Episode 27 – Opportunity Zone Tips featuring Marie Grasmeier

Michelle: Welcome to “The InFLOW Podcast.” I am your host, Michelle Bosch. I see a gaping hole across society, that focuses on the outer work and forgets about the inner work. And what we really need is to bridge the gap between prosperity and spirituality to live a life inflow, with inflows of light, inflows of cash, inflows of creativity, inflows of grace in our lives. Each week, join me for powerful messages and interviews that will leave you inspired and ready to step into flow in your higher work. So now, let’s go.

Welcome to the “InFLOW Podcast.” I am your host, Michelle Bosch. I am very much looking forward to chatting with my guest today. Anytime it comes to real estate and taxes, I get all excited because I’m a little weird like that. We just created $1.5 million in depreciation in 2018 from apartment investing alone. So, our tax liability was close to zero in 2018, so maybe that’s why I’m all excited when it comes to taxes and real estate. My guest today is Marie Grasmeier. Marie is a CPA, and is the founder of Grasmeier Business Services. She’s a Certified Public Accountant, providing tax and consulting services to domestic and international individuals in businesses.

She’s also a Certified Management Accountant, Certified Global Management Accountant, and a registered trust and estate practitioner. She specializes in assisting foreign investors with the U.S. tax and compliance needs. And she also enjoys working with entrepreneurs through the entire life cycle of a business, from startup all the way to succession planning. She has spent most of her time and her career in international tax services. She assists foreign investors complying with foreign investment in real property, any tax treaties. She also assists with financial projections for visa applications, and in selecting optimal investment strategies, based on assets, on risk tolerance, on short and long term goals, your exit strategy, and any available tax credits and incentives. We recently collaborated on a book together with another 17 of the nation’s top women professionals in real estate, the name of that book was “Wealth for Women.” And I am excited to have her here today and learn from her. Without any further ado, welcome, Marie to “The InFLOW Podcast.”

Marie: Thank you so much. I’m really excited to be here. Thank you for inviting me. And I guess we have that in common. I get really excited about real estate and taxes as well.

Michelle: I know. I know that you came, Marie, here to the U.S. as an international student. I did also. And so, we have that in common. Can you tell us a little bit about your journey and how you ended up as a CPA? And how did you become fascinated with real estate?

Marie: Yes. Absolutely. So, I am originally from South Korea. I was adopted, so I grew up in Sweden. And then I did a year as a foreign exchange student up in Maryland. I went back and finished school in Sweden, and came here as an international student. I went to FAU in Boca. At that time, I really had no idea what I wanted to major in. I had been, you know, considering pre-med, and I had done some internships at a hospital. And I just realized that wasn’t for me. So I got into business. And you know, I took my first accounting classes, and I just realized that it made sense, and I could do it. And I didn’t dislike it, like most of my friends. So, I just got into accounting. I met my husband, and his family was in real estate. And at that time, he was managing a large apartment complex. And when we sold our first condo, we started renting it out. So that’s how, you know, I started my own personal real estate investment journey.

Michelle: Wonderful.

Marie: And, yeah.

Michelle: Now, you mentioned that you were adopted, you grew up in Sweden. Tell us, how does a Swedish family grows up around money and finances?

Marie: Well, when I grew up, we didn’t really talk a lot about money and finances. I mean, I barely knew what my dad did at work. And he was a CFO for an auto dealership. And I had no interest in knowing what he did at work or accounting. My mom was working at a hospital. And I knew that they had separate bank accounts, and she would, you know, do the checkbook, get [inaudible 00:04:49] receipts, you know, but we never really talked about money and finances as a family.

Michelle: Yeah. I think, for most of us, this is how we usually, you know, grow up, not a bad relationship necessarily with money, but just not a whole lot of talk about it when we were growing up. Now, Marie, I know that you are both a CPA, but also an investor in real estate. So, you actually eat your own cooking when it comes to tax advice from the real estate investment side. What are some of the reasons why you think women should consider adding real estate to their investment portfolio? Since you have both of those sides to you, you know.

Marie: Sure. Well, I am always an advocate for diversification. I don’t think anyone should put all their eggs in one basket, whether it’s in the stock market or in gold, or, you know, in money in your freezer. I think real estate is an outstanding opportunity for women to gain financial independence, to have cash flow throughout their current life, and build wealth for, you know, retirement and for their children as well. I mean, I see that I have a lot of women investors that are doing wonderful. I mean, it leads to, you know, independence and financial freedom.

