The Tax Foundation Every Passive Investor Should Build | Ep. 25

In this episode of The Sage Investor, Brian Spear speaks with Marcus Crigler, CEO of BEC CFO, about how high-income earners and passive real estate investors can think more strategically about taxes. The core idea is that investment returns should be evaluated by what survives after taxation, not just by headline return projections. Marcus explains why passive investors cannot afford to be passive about tax planning, especially when investing in real estate syndications, funds, or other alternative investments that generate K-1s, depreciation, suspended losses, and potential recapture.

The conversation clarifies the difference between a tax preparer, tax planner, and tax strategist, emphasizing that sophisticated investors may need both accurate filing and proactive planning. Marcus and Brian discuss active versus passive income, real estate professional status, grouping elections, passive losses, basis, and how tax consequences can change before, during, and after a deal. They also address common mistakes, including waiting until tax season to understand a deal’s tax implications or assuming all CPAs have deep experience with real estate investment structures.

A major lesson is that tax strategy should support the investment thesis, not drive it. Investors should understand entity structure, grouping decisions, downside scenarios, and after-tax cash-on-cash returns before committing capital. Marcus closes with a broader wealth-building principle: keep investment earnings inside the investment pool long enough for compounding to work.

Key Takeaways

• Tax strategy should be part of the investment process before capital is deployed, not something addressed after year-end documents arrive. Passive investors need to understand acquisition, holding-period, and exit tax consequences before entering a deal.
• A tax preparer and a tax strategist are not the same role. Investors may need one professional to file accurately and another to evaluate entity structure, passive losses, grouping elections, and long-term tax positioning.
• Real estate professional status can allow certain investors to use passive real estate losses against active income, but qualification depends on specific time and participation rules. This strategy can materially affect after-tax returns when used correctly.
• Grouping elections can help investors use losses across activities, but they can also create unintended limitations if a poorly performing investment is grouped incorrectly. The right grouping decision depends on the investor’s broader portfolio and likely exit outcomes.
• Compounding works best when investment returns stay inside the investment pool. Pulling returns out too early for lifestyle spending can interrupt the wealth-building machine before it becomes large enough to replace active income.

Key Topics Covered

• Real estate tax strategy for passive investors
• Tax strategist vs. CPA vs. tax preparer
• Active income vs. passive income
• Real estate professional status
• Passive losses and depreciation
• Grouping elections for real estate investors
• K-1 tax implications
• Suspended losses and basis
• Tax planning before, during, and after an investment
• After-tax cash-on-cash return
• Defer, defer, delete tax strategy
• Investor compounding and reinvestment discipline
• Building a tax-aware financial foundation

Episode Chapters

00:00 Intro

Brian opens the episode by framing the central issue: investors often focus on maximizing returns, but sophisticated wealth builders focus on what remains after taxation. He introduces the importance of tax architecture, after-tax cash flow, real estate professional status, grouping elections, and proactive planning.

03:21 Pay Less as a Passive Investor

Marcus explains why passive investors still need to be proactive with tax planning. Even if an investor is passive in the deal itself, they need to understand how taxes affect actual dollars retained after the IRS takes its share.

05:41 A Tax “Strategist” Changes the Game

Marcus distinguishes between tax preparers, tax planners, and tax strategists. He explains that many CPAs are skilled at filing returns, but investors with growing portfolios may need a separate strategic advisor who understands real estate investments, K-1s, taxability, and long-term planning.

10:04 Active vs. Passive Income

The conversation defines active income, side-hustle income, and passive investment income. Marcus explains why the IRS treats active and passive income differently, and why investors need to know which activities sit in each bucket before building tax strategy.

13:25 The “Magic Elixir” for Lowering Taxes

Marcus explains real estate professional status and why it can be powerful for qualified investors. He discusses how depreciation from real estate investments can create large paper losses and, under the right circumstances, allow those losses to offset active income.

19:28 Don’t Get “Grouping Elections” Wrong

Brian and Marcus discuss grouping elections, including why they are often misunderstood. Marcus explains how grouping can help unlock losses across activities, but can also trap losses if investments are grouped without considering future exits or downside scenarios.

26:54 Biggest Mistake Passive Investors Make

Marcus describes one of the biggest tax mistakes he sees: investors entering deals without understanding tax consequences at acquisition, during ownership, and at exit. He explains how investors can be surprised by income on a K-1 even when a deal lost money.

