Real Estate Tax Planning Strategies with Jamelle Nelson
In this episode of Lifetime Cash Flow Through Real Estate Investing, Rod Khleif sits down with CPA and entrepreneur Jamelle Nelson to discuss advanced real estate tax planning strategies for investors, business owners, and high income earners. Jamelle explains why many real estate investors fail to maximize tax advantages simply because they are reactive instead of proactive with their financial planning. From cost segregation and bonus depreciation to IRS negotiations and retirement plan structuring, this conversation delivers valuable insight for anyone serious about preserving wealth and reducing tax liability.
Jamelle shares how his experience working with major organizations like CBRE shaped his understanding of real estate accounting, REIT structures, investor exits, and tax mitigation strategies. Today, his firm specializes in helping real estate investors create long term tax strategies that align with their business goals instead of scrambling at year end to reduce tax exposure.
Why Proactive Real Estate Tax Planning Matters
One of the biggest themes throughout the conversation is the importance of proactive tax planning. Jamelle explains that many CPAs focus only on filing tax returns and reporting past activity, while sophisticated investors need forward looking strategies that align with future acquisitions, dispositions, and business growth.
For real estate investors, tax planning should begin long before the end of the year. Jamelle emphasizes that investors need to evaluate:
- Their current income structure
- Whether they qualify for Real Estate Professional Status
- Their long term hold strategy
- Future exit plans
- The impact of depreciation recapture
- How business entities and family payroll structures are organized
Instead of making rushed financial decisions in December, Jamelle encourages investors to develop a year round strategy that integrates real estate investing with wealth preservation and estate planning objectives.
Understanding Real Estate Professional Status
A major educational point in the episode revolves around Real Estate Professional Status, one of the most discussed real estate tax planning strategies available to investors.
Jamelle explains that qualifying for this designation can allow investors to offset active income with real estate losses, but many investors misunderstand the IRS requirements. To qualify, an investor generally must spend more than 50% of their working time in real estate related activities and satisfy the 750 hour participation requirement.
This becomes challenging for high income professionals with demanding W-2 careers because the IRS closely examines whether real estate truly represents their primary business activity. Jamelle also discusses how married couples may structure participation differently when one spouse is more active in real estate operations.
The discussion highlights how critical proper documentation and strategic planning are when pursuing these tax advantages.
Cost Segregation and Depreciation Recapture Risks
Cost segregation studies and bonus depreciation have become popular real estate tax planning strategies in recent years, especially among multifamily syndicators and passive investors. However, Jamelle warns that many investors focus only on immediate tax savings without fully understanding the long term consequences.
He explains that accelerated depreciation can create significant tax liabilities later through depreciation recapture when properties are sold, refinanced, or foreclosed upon. In today’s challenging commercial real estate environment, many investors are now facing difficult situations involving distressed assets and unexpected tax exposure.
Jamelle stresses the importance of building tax strategies around the investor’s full business plan rather than chasing short term deductions without considering future outcomes.
Advanced Tax Reduction Strategies for Investors
Beyond the commonly discussed real estate tax tools, Jamelle shares several lesser known wealth building and tax mitigation approaches that sophisticated investors often overlook.
Some of the strategies discussed include:
- Structuring employee retirement and pension plans
- Hiring family members through legitimate payroll structures
- Creating charitable giving strategies
- Establishing nonprofit organizations connected to philanthropic goals
- Utilizing business entities strategically for long term planning
- Coordinating tax strategies with overall investment objectives
Jamelle explains that proactive tax planning is not simply about reducing taxes today. The real goal is creating systems that help investors preserve capital, build wealth efficiently, and avoid costly mistakes later.
Navigating IRS Tax Resolution and Negotiations
Another important part of the conversation focuses on tax resolution services and how investors can address serious IRS problems before they escalate further.
Jamelle explains that many investors accumulate substantial IRS debt due to capital gains, failed investments, depreciation recapture, or poor bookkeeping systems. His firm works with clients facing tax liabilities ranging from simple payment plans to multi million dollar IRS disputes.
He discusses how tax professionals can negotiate installment agreements, evaluate eligibility for Offers in Compromise, and help clients avoid liens or enforcement actions. Jamelle also emphasizes that resolving IRS debt requires more than negotiation. Investors must fix the underlying systems and financial habits that created the problem in the first place.
For real estate investors operating large portfolios or syndications, these conversations become increasingly important in uncertain market conditions.
About Jamelle Nelson
Jamelle Nelson is the CEO and Managing Director of Nelson & Associates, a boutique CPA firm serving clients across the United States. His firm specializes in accounting, tax planning, tax strategy, and IRS tax resolution for high income earners, business owners, and real estate investors. Before launching his own firm, Jamelle worked at KPMG and later at CBRE, where he developed extensive expertise in commercial real estate accounting and investment structures. Growing up in Compton, California, Jamelle credits strong mentorship, education, and family values for shaping both his entrepreneurial journey and professional success.