Michelle: Yeah. Absolutely. Now, what are some of the common pitfalls that people or women should avoid when it comes to investing in real estate that you possibly see regularly in your practice?

Marie: Yeah. I think it’s not hiring the right team, not finding the right team to ask questions and get help from. You know, especially, when you invest in real estate, a lot of women and men, you know, you start up with rental properties. And there’s a lot of deductions there that you may not be aware of. So, you know, speaking to your CPA, identifying all the expenses that you’re allowed to take, can really make a big difference. And then you started off this podcast talking about depreciation, which is huge, especially now, when we not only have 100% bonus depreciation for a lot of tangible property, but we also have the increased Section 179 deduction, and we have the availability to do cost segregation studies and accelerate depreciation. So that can be huge. And women too, you know, not only talk to your CPA, but work with your financial advisor and your insurance professionals to make sure that, you know, you have the right covers in place, and you have, you know, plans for the future. I think it makes a big difference in the long term.

Michelle: Yeah. Absolutely. Yeah. And let me perhaps dig a little deeper there because you’re right. I did start the podcast with that. I’m excited with this whole cost segregation studies, you know, as a syndicator of apartments. And can you explain to our listeners what exactly a cost segregation study is, and why it’s so amazing when it comes to creating those paper losses.

Marie: Okay. So let’s say that you purchase a commercial building. And normally, you would, you know, make an allocation, all the purchase prices between land and the building. And, you know, to be conservative, usually [inaudible 00:08:18] really playful, you could say, 15% to the land and 85% of the building. And in the case of a commercial building, you would write that cost of the building off over 39 years. Now, if you do a cost segregation study, you can identify tangible pieces of that property, that would qualify for an accelerated depreciation method. So, instead of writing it off over 39 years, you could potentially write off the entire cost allocation to that asset in the year of acquisition, or you can maybe depreciate it over 7 years or 15 years, which makes a big difference as opposed to 39 years.

Michelle: Yeah. Absolutely. Now, if somebody was investing passively into an investment project, what does it mean to their cash flow or to their returns?

Marie: Okay. So, let’s identify passive. Let’s say, I do believe that you mean that you invest in perhaps an LLC or a partnership, that impacts as a passive entry. So, at the entry level, there’s no tax assessed, but rather, each investor receives a special K-1 with their pro rata share of income and expenses, and then the individual investor pays the tax on behalf of the entry.

Michelle: So, basically, an investor has a potential of having that depreciation count against their cash flow returns during the course of owning that investment?

Marie: Right. Yes. So depreciation will be an expense flowing through to the owner, as well as, you know, any accelerated depreciation and Section 179 deduction, which is the availability to take up the right to write off of certain assets that otherwise also should have been capitalized and depreciated.

Michelle: Yeah. So, for example, that means, alongside our investing business, we have an educational business. And if that educational business is considered active income, we can use our depreciation expense in the real estate investing world against that active income. So, if you’re a professional, is what you’re saying, you could also use that against it and reduce your liability.

Marie: Yeah. Yes. And, you know, speaking about depreciation, I have to just throw this in here, because this was years back, we called it the SUV or the Hummer Loophole. But we do have the availability as a self-employed person, or if you run a business to, you know, purchase one of these big vehicles, they have to be more than 6,000 pounds fully loaded. And being a [inaudible 00:10:57] passive, there’s a whole list of what vehicles would qualify, but you can basically write off the entire cost against your self-employment income, which not only reduces, you know, your marginal ordinary income tax, but also, eliminates the self-employment tax, which is 15.3% postcare and Medicare.

Michelle: That is fantastic.

Marie: That can be huge for anyone who is a self-employed real estate person.

Michelle: Yeah. Absolutely. Thank you so much. That was beautifully explained now. Let’s deviate a little bit. Can you tell me a little bit about Opportunity Zones? I know these are economically distressed communities.

Marie: I am so excited.

Michelle: I know these are like, you know, economically distressed communities. You know, when we’re able to invest under certain conditions, you’re eligible for some preferential tax treatment. Tell me a little bit more about what they are and how can they be used? How do you find these, like, what to do?

Marie: Right. Okay. So, Sunday, I just came back from Denver. I attended the second National Opportunity Zones tax conference. So, it was very exciting. I’m doing a lot of work locally with the local city and with the county, and with local investment groups and real estate professionals about Opportunity Zones. So that’s why I’m so excited about this. Opportunity Zones came out of the 2007 Tax Cuts and Jobs Act, and basically was an incentive to governor’s need [SP] state, could identify certain tracks in their state that was in the need for economic development. And it’s an incentive for investors who have unrealized or realized capital gains from any source.