31:53 Ask Your Tax Strategist This

Marcus shares the key questions investors should ask their CPA or tax strategist, including whether they have handled similar situations before and what the investor may be missing. He emphasizes the need for a deep-dive review before building a long-term tax foundation.

35:43 Marcus’s Sage Principle

Marcus shares his central wealth-building principle: once money enters the investment pool, avoid pulling it out prematurely for lifestyle expenses. Allowing investment capital and returns to compound is what eventually creates freedom from active income.

38:22 Work with Marcus!

Marcus explains where listeners can find BEC CFO and how to reach out for a conversation. Brian reinforces Marcus’s role as a trusted tax strategist and highlights the importance of family, trust, and long-term planning.

39:09 Grab the Tax Wealth Playbook!

Brian closes the episode by summarizing the major lessons: passive investors still need active stewardship, tax outcomes should be understood before investing, and compounding only works if it is protected. He directs listeners to Marcus’s Tax Wealth Playbook.

Full Transcript

[Transcript begins]

That’s a scary thing. When you invest into a deal, you should have known that you have a basis, what the thing is going to sell for, what the potential tax ramifications are, how you could be affected, given any outcome in the deal. And if there’s any opportunities to change those tax ramifications. But if you’re waiting until April 15th, we’re too late.

Most investors spend all their time trying to maximize returns. Sophisticated investors know the real game is maximizing what survives after taxation. This episode is one of the most foundational conversations we’re going to have because if you’re serious about building lasting wealth, it’s not enough to simply understand the investment. You also have to understand the tax architecture around the investment.

Said differently here, profit is an opinion, cash flow is a fact. And what really matters at the end of the day is your after-tax cash-on-cash return.

Today, I want to help you understand the difference between a tax preparer and a true tax strategist. Why real estate professional status actually matters. Why grouping elections are so often misunderstood. And that if you don’t understand the myriad of ways you can use grouping elections, you’re probably leaving real money on the table. And why passive investors still need to stay proactive if they want to avoid costly mistakes.

Before we unleash Marcus’s tax wisdom, I wanted to call out the fact that he was also kind enough to share a 50-page valuable resource for us completely free. This is his Tax Wealth Playbook. You can grab it for free, and we’ll make sure to go ahead and link it in the show notes for easy access.

Marcus, my friend, welcome to the show. It’s obviously great to have you here. And it’s been a little bit of time since we’ve jumped on and talked shop. So when is the last time that we’ve connected? It’s been a little bit, right?

Yeah, it’s been a few months. It seems like we get to check in with each other every few months, at least via a text message, but it’s certainly been a while since I’ve got to see your face. So that’s a nice change of pace, for sure.

I agree, man. I love jumping on and talking shop, not only because we get to dig into the family and this, that, and the other, but also it’s kind of like looking in the mirror a little bit. It’s a beautiful thing, right?

That’s right.

Now I’m going to say Marcus is an old, old friend that really helped the foundational piece of our business get started way back in the day. Fractional CFO, then started his own company over at BEC CFO, helping out a ton of really sophisticated guys minimize their tax burdens, and now serves as my personal tax strategist. Can you believe it? Unbelievable, buddy.

So thank you for all the help that you’ve had along the way for myself, my family, the business, and so much more, man. It’s been actually a pleasure working with you.

Yeah, it’s been great on both sides. It’s been fun from the get-go of starting with fund one and really helping you operate as a CFO and a fractional CFO in that capacity. And then reconnecting again when I started this new business and making it where we could work with you on a personal level. So that’s been a lot of fun. Glad we’re able to do it, and it’s exciting for me because it shows the trust that you have in what we’re able to do and what we’ve been able to do for you in the past.

Look, you saved our investors and myself, right? Sometimes tens of thousands, sometimes hundreds of thousands, and truly our investors millions of dollars over time. And we will try to add just a smidgen of that amount of value in our time together on this episode.

But before we begin, let’s just zoom super high level for everybody’s benefit here. Most folks spend the vast majority of their time focusing on trying to generate the highest return possible. But as you start digging really deep, the sophisticated guys start to understand that it’s not just about what you make. It’s about what you keep. What really matters is what survives after the tax man ends up taking his slice along the way.