If you want to hear the full conversation and detailed insights, watch the podcast video or read the complete transcript below.
FAQ About Real Estate Tax Planning Strategies
What are real estate tax planning strategies?
Real estate tax planning strategies are methods investors use to legally reduce taxable income, preserve wealth, and improve overall investment returns. These strategies can include cost segregation studies, bonus depreciation, 1031 exchanges, retirement plan contributions, entity structuring, and Real Estate Professional Status qualification. Effective tax planning helps investors maximize cash flow while preparing for future acquisitions, refinances, or property sales.
Why are real estate tax planning strategies important for investors?
Real estate tax planning strategies are important because taxes can significantly impact investment profits and long term wealth creation. Proactive planning allows investors to minimize tax liabilities, improve cash flow, and avoid unexpected tax consequences such as depreciation recapture. Investors who plan ahead often have more flexibility and stronger financial positioning during market shifts.
What is Real Estate Professional Status?
Real Estate Professional Status is an IRS designation that allows qualifying taxpayers to use real estate losses to offset active income. To qualify, investors generally must spend more than 50% of their working time in real estate activities and complete at least 750 hours annually in qualified real estate participation. This strategy is commonly used by high income earners seeking larger tax deductions.
How does cost segregation help reduce taxes?
Cost segregation accelerates depreciation by separating building components into shorter depreciation schedules. Instead of depreciating an entire property over 27.5 or 39 years, investors can depreciate certain components over 5, 7, or 15 years. This creates larger upfront deductions and can substantially reduce taxable income in the early years of ownership.
What is bonus depreciation in real estate investing?
Bonus depreciation allows investors to immediately deduct a large percentage of qualifying property improvements and assets placed into service. When combined with cost segregation studies, bonus depreciation can create significant paper losses that help offset taxable income. Many multifamily investors use this strategy to improve after tax returns and increase available capital for reinvestment.
What is depreciation recapture?
Depreciation recapture occurs when an investor sells a property after taking depreciation deductions over time. The IRS may require part of those deductions to be taxed upon sale. Investors should understand depreciation recapture before using aggressive depreciation strategies because it can create substantial tax liabilities if not properly planned for.
Can real estate investors reduce taxes with retirement plans?
Yes, retirement plans can be powerful real estate tax planning strategies. Investors may use SEP IRAs, Solo 401(k)s, defined benefit plans, or pension structures to reduce taxable income while building long term retirement wealth. Advanced retirement planning strategies can create substantial tax savings for business owners and real estate professionals.
How can family payroll strategies help reduce taxes?
Some investors legally reduce taxes by hiring family members within their business operations. Wages paid to family members may become deductible business expenses while shifting income into lower tax brackets. Proper documentation, legitimate job responsibilities, and compliance with IRS guidelines are essential when using this strategy.
What is a 1031 exchange?
A 1031 exchange allows investors to defer capital gains taxes by reinvesting proceeds from a property sale into another qualifying investment property. This strategy helps investors continue growing their portfolio without immediately paying taxes on gains. Many experienced investors use 1031 exchanges to scale into larger multifamily or commercial assets.
Why should investors work with a real estate focused CPA?
A real estate focused CPA understands the unique tax rules, deductions, and investment structures involved in real estate investing. Many general CPAs primarily focus on tax filing rather than proactive planning. Investors often benefit from working with specialists who understand multifamily investing, syndications, depreciation strategies, and long term wealth planning.
When should investors start tax planning?
Investors should start tax planning long before the end of the year. The most effective real estate tax planning strategies are implemented proactively throughout the year rather than reactively during tax season. Ongoing planning allows investors to make better financial decisions and avoid costly surprises later.
01:20:07:26 – 01:20:28:29
Rod Khleif
Welcome back to lifetime cash flow to real estate investing. I’m Rod Khleif and I’m thrilled you’re here. And I know you’re going to get tremendous value from the gentleman I’m interviewing today. His name is Jamal Nelson. And Janell is the CEO and founder of Nelson Associates. They’re a CPA firm. And the reason I wanted him on the show is they don’t just, you know, most CPAs look in the rearview mirror to figure out your tax situation.
01:20:29:01 – 01:20:44:02
Rod Khleif
And good ones look forward. They’re proactive and they plan for what’s coming up. And I haven’t had that in my life. Candidly. So I this may be a little selfish. I wanted him on the show for me, if nothing else. So welcome to the show, brother.
01:20:44:04 – 01:20:46:26
Jamelle Nelson
Hey, thanks for having me here. Excited to be here.