So, you can sell stock or you can sell a real property, or you can sell an art collection, it doesn’t matter. If you have capital gains, you take those capital gains proceeds, you invest them into an Opportunity Fund that’s located in one of these Opportunity Zones that were identified by the governors. You can defer up to 15% of the capital gains. And there’s one more perk at the end of that. So what happens is, you put your capital gains into the fund, and you hold that investment for 5 years, you get a 10% step up in basis.

So, after 5 years, you can defer 10% on the original gain. You hold that investment for 2 more years, for a total of 7 years, now, you get an additional 5% step up in basis, so now you defer 15% of that gain. So after year 7, technically, 85% of your gain becomes 2. But with proper planning, you can obviously mitigate that capital gain exposure by other losses or deduction. So, moving forward, another 3 years, for a total of 10 years, if you dispose off the fund investment after 10 years, you get a 100% step up in basis of the incremental appreciation of the fund investment. So, after year 10, if you sell that investment, you pay 0 capital gain.

Michelle: Wow.

Marie: And so, what that fund needs to do is take all these investor’s capital gains proceeds, and either invest directly into a property that’s located in the zone or invest in an existing or new business that’s located in the zone. So there’s a lot of flexibility of what you can do. You don’t have to just go and buy land and put a building on there, or buy a building and land, demolish the building and, you know, put something new up there. You can go into a distressed area that’s in the zone and, you know, find a business that’s operating there, and invest in that business.

Michelle: Got it. Got it. Got it.

Marie: So, that’s like the O Zone, you know, 101. And right here, I’m in southwest Florida. In my county, Lee County, we have 14 tracks that are designated Opportunity Zone. So, there’s a lot of activity around that right now. And what I should say, also, is that we have until the end of 2019, the end of this year, to fully take advantage of that entire step up in basis because that’s gonna end in 2026 if we don’t have new legislation between now and then. So, in order to fully take advantage of this great tax incentive, investors need to move before the end of the year.

Michelle: Now, if an investor wanted to get moving with that, like, how would you go about finding whether an area is in an Opportunity Zone? And if someone is managing an Opportunity Fund, what are things to consider if I’m a passive investor into that fund?

Marie: Okay. So, the first question is, how would you find it? And most state and local governments have set up interactive website, and there’s also U.S. Treasury website where you can go and search, you know, by geographical location, and zone in on where those exact tracks are located. And, again, in my county, our interactive website was both between governmental agencies and potential investors, and developers, you know, to work together to find the best solutions for all parties involved. So, for example, anyone can set up an opportunity fund. It can be a corporation, or a partnership, or an LLC taxed as our partnership or corporation. And then, obviously, we also, you know, set up the terms of the fund, and then find the investors, and start developing or investing. And, you know, there’s a timeline on that. So the fund has, like, 30 months to make the first investment and meet certain tests, you know, because it’s an incentive to defer capital gain, the fund actually can’t sit on the cash. They have to immediately start investing, you know, to meet those certain tests. There’s a 90% test, and there’s a 70% test for, you know, second-tier structures.

Michelle: Wonderful. Wonderful. Thank you so much. That was definitely a good rehash there, you know, for anyone who’s new to this, for sure. When someone wants to start investing, whether it be in real estate through an Opportunity Fund, or just, in general, when it comes to having their financials in order, what is one of the first steps or some of the important things to do for someone?

Marie: Okay. So, if I have a new client come in and said, “Can you help me? I wanna get into real estate investment.” I would say, “Yes. Sure. What are your goals? And what are your expectations? And how much money do you have to invest currently?” And then I would ask to see, you know, a personal financial statement or financial statements from their businesses that they have, you know, other businesses that they were involved in, and prior tax and funds, to get an idea of the entire situation for that person. And from there, we would also look at, like you said before, their risk tolerance and where they want to invest, and how active they wanna be in their investment. They may just wanna invest in something very passively, write a check and get a return back, or they may want to buy something, be hands-on, manage the property, you know, restore the property. So, it kind of is a unique situation for each investor.

Michelle: Yeah. Yeah. Absolutely. I’m glad you mentioned a personal financial statement because so many times I come across ladies that, they tell me, “You know, I own this. I have a business that does this. I have this.” So, they’re used to seeing financials when it comes to their business, but as far as a professional financial statement, they know they have certain assets, but it’s not really something that gets updated. And I cannot stress how important it is to constantly be updating that, to have that, that that is one of the most important tools that you can have ready to go to be able to leverage with any banking institution. I’m assuming you help your clients do that as well, if they don’t have one yet.