For passive investors specifically, there are some advantages and disadvantages to sitting in the passenger seat in an LP scenario. They’ve got different tactics and skills that they can apply to try to minimize their tax bill, and a lot of folks may not fully understand them. A lot of those tactics may not get used either because they don’t know them, they’re not planning early enough, or maybe they don’t fully understand them along the way.

So I just want to start there. Let’s zoom out for high-income earners, guys that are doing pretty well, whether they’re doctors, business owners, W2 executives. Why can tax strategy be just as important as the actual investment itself?

Overall, when you look at any investment, let’s just go back to the core root of taxes. When you make money in the United States, the government wants their share, right? And so you, as an investor, get to play a game of deciding how much that share is.

Now, how do you do that? You can’t do it passively. You can be a passive investor, but you can’t mess with your tax return or focus on your tax return in a passive way. You’ve got to be proactive with your tax return and tax planning.

And so when you are ultimately an investor, yeah, you might feel passive from an investment standpoint, but if you want to maximize returns, which is dollars in your pocket, it’s not what’s on a piece of paper. We all know that your return is not what’s on the paper. It’s actually dollars in your pocket.

And so if you want to maximize returns, you have to do that after tax because we know the tax man is going to get a little chunk of that. And there are different strategies to utilize, whether you’re passive or active, to reduce that tax burden along the way.

Couldn’t agree more. Being proactive along the way. You’ve got to have the right team to do so. So let’s maybe try to help folks define who that team is or should be. Give us a little color on the definition and the difference between a tax preparer and a tax planner and a true tax strategist.

Yeah, great question. First off, a tax preparer is somebody that is going to get the documents filed correctly. And honestly, most tax preparers, most CPAs, this is where they’re skilled at. If they’re not an auditor, if they’re kind of in the tax realm, most CPAs are adept at filing tax returns. And that’s great. That’s what we learn first coming out of school, and that’s where we kind of start with.

And then some tax preparers get into this thing that we call tax strategy and tax planning. Now, as a real estate investor, as an entrepreneur, and quite honestly, as just somebody outside of the industry, you probably hear tax preparer or tax person and think they do it all. They do tax planning. They do tax strategy. They do estates. They do tax preparation. They do it all.

But the reality is taxes fall under this big bucket and a big umbrella of a lot of different careers. Some people have careers specifically in tax preparation, where they come in and their whole business is preparing thousands of tax returns or hundreds of tax returns. Then there are people that have businesses where their whole business is analyzing your position and setting you up for long-term tax strategy and long-term plans. And then there are people that do both, where they’ve got a planning side and they’ve got a tax preparation side.

As somebody that is very simple, probably many of you that started along your journey, you’re an investor, so you’ve made a little bit of money along the way, and so you’ve probably gotten to a spot where you didn’t have to have a sophisticated CPA, tax strategist, or anything like that inside of your box, inside of your five closest friends, if you will.

The reason why is because you’ve been pretty simple. Maybe just a W2, maybe just a simple K-1 here and there. But now as you’re advancing and becoming an investor and you’re putting money out into the market, it is your responsibility to make sure you not only have a good tax preparer, somebody that understands what you’re going to get from that investment as a tax document, but also somebody that’s a tax strategist who understands what to do with that investment and the taxability of that investment.

It’s crucial that you get both because if you just rely on the preparer, you’re going to be in trouble. And by the way, if you just rely on the strategist, you could be in trouble too, because you need the documents and you need the filings done correctly 100% of the time.

All good stuff. Again, it takes multiple people to make sure that you can try to maximize some of the strategies that you have in the marketplace. We try to view the IRS code and the government as our partner in this, and I think that helps change the mindset tremendously.

As opposed to viewing the government as a bear and a robber baron that’s ultimately just going to take some capital out of your pocket at the end of the year, if you view the IRS and the government as your partner, they’re literally putting incentives in place in the IRS code to try to drive behavior. And if you behave in the way that the IRS wants, they’ll ultimately provide you with some substantial incentives to minimize the tax bill.

So that subtle mindset shift of viewing the government as your partner in this endeavor has really helped me along the way try to maximize the entirety of the ecosystem and the business that we’re creating. Everyone in the stakeholder chain benefits by adhering to some of the rules and the incentives that the government is putting out there for you. And along the way you can save a heck of a lot of money on the tax bill by virtue of doing what the government wants you to do in this regard.