01:20:46:28 – 01:21:02:20
Rod Khleif
Okay. Well, you’re I’m excited to have you here. So why don’t you give us a little background on who you are? You know, maybe the company, you know, high level, and then, let’s drill down on some strategies and, you know, some of the things you’re doing to help your clients. I know you’ve got very large clients.
01:21:02:20 – 01:21:18:01
Rod Khleif
Occidental petroleum, these are NBC universal. I mean, you’ve got some big clients CBRE, Westfield, the mall ownership company. You’ve got some big clients here. So let’s talk about who you are, where you came from, and and how you might help some of my listeners.
01:21:18:04 – 01:21:50:08
Jamelle Nelson
Absolutely. So, Jamal Nelson, CPA and managing director of Nelson and Associates, we are a boutique, full service CPA firm based out of the Los Angeles area. And I tell people we have, local presence but national touch. So we are pretty much all 50 states. And, it’s not just myself. We are a family business. So I was fortunate enough to actually recruit my wife away from her company to come join us in-house to lead our operations, activities and strategy.
01:21:50:09 – 01:22:15:11
Jamelle Nelson
So, very happy to say that, we are a family business. But how I got started in accounting. It’s a pretty interesting story. I grew up in the inner city south, the LA area of Los Angeles, specifically Compton, California. And so, growing up in the 90s was a pretty rough time. It was a rough, stage and era, being a young male growing up.
01:22:15:14 – 01:22:45:21
Jamelle Nelson
And not only did my mom have the responsibility to kind of steer me in the right direction, but I had a twin brother. So growing up with the twin brother, things were very, competitive, straight for, my mom had great structure and intention for us. So she surrounded us with, great mentors, coaches, and one of my, mentors and coaches, actually, for, some, talent and promise, for us, me and my brother.
01:22:45:21 – 01:23:06:13
Jamelle Nelson
And he actually, convinced my mom to enroll us into a accounting and finance program at the University of Southern California as a junior in high school. And that was the first experience and exposure of anything accounting or finance related that I learned. And it was at that point that I realized, hey, I actually want to be a CPA when I grew up.
01:23:06:15 – 01:23:24:21
Jamelle Nelson
So fast forward, attended USC, graduated. And what you do when you graduate with an accounting degree, from a school like USC is you go work for one of the big for firms. So KPMG was that firm that I went to go work for. Great exposure, great experience. But I quickly found out, hey, I don’t want to do this partner track.
01:23:24:23 – 01:23:57:26
Jamelle Nelson
I don’t want to do this particular career path. And from there, that is when I actually, teamed up and joined CB Richard Ellis, so I CBRE, that is where I really honed in and learned about the real estate landscape. Not only from a general aspect of, operating real estate assets and investments, but really also from the accounting tax strategy standpoint, and from that experience, I got headhunted from there and joined another reputable, firm, called CiMB Group.
01:23:57:28 – 01:24:20:23
Jamelle Nelson
And it was with that firm where I really understood and learned how investors work with REIT’s and how, they raise capital and how they actually plan and strategize for their exits. So with all of those experiences that ultimately led me to found Nelson and Associates, eventually I got to the point where I said, hey, I actually am a true entrepreneur at heart.
01:24:20:26 – 01:24:40:10
Jamelle Nelson
I had some great experiences, but ultimately decided to, take a risk on myself. And this is right before the time where I got married and had kids. And one of the regrets that I wish I would not have did was wait too long. But I actually started the business when I did. And long story short, it kind of, spun off.
01:24:40:12 – 01:24:59:26
Jamelle Nelson
And with the firm, our strategy and focus is really working with, high income earners, growing businesses, real estate investors, and really helping them implement the strategy from accounting, tax planning, and even tax resolution. So that’s kind of, where we are and kind of who we are.
01:24:59:28 – 01:25:19:04
Rod Khleif
Wow. Compton. Holy cow. I’m in Compton in the 90s. Good lord. I mean, it’s, you know, it was CPA or gang, I would guess, you know, your mom, your mom must be a tough woman. Very impressively. Did your brother okay? Did he did he end up on the right side of things?
01:25:19:08 – 01:25:38:08
Jamelle Nelson
Okay, so he actually is, we are very similar in our own right, but different at the same time. So we both detained at USC, graduated USC right out of school. I went to go work for KPMG, and he decided he wanted to continue his schooling. So he actually went on, and, attained his doctorate in psychology.
01:25:38:08 – 01:25:49:29
Jamelle Nelson
So he’s a practicing psychologist right now. But it was because of the structure and the competitiveness where I pretty much was, was going in the right direction. But.
01:25:49:29 – 01:26:00:04
Rod Khleif
It sounds like he was, too. Yeah, it sounds like he was too. That’s a that’s that’s that’s wonderful. So, so before we get dig deep, KPMG, is that the one that got in trouble? Is that. Yeah.