Marie: Right.

Michelle: Yeah. Absolutely. Okay. Wonderful. Now, what do you wish you would have known at the beginning of your journey that you know now?

Marie: That’s a tough one. I just wish that I knew that, you know, life is gonna be okay. Don’t stress the small stuff, don’t worry about what other people think, or if you didn’t do the right thing. You know, try your hardest, work hard, and things will just work out for you.

Michelle: Wonderful. Now, you know that things are gonna work out for you, so that tells me a little bit about you and your character. How do you incorporate, you know, faith and this inner knowing that things are gonna be okay? How do you incorporate that into your life to know that you’re always gonna be inflow?

Marie: Well, I am a Catholic, so I do believe in God, and it’s always been part of my life. And, you know, my daughter goes to a Catholic private school, so it’s just part of our life. You know, I just put my trust in there and, you know, things would work out.

Michelle: Wonderful. Now, to wrap up, what are three things that you have for women that are either starting out or are already successful in helping them create either inflows of cash, inflows of ease, or inflows of grace in their lives? What are three things?

Marie: That’s a great question. And it was interesting because I received a question from someone else connected with this book project as well. And the three things that I said were, lead by example, become an expert, and always be confident. And let me just step back and elaborate a little bit. So lead by example was actually the model/tagline for the biggest national accounting firm that I used to work for before I, you know, started my own practice. And, you know, I still like it because it just means, try to always do the right thing, you know, be a role model, step up to the challenge, take the lead, don’t be afraid. You’re gonna make mistakes, but it’s okay, as long as, you know, you did your best. So, that’s lead by example.

And then become an expert. So if you already have your career or you’re established, don’t just stop there. You know, always strive to become better, to learn more, to develop, you know, an expertise in something. And, you know, to me, it’s in all aspects of life, not just, you know, being a CPA and doing something in education, it’s with your personal life, too. You know, always try to be better, whether it’s, you know, running or swimming, or wine tasting, or whatever the case may be. And then I said, always be confident. And with that, I don’t mean, to be self-absorbed or brag about yourself, I just mean, like I said, it’s more of an attitude, that you can do it. You know, I try my best, I know my strengths, and be independent, and know your worth. And don’t let other people tell you that you can’t do it.

Michelle: Yeah. Absolutely. I love all those three points. And the becoming an expert, it’s not just specifically just in your career, but like you said, it’s just in everything, you know, to be excellent, you know, to have that standard of continuously wanting to get better and better at what you do, and just have mastery. Yeah. Because that then becomes kind of like your genius that you can then use to, you know, step into your higher work, you know. So I love that, Marie. If somebody wanted to get ahold of you, and people wanted to reach you, what is the best way to do that and how can they connect with you?

Marie: My website is mariecpa.com, that’s mariecpa.com. Kept it nice and easy. I know my last name is very difficult to spell, so I try not to put that out there. So, my website, mariecpa.com, and my email is marie@mariecpa.com. So that should be fairly easy as well. And I usually respond to emails very quickly, so that’s the easiest way to get ahold of me.

Michelle: Okay. So they’re going directly to you. That’s beautiful.

Marie: Yes. [inaudible 00:23:47] that device and this device, and that laptop, and that computer.

Michelle: Wonderful. Thank you so much, Marie, for your time and for spending the last half an hour with us and educating us a little bit on Opportunity Zones, you know, on cost segregation studies, on investing in real estate, and just the importance of personal financial statement for a woman, I mean, for anyone, really, that wants to start investing, whether it be real estate or anything for that matter, and for stressing the importance of having basically someone on your team guiding you along the way, as you make those decisions. They shouldn’t be difficult decisions if you’re surrounded by the right people with your best interest in mind. So, I thank you, Marie, very, very much, and I look forward to meeting you in September at the event.

Marie: Yeah. Thank you, Michelle. It was my pleasure. Thank you so much.

Michelle: Thank you so much, Marie. Take care.

Marie: Okay. You too. Bye-bye.

Michelle: I hope this episode left you feeling inspired and ready to get inflows of cash, inflows of light, and inflows of faith in your life. I welcome your reviews on iTunes. Please leave me a review and help me create an amazing community of women inflow. Thank you as always for sharing your voice by going to michellebosch.com, and joining the conversation about this show. And while you’re there, grab a copy of my “Ten Commandments to Living a Life Inflow.” You can also follow me on Facebook at Michelle Bosch, and on Instagram @michelleboschofficial. Thank you very much, and until the next one.