Maybe before we dig a little bit deeper and get a little bit more granular in some tactical things, I think it is also important to clean up something that confuses a lot of different folks. It’s the idea and the difference between active and passive income because everything really flows from understanding the difference between active and passive.

So level set this for us. What’s the real difference between being an active investor and a passive investor, and active income and passive income? And why does the IRS treat them so differently?

Definition-wise, we can get very technical, and we can get very simple. What you do on a daily basis is your active income, whatever that is. So if you are a real estate investor, that’s active income for you. If you are working for Johnson & Johnson, that’s your active income. Whatever you do on a daily basis is your active income.

There are some side hustles that you could potentially call active income. So that’s kind of the next layer. There are kind of three layers. There’s what you do every day, there’s side-hustle active income, and then there’s investment income. That’s passive. You’re putting money out and you’re expecting money back, and you’re not spending any time for it. That’s the difference.

The first two buckets are active income. Active income is what we like from a day-to-day standpoint. It’s what we want more of if we’re working. If we’re spending our time today, we want our active income to generate more for the hours we’re putting out there.

Different from passive income. We’re wanting passive income to generate more from the dollars we’re putting out there. That’s another way to think about it.

The technical difference is spending 500 hours in an activity. Real estate has another layer of that, which is 750 hours. We’re probably getting into that at some point. But for active participation, it’s 500 hours in any deal.

Most investments where you’re putting dollars in, you’re not getting 500 hours of time into it. That’s the great piece of it. That’s why you’re giving up probably some returns. You’re not getting 100% return on your money. You’re getting 10%, 12%, 15% return on your money, maybe even better in some instances, but you don’t have to actively do it.

But the IRS comes in and says, well, because there are these two different buckets, you have to get taxed two different ways in those two different buckets. Those have to be looked at differently. You’ve got your passive investments on one hand and your active activities on the other, and those two can’t really cross. Those two can’t really play together.

So it’s really important that when we talk about doing the tax strategy and tax planning that we talked about before, we understand what is truly considered our active stuff that we can play with and what’s considered our passive stuff. What’s in each of those buckets? What do they mean, and how can we utilize them? Because there are different rules for them, and not all games are the same.

So let’s get into the real estate professional status. You mentioned it briefly there, but it is undoubtedly one of the most powerful sections within the tax code, if you have the luxury of qualifying to be a real estate professional. Not everybody does, but let’s do a flyover of this one. Folks that can take advantage of it should most assuredly do. But at a high level, what is the most efficient way to use the real estate professional status? Give us a little color on what it is and who it’s really for.

Yeah. So this is the gold. The magic elixir in the tax code, really, for most entrepreneurs, is this real estate investor or real estate professional status. The reason why is, and I’m going to take this back a second because I want any investor that maybe hasn’t invested in a syndication to understand what this all means.

A real estate investor puts money into a deal, and they hope that deal appreciates in value. However, that tax code allows us to depreciate it as an expense over a certain amount of time. A lot of times you’ll put money into a piece of real estate. You’ll hear real estate investors do this all the time. They don’t pay any taxes. They’ll put money into a piece of real estate, and from that piece of real estate, they’ll get this big deduction and create a loss on their tax return.

I heard something about your most recent investment created a pretty good loss like this. What was it? I saw something on Facebook just recently.

Yeah, 93 cents on the dollar on average. In the last eight years, it’s been about 92, 93 cents on the dollar for every dollar invested.

Pretty decent, right? You invest a million bucks, you get $930,000 in passive loss. Investors put $100,000 in, they get $92,000 worth of losses on their K-1. That loss isn’t that they actually lost $92,000, right? They just got tax losses for those $92,000.

Why does this matter for the REP status? Becoming a real estate professional allows you to take these large losses that would have been passive. We talked about putting money into a syndication. That’s passive. I’m trading dollars for returns. That’s passive. I’m not going to spend 500 hours. That’s passive. So I can’t take that $92,000 loss against maybe my W2 income or my business income.

Well, if you become a real estate professional, and you could become a real estate professional by being a realtor, you could become a real estate professional by being an active real estate investor. You could flip houses. You can buy and sell mobile home parks. You can do storage. Whatever fits your fancy. There are a lot of different definitions of a real estate professional.