01:26:00:04 – 01:26:03:07
Jamelle Nelson
Truth be told, all of these firms get in trouble. Yeah.
01:26:03:10 – 01:26:12:24
Rod Khleif
Yeah, but there’s one that I’m in, like, huge trouble. I, I it was, it was it co-occurring? Is that KPMG. What does that stand for though?
01:26:12:24 – 01:26:23:05
Jamelle Nelson
Kirkland. I forget their initials, but they’re German. Okay. Founders. But ultimately, a lot of the big four firms, there’s some scandals, there’s some exposure, there’s some.
01:26:23:12 – 01:26:27:17
Rod Khleif
In Russian, you know, Enron, stuff like that. Yeah. Well.
01:26:27:20 – 01:26:29:22
Jamelle Nelson
You’re thinking serious or interesting. Yeah.
01:26:29:22 – 01:26:33:24
Rod Khleif
That’s what that’s what I was thinking of. Yeah, yeah, yeah. I you interesting.
01:26:33:24 – 01:26:42:23
Jamelle Nelson
Was the auditing firm for that company. And eventually that firm kind of spun off in a lot of those, like, taxing employees kind of emerged in with the other firms.
01:26:42:26 – 01:26:59:13
Rod Khleif
Well, it’s, but, you know, the conversation, but, you know, it’s, you know, that is the best path that one you took, you know, go and work for a big four firm, and then you work for a real estate group. I mean, huge real estate group. So that’s fantastic. Last question before we dig deep, how’s what’s it like to work with your wife?
01:26:59:13 – 01:27:13:19
Rod Khleif
Because, you know, I get that a lot with my students. And, you know, I if I had worked with my wife, we wouldn’t have last as long as we did. It would have ended much more quickly. But, you know, how do you how do you manage that?
01:27:13:22 – 01:27:35:15
Jamelle Nelson
So before I started that process, I was fortunate to have a bunch of mentors and different business owner buddies and friends that have done the same. And I looked at their businesses, and I also looked at how their lives went. And I ultimately wanted to end like that for myself. So one of the first things I did before she came on board was I went to do them and I said, hey, what are the to do?
01:27:35:20 – 01:27:47:05
Jamelle Nelson
Or the not to do? What are the top three things you would recommend? And they gave me some pretty consistent, advice. And ultimately that’s kind of what I went with. And I’ll kind of share a couple of those points.
01:27:47:05 – 01:27:48:07
Rod Khleif
So please, please, please.
01:27:48:07 – 01:28:16:00
Jamelle Nelson
One of the things was before you hire your wife, make sure that you have a dedicated role, list of assignments and objective for her so that when she starts, she understands what the role is. And it is not just you hiring her on payroll and salary, but she actually has a function to contribute to the company. Number two, keep the business at the workplace and keep the family and the household at the house and don’t mix the two.
01:28:16:00 – 01:28:33:03
Jamelle Nelson
And if you do make it, try to maintain it and kind of keep it at a minimum. So whatever we have at work, we try to keep at work and whatever we have at home, we keep at home. And that’s the biggest pieces. Yeah. The last piece is really, kind of keeping our priorities straight. So we have three kids, three small kids.
01:28:33:03 – 01:28:43:10
Jamelle Nelson
So we we definitely have to juggle a lot with the business, with their personal, with their social activities. So really keeping the main thing, the main thing, which is God family and then business.
01:28:43:13 – 01:29:02:08
Rod Khleif
Love it, love it, love it, love it. Yeah. And I instill that on my students as well, because my biggest regret in life was coming home to our, you know, the mansion I had on the beach, playing with my kids, but not being there mentally, you know, not being so focused on success that I missed, you know, I wasn’t present, I missed, you know, my kids love me and told me I was a great dad, but I didn’t live up to my own expectations.
01:29:02:08 – 01:29:21:14
Rod Khleif
So I’m really glad you shared that. God family business, that’s the way to do it. So, CPA, tax mitigation strategies, talk about some of the tax mitigation strategies that you employ. And then let’s then then we’ll talk about tax planning.
01:29:21:16 – 01:29:48:20
Jamelle Nelson
Absolutely. So as I mentioned, we do a lot of work with real estate investors, companies, businesses and one of the misconceptions that a lot of these individuals have when I first meet with them in, talking with them is that they think just because they’re involved within the real estate game or industry, that they’re automatically going to be able to take advantage of, tax strategies and tax losses.
01:29:48:23 – 01:30:11:09
Jamelle Nelson
And that’s true to a certain extent. But ultimately, it doesn’t just automatically happen. You ultimately need to be planning and strategic and structured with being able to maximize on those. So number one, it’s really understanding at what aspect am I involved in the real estate space and how does it impact me on a business side as well as the personal side.
