and, or good advice that you feel like people should hear?
[00:11:28] Larry Pendleton: bad advice, Almost the aspect of it's weird because I tell people I'm rather a unique position where I've been like CPA masters, and it is like, I feel like I've been climbing this corporate ladder. It's like, this is up against the wrong building. So if I had the opportunity to start this whole, like, Start back at 18 all over again.
[00:11:49] Larry Pendleton: Like I probably just, would've just jumped straight into real estate. And it may not be a CPA as of now. I'm not saying that it's bad advice. It's just I've conflicted by it because it's been a huge part of my success, but. now I'm starting to at least embrace the grind throughout the years of doing it to get to this point.
[00:12:07] Larry Pendleton: but the best advice overall a, from a tax from a business investing standpoint is I guess the cliche of. Work work smarter, not harder, like hits harder. Once you realize that you tax more on on non passive activity, like having a job or, or, or just running a business.
[00:12:27] Larry Pendleton: So it's like, okay, the quicker you can get into passive being a passive investor like the, like the better, like, cause I'm, I'm more and more, especially with TV two young boys, like I'm just. Like concerned about like how much time I'm really getting to them as I'm, as of many other people building our empires, in two separate fields,
[00:12:46] Sam Wilson: right?
[00:12:47] Sam Wilson: Yeah. That's that's absolutely right. And that's funny, man. People ask me that question all the time. They're like, Hey, where do you wanna be? In 10 years? I'm like, well, in 10 years I'll be 50. In 10 years, I wanna be a passive investor only. I hate to say that, but it's like, that's where I want to go. Like I want to have, I wanna do all the things that I'm doing now for my passive investors and my deals.
[00:13:06] Sam Wilson: Like I just, and I wanna do invest passively, but I'm not strictly passive investments. I've still gotta generate revenue in order to put more money into passive investments. So it's it's, it's one before the other, but part of it
[00:13:17] Larry Pendleton: also is, is, is. And you, it's not so much as bad advice as just what you notice.
[00:13:22] Larry Pendleton: People just kind of trying to do all this on their own. they may not have said that, but like, if you're operating as such, like, and people observe you, like you're, you're giving bad advice where like, like, like this, this is a team sport, like life in general is a, is a team sport. Like you're not gonna be able to do any of this and scale and be able to do What you want in life, if you're, if you're just trying to put your head down and grind through everything on your own.
[00:13:49] Larry Pendleton: So like, to be able to be of value to someone, to partner with someone or a group of people to do something bigger. That's, that's, that's kind of how I see where like for me speak for myself at least like that's, that's, that's a brighter, brighter future. From that stand. Right. Yeah.
[00:14:06] Sam Wilson: That's that's absolutely right.
[00:14:07] Sam Wilson: And I guess that, that brings me one of my last questions, which is, you said that you've partnered with a lot of different people and a lot of different teams, and it sounds like a diverse geography as well. And that's kind of how you've scaled your personal portfolio. Is that right?
[00:14:18] Larry Pendleton: Yeah. So jumped around from single family rentals to short term rentals, done some flips, burned, and crashed on some flips and, like say now it's just okay. How to scale it and there's okay. Get into the larger multi-family commercial properties. Where, like I said, if I can get 1% of a thousand deals, like I'll, I'll do my 1% at the best of my capabilities and I'll move on from there.
[00:14:43] Larry Pendleton: Cause I know that's gonna take too much of my time.
[00:14:45] Sam Wilson: Right, right, man. I love it. I love it. You've given us some great things to think about here, Larry, talking about the bonus appreciation and how that's fading out. Thinking about more audits coming down, the coming down the pipe, that's never something that any of, any of us want to hear, but like you said, I know they've pumped a ton of money into that into that side of the IRS.
[00:15:02] Sam Wilson: So be looking for that. The tax losses thing, I think was really, really interesting just in the sense that we oftentimes hear about all the ways you can use, you know, you can use passive losses and things like that. But I think that the key there in this whole conversation was reach out to your CPA before you, count your tickets for their hatch, cuz that You may or may not be able to take advantage of that if you are a strictly passive investor, and then you've just given us some other cool things or, you key advice and key mistakes you've made along the way.
[00:15:27] Sam Wilson: And, and things that you'd say, Hey, this is the way you do it differently. And also the way that you would do it for the good advice you received. So, yeah, I love it. Appreciate it. Thank you for coming on today and sharing so much with us. If our listeners wanna get in touch with you or learn more about you, what is the best way to do that?
[00:15:39] Larry Pendleton: Yes, I appreciate Sam. So I'm available in all social networks. It's typically Larry Penington CPA. I'm pretty sure my, my link app would be in the show descriptions. That's basically my digital business card. Right, right there. My phone number (757) 535-8592. Shoot a text. Like I try to respond within 48, 72 hours of texts and voicemails and emails as, as well.
[00:16:04] Larry Pendleton: But Facebook, Instagram, LinkedIn haven't tackled Twitter. a little behind the times regarding that. So, but I'm three, three out of four. I'm now TikTok either.
[00:16:17] Sam Wilson: I hear you. I hear you. Yeah, those are platforms that I think for some of us have been harder to find the time to, to invest into, but certainly appreciate it.
[00:16:24] Sam Wilson: Larry, thank you for coming on the show today and yes, of course we will link all of that there in the show notes. So thank you again. I do appreciate it. Appreciate you, Sam.