Ultimately, if you can spend, you or your spouse, there’s a little trick here, we can get into that here in a second. You or your spouse can spend half of their time working in a real estate business or 750 hours. It ends up being about 15 hours a week, but it still has to be half of their working time. So if they work on other things and they’re working 30 hours a week W2 and 15 hours a week real estate professional, it’s going to be a tough argument. So you’ll have to consult with your tax advisor for that kind of conversation.

But we get that real estate professional status. Now that investment, that $92,000, through some additional rules, which are called grouping statuses, allows us to take that $92,000 and apply that against our active income. Well, when your active income as a high-income earner is taxed at 40%, that $92,000 could be worth $37,000, $38,000 in tax savings for you.

Now let’s talk again about return on investment. What do your returns look like when you invest $100,000, but you get $30,000, $40,000 worth of tax savings back from that? Your returns immediately go up. So this whole philosophy of the real estate professional is guided by this ability to turn passive losses and take them against active income. That’s the golden nugget.

I will tell you that as an advisor, as somebody that works in the real estate industry, this is what everybody’s shooting for. This is what they all want to do. Some of them can, and some of them it makes sense to, and some of them have to change their lifestyle so much that they’ve just got to find other ways. This isn’t the way for them.

Yeah, beautiful. A couple of different pieces that I would love to dig in there. Zooming way out, I couldn’t agree more. As the old adage goes, revenue is vanity, profit is sanity, but profit is an opinion and cash flow is a fact. Really, the only thing that actually matters is after-tax cash-on-cash return. That’s what really matters. That’s why tax strategy is so important along the way.

Referring back to the old evergreen principle that we say around here at Sunrise, it’s defer, defer, delete. You’re trying to take that tax bill and defer, defer, defer, and then eventually get deleted, and the cost basis gets stepped up upon everybody’s departure. Really, that’s a beautiful thing.

I’ve had thousands of calls with passive investors over time, and there’s so much confusion regarding this idea and this concept of a grouping election. Let’s just say there’s a guy that’s active and he’s maybe not a real estate professional, doesn’t even have the luxury of using it, but he’s invested across five, ten different individual syndications. I’ve received feedback: “My CPA told me that the passive losses that are generated in your individual investment, I can’t use them. They’re locked up inside of that individual investment. You get a net operating loss carry forward, but it’s suspended, and I can’t use it in any way, shape, or form.”

Maybe unpack that a little bit. Even if they’ve got four, five, six other different individual LP investments, expound upon the idea and the concept of the grouping election and how it applies in different situations.

You can get very detailed here. Here’s the thing with any incentive: there’s a disincentive. It’s super important to understand that. We’re going to go to a couple different levels here.

Some CPAs know about the grouping elections. Other CPAs understand the grouping elections. Other CPAs understand the pros and cons of the grouping elections. There’s been enough Instagram and social media reels about grouping elections that I think there’s a lot of misinformation about it out there.

Let me tell you what is real. First off, most people use the grouping election in order to turn passive losses into active losses. You see that a lot with a real estate investor that is actively running their real estate business, and then they group their passive investments into their real estate investment.

By the way, if that’s you, looking at investments like syndications, you can do that with those too. That’s where the grouping comes in. You can go in and say, “I want that $92,000 deduction with my $100,000 investment, plus I like all the things with the deal.” The deal matters more than the tax strategy. But nonetheless, that allows you to group it.

Now for passive investors, a lot of people don’t think that grouping matters, and it does. But there’s a good and a bad to grouping for a passive investor. The good is that it allows you to unlock some of your losses against some of the other assets inside of that group in mismatched years. You might have a loss one year, but an income in another year, and then you can apply that loss to the income in the other deal in another year, and they will offset each other. That’s really nice.

But there are situations where if, at the end of that investment, and I know there are some syndications out here like this right now because I’m experiencing them, if the syndication didn’t go so well and it lost some money, those losses, because they’re in a group, get locked up in that group until that group is completely disposed of. Then ultimately you can take the losses against your active income at that point in time.

So that is an issue that we see. There are pros and cons. And by the way, it’s not one group. You could group multiple different groups. You could have three different groups, ten different groups, fifty different groups. You have the ability to decide that.

That’s why we started the conversation talking about having a strategist. If a strategist comes in and just says, “Okay, let’s group all this together so you can take the losses,” but they didn’t ask, “Wait a minute, this syndication over here is going to be a loser, and I need to be able to take those losses against my active income when we sell it in the next couple years. I don’t want to group that one because now it’s locked up in this group, and I can’t take those losses anymore.”