01:30:11:12 – 01:30:30:27
Jamelle Nelson
So one of the things that we look at is we look at the full picture of the portfolio itself. We look at, hey, what is your involvement within the real estate space? Are you an owner operator? Are you a GP? Are you a passive investor? Do you have a W-2 job on the, main front? But then you’re doing the real estate on the side.
01:30:30:27 – 01:30:50:02
Jamelle Nelson
So we’re looking at all these different aspects and components to really understand, okay, based on your profile, this is how the real estate, opportunity can help you with regards to your strategy. And then once we establish that as a baseline and then there’s different, opportunities and such.
01:30:50:04 – 01:31:01:16
Rod Khleif
Let me stop you there. If I may I may stop you there if I may. So so, you know, I mean, obviously the ultimate is to have that real estate professional designation. How many hours is that a year. What does that can you give us some detail on that.
01:31:01:18 – 01:31:34:02
Jamelle Nelson
Yeah. So for the real estate professionals that is this is a title that is governed by IRS tax code, where they say, hey, if you are considered a real estate professional status, you can actually take your losses and actually offset that against your other activity that rolls up to your tax return. So for this to actually qualify, you have to do this as a primary source of activity, meaning 50% or more of your efforts need to be in the real estate space or profession.
01:31:34:04 – 01:31:56:03
Jamelle Nelson
So that’s number one. And if you are someone that has a full time job elsewhere, that is not in the practice of real estate business, and you’re saying this is what I do 50% or more of the time you’re going to exclude yourself and, not qualify for that designation? There’s another opportunity to where you can, satisfy the 750 hour rule.
01:31:56:06 – 01:32:15:15
Jamelle Nelson
But that doesn’t even matter if you don’t meet the first rule, which is the 50% or more. So where we see a lot of clients be excluded from, satisfying, that is, if they have another job or if they have a W-2 per se, and it is not anything related to the real estate business or space, they are going to be out.
01:32:15:17 – 01:32:30:29
Jamelle Nelson
But one caveat is that if they have a spouse and if their spouse isn’t working or doesn’t have that 50% situation working on their side, we can kind of use the two together. If you have a married filing joint situation.
01:32:31:01 – 01:32:46:13
Rod Khleif
Oh okay. Okay. All right. Well that’s helpful for sure. So if you got a W-2, it’s not happening unless you bring a spouse into the picture, is what you’re saying. They’re not they’re not going to believe that you’re that you’re working another eight hours at night on the real estate thing or an 8.5 hours. Exactly.
01:32:46:15 – 01:32:48:12
Jamelle Nelson
Exactly, exactly. Yeah.
01:32:48:12 – 01:33:04:22
Rod Khleif
Okay. So so, besides that, you were. I interrupted your midstream there so you’d look at that, I assume. What are some other things that you might look at when you’re, you know, interviewing a prospective client as to how to best help and serve them.
01:33:04:25 – 01:33:25:05
Jamelle Nelson
Yeah. So there’s a few things we’re looking at. We’re looking at, hey, what is your immediate short term goal? Why are we having a conversation? Why are you meeting with the CPA to do tax planning and tax strategy? Number two, we’re going to look at okay, now that we got your, immediate short term, game plan, what’s the mid term and what’s the long term.
01:33:25:07 – 01:33:50:13
Jamelle Nelson
And once we gather these aspects, we’re now able to really recommend and suggest and propose the direction of okay, you probably should be talking tax planning, tax strategy. Because ultimately a lot of beginners and newbies in the real estate space, when they are looking at their real estate, helping them with their taxes, they’re just looking at today and, not necessarily down the line three years, five years down the line.
01:33:50:16 – 01:34:12:27
Jamelle Nelson
So for a lot of them, they’re coming to us asking for cost segregation studies and bonus depreciation. And that can help out for the time being. But what’s going to happen two years, three years, four years down the line when you get ready to flip that property or sell that property. Now there’s this concept called depreciation recapture, where we now got to bring in that depreciation that you benefited from on the back end.
01:34:12:29 – 01:34:29:25
Jamelle Nelson
So if we understand kind of what your game plan is from a holistic perspective, it’s a good opportunity for us to kind of guide you in the right direction with regards to, hey, you actually should execute on this particular strategy today versus later.
01:34:29:27 – 01:34:53:09
Rod Khleif
So, you know, in that scenario that you just painted, you know, which can be very sobering, particularly in the current real estate environment where, you know, there’s a lot of distressed properties, could even be going back to the bank. And my SEC attorney told me he had six properties, so six apartment assets, new clients that were in foreclosure in one day.