Again, there are pros and cons. It’s all about conversation. If you’re thinking about grouping, and if you’re sophisticated enough, by the way, there’s no grouping conversation if you just put money in one deal and you’re done. This is if you’re constantly putting money into deals. You need to be constantly working with your CPA advisor.

I know that’s something, Brian, you wanted to talk about. Maybe this is a good segue to that, and I’ll segue over to it anyways. What needs to happen is, the more you invest into deals, the more you need to meet with your advisor.

I get asked this question all the time: “Marcus, how often should I be meeting with my tax strategist? What should I be doing?” The answer is always, “Well, what are you doing in your personal life? What is it that you’re spending time on?”

On one hand, you’ve got somebody that might put $100,000 once a year into an investment, and they might need to meet with their CPA a couple times a year. But we’ve got investors that are putting money into investments every other week sometimes, and they need to analyze before they put money in the investment: What entity does it need to go into? What grouping does it need to look like? What’s the tax structure going to look like? How does it fit with my overall portfolio? All of these things have to be discussed prior to getting into the investment.

That could be something where we’re talking with clients every month, a couple times a month, a few times a month, depending on what’s going on in their business. So there’s not a right answer of how often you should work with your CPA. The right answer is, if you’re very active in investing, you should be very active with your CPA. If you’re not very active, great news is you don’t have to be very active with your CPA.

But just understand, and this is another thing I tell my real estate entrepreneurs that are building their businesses, this is the same thing. Your financial side of your business, this is your CPA, and by the way, when you start investing in a lot of different things, you’ve got bookkeeping for those things. You’ve got to manage that.

Your financial side is only going to scale as far as your financial side will take you. That happens on the active side of business, and it happens on the passive side. So if you think, “I’m just going to invest some money here, and I don’t have to think about the financial side of that, the bookkeeping, the tax side, the planning, the entity structure, getting my attorneys involved,” oh boy, you’ve got a rude awakening because that’s how you really make money. That’s how you make a fortune.

You can make a little doing it halfway, but you can make a lot doing it the right way, getting out ahead of it, being proactive, and focusing on what you need to focus on.

Without taking half measures, right? Understand how to leverage it to the best of your ability. Great stuff, and I appreciate that. I definitely wanted to dig into the cadence and what that relationship should look like.

Moving into practical scenarios here in terms of what you’ve seen in the real world and mistakes being made out there, we have a lot of guys who are primarily passive investors listening to the show. Let’s try to make it practical with a few common investor situations where these strategies either get used well or they get missed entirely.

What have you seen come across your desk over the last six months or over the last year where somebody’s come in with pre-existing issues inside of their tax returns, where something obvious to you was overlooked from their prior CPA, or tactics and things that have been overlooked that folks should be readily aware of? Just a couple practical examples if you don’t have a strategist, problems that can ensue.

They’re a little recency biased here just because this is what I’m seeing a lot of because we’re just out of tax season. A lot of the K-1s have come out, and really, this is the time of year where I find out how little the investors know about their investment. That’s a scary thing.

One of the mistakes that I’m seeing made is that when you invest into a deal, you have to know what the tax looks like upon acquisition, what the tax ramifications look like during the deal, and what the tax ramifications look like after the deal, and how you could be affected given any outcome in the deal.

Let me give you an example of a real-world situation, and I guarantee some of your listeners have experienced this. We’ve had several syndications, apartment syndications specifically, a lot of them that didn’t go well over the last 24 months and exited. We had a lot of investors, we saw a lot of investors lose money.

But when they got their K-1, their K-1 did not show that they lost money. They showed that they actually had income. They’re like, “Whoa, whoa, whoa. I lost $100,000. I lost $200,000. How do I have income here?” They go back, and it’s not understanding how this entity was taxed in the first place.

When you get that big deduction up front, that’s a deferral. Brian mentioned this: defer, defer, defer, die is really what it is. That’s how it works. It’s a deferral. And when you sell, if you have taken more losses than your actual basis, if you put $100,000 into it, you can’t lose more than $100,000 on that deal. They won’t let you.

Timing-wise, you might be able to. There are some timing differences and utilizing debt to create basis. We don’t have to get super specific into that. But from an overall investment perspective, at the end of the day, when you lose $100,000, you only get to lose $100,000. So if you’ve taken losses over $100,000, they’re going to take them back. Even though you’ve lost $100,000, you’ve already reported that on your taxes.

There’s a lot of confusion about how these things work as a long-term investment. It sounds really great when you’re receiving those distributions, but yet you’re not paying any taxes on them. But there is a ramification to that, and you need to understand what that is and understand, again, on the exit, how to plan for it.

We shouldn’t have a surprise. You should have known that you have a basis, what the thing is going to sell for, what the potential tax ramifications are, and if there are any opportunities to change those tax ramifications. But if you’re waiting until April 15th, we’re too late.

Too late. You’re looking in the rearview mirror and don’t have the luxury of actually doing any proactive tax planning along the way. I couldn’t agree more. The capital strategy, the T in the acronym CAPITAL, is all about setting up a tax-efficient structure. That’s what we’re trying to do here. You’re optimizing for after-tax cash-on-cash returns.

You never let the tax consequences wag the investment dog, but once you find a great deal, you’re optimizing for after-tax cash-on-cash return. It’s why we operate the way that we operate with a long-term buy and hold, refi till you die strategy. It’s by far the most efficient way to amplify the best risk-adjusted returns that you possibly can in the marketplace after tax. My personal contention, of course. My personal perspective. I’m obviously biased. But that’s what we’re trying to do here. Optimize for after-tax cash-on-cash returns.

Maybe let’s dig into blind spots a little bit. What are investors maybe not asking, going to their CPAs, financial advisors, CPAs, or anybody that’s in their ecosystem trying to help them out? What sort of questions should they be asking their CPA or tax strategist along the way? Missed tactics, missed structures, thinking only at tax time. What are some of the things that they’re missing?

First and foremost, your question to your CPA should always be, “Have you been here, done this?” No matter what you are doing.

What might have been your CPA 20 years ago, as you were growing your wealth and building, you had your W2 income and you weren’t putting a bunch of money into a bunch of different investments. That CPA that has been around for a long time, you love them, they’re right down the street, all that good stuff. The first question that you should ask them is, “Have you ever seen this before?” Because if you’re their test study, you’re probably going to get test results.

It’s very important that you get with somebody that you know can do the job. This is why it’s important to understand the distinction between a tax preparer and a tax strategist. You might be with a tax preparer that you love, you trust, they know where all your skeletons are hidden, they know how you work, you guys operate in sync together. You’re like, “Great, I want to keep this guy. I like him. I know him. I trust him. They’ve been my family CPA for 20 years.”

Cool. But you’ve got to venture out, and you’ve got to get a strategist that’s willing to work with that person and add to that piece of the puzzle. So the first thing is, if they can’t do it, you’ve got to either replace them with somebody that can or bring somebody to the team that can assist them.

The first question is, “Have you been there, done that?” The second question is, “What am I missing?”

A lot of people get into a tax relationship, and the relationship doesn’t start out with a deep dive. If you don’t have a deep dive into really what you’re doing, and some accountants will do this for free, but they shouldn’t because if they’re doing it well, they need to be paid for it. The amount of stuff that you might have, and again, we’re talking to people that are investing, doing multiple investments here, the amount of stuff and opportunity you might have needs a deep dive.

It needs not only a plan for what you have done in the past, but what you might do in the future, and getting that set up. The big thing is they’ve got to come in and help you improve. What are you missing? They’ve got to be able to deep dive and solve that problem for you, and then keep it up.

The next piece of that deep dive is we’re setting up a foundation. That deep dive should set up that foundation, and then from there, it should be keeping it up. Keeping it up is all about how much you’re investing.

Again, if you’re investing very little and it’s just maybe $100,000 once a year, not a lot of keep up. You’re not going to have to spend a ton of money on CPAs. But if there is a lot of keep up to it, you’re going to want to spend that money because you’ve done the deep dive, you’ve built the strategy, you’ve built the foundation, and now you want to compound it into good tax, after-tax returns, ultimately.

Love it, Marcus. We’ll round out here with one final question. If somebody could only remember one piece of sage investment advice from you, from your entire life experience, what would it be?

Once you start investing, don’t take any of the investments out of the investment pool. Let me explain that very clearly so that everybody understands what I mean.