01:34:53:11 – 01:35:15:23
Rod Khleif
You know, so a lot of a lot of distress right now. And, you know, when that happens, you you’re contending with that depreciation recapture as well. Yes, absolutely. Absolutely. So so you mentioned that you also do tax resolution. I’m guessing what you’re talking about is someone that’s facing a bill like that and the IRS has got them in their sights.
01:35:15:26 – 01:35:20:26
Rod Khleif
You you come in and help negotiate. Is that is that what you mean by tax resolution?
01:35:20:28 – 01:35:33:00
Jamelle Nelson
Absolutely. So tax resolution is a practice that is pretty much a big focus of what we do now. And so ironically, when we started this practice, it wasn’t even a thought. It wasn’t.
01:35:33:00 – 01:35:33:21
Rod Khleif
Writing.
01:35:33:23 – 01:35:57:15
Jamelle Nelson
But as we started to work with our clients, a lot of them started to get letters from the IRS and they started to get threatening and nasty letters saying they’re going to put a lead on their assets, they’re going to seize their bank accounts, etc. so at a certain point, we were passing off that business, but it got to a point where I started to research and say, hey, I need to really understand this side of the business so that I can help our clients.
01:35:57:17 – 01:36:27:19
Jamelle Nelson
And lo and behold, after the IRS, made some changes, which ultimately started with them, announcing big hiring and massive increase in workflow to scare the American taxpayers. And then subsequently from that mass layoffs. So now it created a huge, confusion to the American people, but ultimately, the letters continued to come. Threatening, letters started to come to the taxpayers.
01:36:27:19 – 01:36:54:01
Jamelle Nelson
And that’s eventually when we started to see a change in our practice in terms of needing to actually provide a resource and explain, the tax resolution. So what tax resolution is, is iris serious issues that the taxpayer pretty much cannot resolve on their own. It’s as if they are hiring us as their CPA or lawyer to represent them with the IRS or state and help negotiate their balances.
01:36:54:04 – 01:37:22:07
Jamelle Nelson
And for the clients that we’re seeing and taking on, these are clients that are in the high five, six figures. And a lot of times when I tell, peers that we have clients with million dollar, $2 million debt, they just cannot comprehend it. But what happens is, especially when you’re dealing in the real estate space, it is not impossible to, incur and accrue that much debt when you’re dealing with flipping, assets and having capital gains and really not understanding how those numbers.
01:37:22:07 – 01:37:35:08
Rod Khleif
You mean IRS debt? You mean IRS debt is when you use the IRS debt is the debt figure. So do you do you bring in, just do you bring in a tax attorney to assist you with in this scenario?
01:37:35:11 – 01:37:56:25
Jamelle Nelson
So 99% of the work we can handle in-house without a tax lawyer can do it as a CPA. So what the IRS does is they allow a CPA, a lawyer or an enrolled agent to actually professionally represent their clients. And one of the first things we do is we get a POI on file, and now we’re able to assess now power of attorney.
01:37:56:27 – 01:38:16:26
Jamelle Nelson
Correct. Now, if it requires us to actually take this to the IRS courts and actually represent the client against the IRS in front of a judge, this is now where we bring again, a lawyer, and we have different, lawyers in our network that can ultimately represent the client in that case. But we typically try not to go that far.
01:38:16:28 – 01:38:17:27
Jamelle Nelson
01:38:17:29 – 01:38:28:21
Rod Khleif
Just out of curiosity, how long have you been doing this and what sort of results have you seen? I guess, you know, I know you can’t speak specifically, but maybe globally. What sort of things do you see?
01:38:28:23 – 01:38:53:26
Jamelle Nelson
Yeah. So we’ve been doing this particular practice for about five years, okay. With this practice, when we first started, it was mostly the, outsourced accounting, tax planning, tax strategy. And then it evolved to the tax resolution. So the types of clients we see, we see individual basic, W-2 workers that ultimately are probably making a W-2 paycheck.
01:38:53:26 – 01:39:18:19
Jamelle Nelson
But then they got caught up. Life happened thicknesses, a couple of years past they haven’t found. We’re working with small clients like that all the way up to the, larger organization that say, hey, we actually have a fund of, real estate investments in property. And one of our projects is now going to be able to, close the deal because we have this lean, and this lean has a pretty substantial size.
01:39:18:22 – 01:39:40:12
Jamelle Nelson
So with these clients, ultimately, we’re negotiating their balances. And not only are we trying to negotiate their balance, but we’re trying to get them on the right track so that they don’t repeat the process. And what we find is that a lot of times we can help the client resolve the situation, but they’re going to go back to the same situation if they don’t really understand why they got in this situation in the first place.
01:39:40:15 – 01:39:44:04
Jamelle Nelson
And this is where the systems and the processes and really.