All of us start in this triangle model. We have a place where we’re earning active income, and part of that active income comes down to pay our lifestyle expenses. House, cars, family trips, food, all the stuff. It comes to handle our lifestyle. Then what’s left over, as much as we can, goes into investments.

The mistake people make, and I see it constantly, where they ruin their compounding, is that they take the money as it’s earning from their investments and they start paying for their lifestyle prematurely. That thousand dollars every single month that you’re making, or that $100,000 that you made on that deal, they take it and they go spend it on lifestyle stuff instead of putting it back into another investment and letting it compound again and again and again until the active is no longer necessary.

That is when you decide to start paying for your lifestyle out of your investments. But it’s because your investments have grown to that spot where you don’t need your active anymore.

If I were to give any advice to anybody: allow the compounding to work over time. If you allow that to happen and don’t steal, don’t rob Peter to pay Paul, and I know sometimes it’s going to take a lot of discipline, if you do that in a decade, two decades, you will be amazed at the wealth you’re able to build.

I believe that it doesn’t take a 401(k) to be retired. It doesn’t take this traditional pension to be retired. It just takes putting money into an investment machine and letting it compound for as long as you possibly can until it is able to serve your lifestyle. That’s the name of the game.

That is indeed the name of the game. So you can have freedom, right? Freedom of time, freedom of money, freedom of relationship, freedom of purpose, freedom to do what you want, when you want, with who you want. It’s a beautiful thing.

Love every bit of it. Thank you very much, Marcus, for sharing that bit of wisdom, buddy. Where can people find out more about you if they want to reach out?

Yeah, go to BECcfo.com, B-E-C-C-F-O.com. To help you guys remember it, it’s named after my three kids: Bennett, Ella, Carter. Brian and I get to talk a lot about family. It’s a big thing for me. So B-E-C-C-F-O.com. You can reach out to us. There’s some great content on there. If you just want to have a conversation and see if we can help you out in any way, there’s a free consultation button on there, and we can see if it’s a good fit.

I would encourage all of you guys to do it if you’re looking for a tax strategist. Honestly, Marcus is a phenomenal human being. I’ve been working with him now for over a decade. He has helped me out personally tremendously, and it’s always going to be family first over here, buddy. Love every bit of it.

We’ll get out of here for today. But until next time, you be great.

Did you get some value today? I love this stuff. Drop a comment, drop a question. I really do want to hear more from you guys, okay?

A few things really stood out to me in that conversation. First, the episode is a reminder that the real game is not just making money. The real game is keeping more of what you make and allowing it to compound over time. That is a very different lens, and it changes how you think about everything, from deal structure to grouping elections to how often you should be speaking with your tax strategist.

Secondarily, just because you’re a passive investor does not mean you get to be passive in your oversight. The truth is, the minute that you allocate capital passively into an alternative investment, you are grabbing the wheel of your financial future. You might not fancy yourself or feel yourself to be a business owner, but the minute that you allocate capital passively into alternative investments, you’re running your own family office.

You have to take that perspective, take personal agency, take control of the situation because the truth is nobody is going to care more about your family’s financial foundation than you. So you have to have personal agency and stay on the ball at all times.

You still need to understand the likely outcomes inside of the deals before you end up investing in them. You need to know on the way in, during the holding period, and on the way out what the tax consequences are going to look like. Otherwise, you can end up being surprised by suspended losses, phantom income, or a tax bill that you never saw coming.

Third, there are levels to this game. Some CPAs simply file returns. Some of them understand deeply the rules. And some of them not only understand the rules, but they understand the strategy of when to use them, how to use them, and how they fit into the broader architecture of your entire portfolio. That difference matters. It matters way more than people realize.

Maybe the most sage investment point that Marcus made is this: compounding only works if you let it work. If you keep interrupting the machine too early through taxes, poor planning, or pulling money out of the investment pool before the system is mature enough to actually support your lifestyle, you quietly break the very mechanism that creates long-term freedom.

So the takeaway here is simple. Be proactive. Know your likely outcomes before you invest. And never confuse being passive in a deal with being passive in your stewardship.

Again, if you want to go deeper, Marcus was generous enough to share his Tax Wealth Playbook for our audience. You can grab it for free at BrianSpear.com/BEC, and it’s also linked in the show notes. Until next time, guys, keep thinking long term, keep acting intentionally, and keep building wisely. You be great.

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