01:39:44:04 – 01:40:01:12
Rod Khleif
I appreciate all that. I appreciate all that. But back to my question, because, you know, I deal with a lot of investors and I know there are a lot of investors in trouble right now, in fact, big names that have their own jets. Okay, I know them personally, and they have foreclosures and they’re going to have that depreciation recapture.
01:40:01:12 – 01:40:19:02
Rod Khleif
And they they could get, you know, if they haven’t purchased anything that year or this year, you know, they’re going to have a hit. Because they have nothing to write off against. So have you encountered that where they have a big balance from something like that? And then back to my question, what sorts of discounts do you do?
01:40:19:02 – 01:40:23:27
Rod Khleif
You see, I’m just out of curiosity. This is maybe probably more for me than anybody. Just curious.
01:40:23:27 – 01:40:37:08
Jamelle Nelson
Yeah. So when we’re talking about the depreciation recapture and that kind of coming back into the mix, let’s say for instance, that depreciation capture is coming back because that property is now going to have a a sale per se.
01:40:37:09 – 01:40:40:08
Rod Khleif
So sale or foreclosure or foreclosure closure.
01:40:40:10 – 01:41:02:01
Jamelle Nelson
So now we’re now we’re factoring in basis and capital gains. So if this is a situation where that is now reported to the IRS that now have to get reported on the individual taxpayer’s tax return, and if they are in a situation where it shows a capital gain, which ultimately is going to result in income tax, now the IRS is holding their hand now saying, hey, I need you to pay us this money.
01:41:02:01 – 01:41:28:02
Jamelle Nelson
Right? And if this is the situation where the taxpayer do not have the funds, now they’re in a situation where they need to negotiate whether or not they need to establish a payment plan or prove that they cannot, meet the payments. And this is where your tax resolution negotiation is now going to come in. And unfortunately, everyone is not going to qualify for a common term called the offering compromise, which most people are familiar with.
01:41:28:04 – 01:41:51:10
Jamelle Nelson
Everyone doesn’t qualify for that. But if you do qualify, which is a process, we take our clients through, we identify what their qualifying, opportunities are and then whatever is the best case situation, a scenario that is what we go with and is typically going to be negotiating a favorable installment agreement or payment plan or pursuing the offering compromise.
01:41:51:13 – 01:42:00:15
Rod Khleif
Okay, okay. Well, I still didn’t get the answer my question, but I I’m looking for a percentage. I’m just I mean, is it I’m sorry. Yeah.
01:42:00:17 – 01:42:02:16
Jamelle Nelson
You mean like the percentage of clients or the people that’s.
01:42:02:20 – 01:42:13:05
Rod Khleif
Let’s say let’s say they all they owe $1 million. 000. Okay. What what what could you know what how successful have you been in mitigating that down into one level? That’s what I’m asking. I got you.
01:42:13:08 – 01:42:41:11
Jamelle Nelson
I got you, so I use the client. That is, let’s use $1 million, for example. This is a real case. This client had $1 million situation where he and his wife had a business together, and they unfortunately got divorced. But five years later, the IRS eventually catches up to them and says, you all this million dollars. So based on some of the rules and statute of limitations, we were able to actually negotiate this client bill all the way down to less than $100,000.
01:42:41:13 – 01:43:02:08
Jamelle Nelson
Now he’s on the hook for less than $100,000. But that remaining portion we were able to negotiate and waive, we have other clients that have similar situations, but the dollar amounts may vary. But ultimately, depending on the timing, the timeline, the nature of their current income situation is going to dictate how much they can afford to pay.
01:43:02:08 – 01:43:05:27
Jamelle Nelson
This is pretty much what the client is going to work with. That’s on established.
01:43:05:27 – 01:43:06:29
Rod Khleif
Gotcha, gotcha.
01:43:06:29 – 01:43:07:23
Jamelle Nelson
Case.
01:43:07:26 – 01:43:32:07
Rod Khleif
Sorry. Listen, guys, those of you listening, you’re probably like, oh, come on, let’s get on with some more stuff. I just, I know I have, you know, the potentially I don’t think I have I may have one student that fits this bill, but I, there’s a lot of people that are facing this right now that took that did the cost segregation, that did the bonus depreciation in 22 and 23 or 21, 22 and 23 that, you know, and these, these, these properties have gone tits up.
01:43:32:07 – 01:43:52:01
Rod Khleif
And so they need help. And that’s why, you know hopefully if you’re listening hopefully that’s benefited you in that case. And you know Jamal and his team can help you with something like that. So back to you know tax mitigation strategies. Do you have any outside the box ones? I mean, we know about cost, SEG. We know about bonus depreciation.
01:43:52:01 – 01:44:07:04
Rod Khleif
We know about 1031 exchanges. But, you know, how about you know, some off the shelf, some different stuff, like, you know, these health plans that you can set up for yourself or do you do any of that sort of thing? And if you do, can you can you elaborate on some of that?
01:44:07:07 – 01:44:32:14
Jamelle Nelson
Yeah. So for the primary ones that you mentioned, those are pretty much what the clients are coming to us for. They, they don’t know specifically the term or the specific strategy, but they just know, hey, this is real estate related. So one caveat that I will say is for your listeners, we do get a lot of real estate investors that eventually come our way, but previously they were working with another CPA or someone else.
01:44:32:14 – 01:44:56:00
Jamelle Nelson
And one caveat that I do want to make sure I highlight is that when you’re working in the real estate space and you’re looking for a real estate specific guidance and strategy, it’s important to be working with a real estate specialists. And unfortunately, not all CPAs are versed with the real estate lingo, language terminology and or, tactics.
01:44:56:02 – 01:45:21:17
Jamelle Nelson
So to to your point, most of the time folks are coming to us and they know they’re in the real estate industry or space. So they’re looking at the courses, they’re looking at the real estate professional, short term rentals, etcetera. So when it comes to outside of the box, one of the, things that I highly recommend that people do is have proactive conversations with a tax plan.
01:45:21:19 – 01:45:40:23
Jamelle Nelson
And with the tax planning strategy, this is where you meet with the professional, and this is where you start to uncover all these different tactics and strategies per se. So obviously we know what the main words are going to be. But what happens if you have a portfolio or a business and you have employees, are you taking advantage of a, employee retirement plan?
01:45:40:23 – 01:46:09:18
Jamelle Nelson
And I’m not talking about just a simple set or a 401 K or anything like that. I’m talking about. Do you actually have something structured and set up where you can, actually establish a pension account for your, your business and you as the owner, you and your family can benefit directly. What does it look like if you start to hire your your children and not just your children bikes, your family members, your your spouses, your, brothers, your sisters, what I find is a lot of,
01:46:09:20 – 01:46:15:02
Rod Khleif
That’s where I was going with this, by the way. That’s where I was going with this. I wanted them to hear it from you, not from me. Good. Yeah.
01:46:15:05 – 01:46:45:06
Jamelle Nelson
What I find is a lot of clients that are doing well, they’re doing really well on paper. And I think at the end of the year they’re trying to offload a bunch of cash, purchase a bunch of assets, just to kind of reduce their tax bill. But what if you had proactive conversations throughout the year and you actually gained plant, and instead of you, loaning out money that probably won’t get paid back from your family members, what if you actually buy, put them on some type of a payroll, or put them on some compensation where the business can actually benefit by identifying it as a deduction and such.
01:46:45:06 – 01:47:10:28
Jamelle Nelson
So, we look at these different alternatives and different, strategies. But health insurance is definitely, form retirement plans is a big one that we tap into, charitable contributions. We have a lot of clients that ultimately establish separate nonprofit entities that they’re affiliated with or have, a genuine, connection to, we’re able to utilize those organizations to assist them.
01:47:10:28 – 01:47:22:01
Jamelle Nelson
So, it’s not necessarily just about, 1031 exchanges in the call space, but we look at using those to help with the overall goal and objective.
01:47:22:03 – 01:47:36:01
Rod Khleif
Which. So that’s that’s what I was going to say. Yeah, that’s where I was going with this because so many CPAs don’t do that. You know, it’s all look in the rearview mirror and deal with what you’ve got. And then then you’ve got that freaking fire drill at the end of the year because there was no pro activeness, which is candidly my situation right now.
01:47:36:01 – 01:47:59:00
Rod Khleif
I’m with a firm right now that it’s it’s never proactive. And it’s it’s frickin frustrating. So you know, this again, this is self-serving as it relates to me as well because this is very intelligent, proactive planning to do that on a tax basis, not just go out there and find properties and go buy them. Actually, you know, think about these things that that cost your money or save your money.
01:47:59:02 – 01:48:08:11
Rod Khleif
But, well, listen, Jamal, I really appreciate you coming on the show. I know you’ve added value. How can people get Ahold of you? What’s your website?
01:48:08:13 – 01:48:26:19
Jamelle Nelson
Absolutely. So our website is Jay Nelson group.com. And on our website they can find our services as well as schedule free consultation. We’re also on Facebook Jamal Nelson Dash, CPA, Instagram Jamal Underscore Nelson LinkedIn Jamal Nelson, CPA.
01:48:26:21 – 01:48:33:06
Rod Khleif
Perfect, perfect. Well, thank you, I appreciate it. And I appreciate you coming on the show.
01:48:33:09 – 01:48:34:27
Jamelle Nelson
Awesome. Thank you so much. Appreciate the time.
01:48:34:27 – 01:48:35:24
Rod Khleif
Thank you for listening.
