Stop Losing Money on Rental Income with These Tax Hacks
If you’re a real estate investor and you’re still getting crushed by taxes, struggling to protect your rental income, or unsure how to pass on your properties without blowing up your legacy—this episode will hit home. We pull back the curtain on depreciation, LLC protections, asset planning, and retirement strategies that most investors don’t understand until it’s too late. You’ll learn how to legally minimize your tax burden, protect your assets, and structure your real estate portfolio for generational wealth.
The conversation starts off lighthearted with a roast of bizarre British traditions like bog snorkeling and cheese rolling, but the tone shifts quickly into serious territory as Terry Morris explains how real estate shaped his investment career. Terry shares how he built up a portfolio of 18 rental homes in Memphis after the 2008 crash, acquiring properties at bargain prices and achieving a rare 2.4% rent-to-price ratio. He discusses why he sold them, the regret of not keeping them through COVID’s price surge, and how his professional experience in tax planning has reshaped how he would approach real estate today. These insights offer critical lessons for investors on evaluating deals, timing the market, and understanding when to hold or offload properties.
As the episode unfolds, Brett, Jeff, and Terry go deep on real estate taxation. They discuss how depreciation makes rental income significantly more tax-friendly than W-2 income and bust common myths like the idea that reinvesting into the property automatically defers taxes. The hosts ask how much you can write off, whether putting money toward mortgage principal helps, and whether a business-owned boat can be deducted. Terry explains why mortgage principal payments don’t reduce your tax bill and emphasizes that investors need to understand that taxes are based on net operating income—whether or not it’s reinvested. This section is packed with golden advice for anyone trying to balance cash flow with tax efficiency.
The last half of the episode is a goldmine for long-term thinkers. Terry explores estate planning for real estate portfolios, including the massive tax benefits of dying with real estate rather than gifting it during life. He details how trusts, step-up in basis, umbrella insurance policies, and LLCs can all protect your assets and heirs from taxes, lawsuits, and poor financial decisions. He also outlines how high-income investors can use SEP IRAs, solo 401(k)s, and municipal bonds to build safe, tax-efficient retirement income. Whether you’re planning to leave a legacy or just tired of a growing tax bill, this section of the episode is essential listening.
In this Stop Losing Money on Rental Income with These Tax Hacks episode:
- Property Taxes vs. W-2 Income – W-2 income gets taxed at the highest ordinary income rates with no flexibility, but rental income benefits from phantom deductions like depreciation, making it more tax-efficient. Terry explains that a $9,000 net rental income might only get taxed on $7,000, allowing investors to grow wealth faster through smarter tax structures.
- Buying Right in a Post-Recession Market – Terry recounts how he capitalized on Memphis real estate in the aftermath of 2008, buying homes for $30,000 and renting them for $800 a month. He shows how watching price drops signaled seller capitulation, and how that strategy could still work in undervalued pockets of cities across the U.S.
- LLCs and Umbrella Policies for Protection – As your net worth grows, so does your legal exposure. Putting properties in an LLC and carrying umbrella insurance are essential steps to insulate your personal assets from liability. Terry stresses how even a slip-and-fall on an icy porch could cost millions without proper protection.
- Depreciation: Your Secret Weapon – Rental real estate comes with a hidden perk: depreciation. This non-cash deduction lets you legally reduce your tax burden even if you’re raking in thousands monthly. Terry explains how the IRS allows depreciation over 27.5 years and why this should be a pillar in your tax plan.
- Step-Up in Basis Explained – When you die with rental property, your heirs can inherit it at a new, higher value—eliminating capital gains on decades of appreciation. Terry breaks down why gifting property before death is often a massive tax mistake and how smart estate planning can preserve your legacy.
- When to Pay Down Debt vs. Make Repairs – Many investors scramble to make last-minute repairs to avoid taxes. Terry counters that unless the repair improves value or income, it might be better to just pay down principal—even if it doesn’t lower your tax bill—because debt-free properties fuel retirement.
- Maximizing Excess Cash Flow – Once your portfolio matures and cash piles up, don’t let it sit idle. Terry outlines options like municipal bonds, high-yield money markets, and IRAs that offer safe returns better than traditional banks. Especially for those not ready to flip a portfolio, it’s crucial advice.
- Solo 401(k)s and SEP IRAs for Investors – If you’re a full-time landlord or run your properties as a business, you might be eligible for a SEP IRA or solo 401(k), allowing you to deduct tens of thousands in pre-tax income annually—money that grows tax-deferred until retirement.
- Managing Kids and Inheritance – Not every heir is ready to handle a real estate empire. Terry explains how trusts can distribute rental income to kids monthly while keeping the properties locked away until they’re older—or never giving them full control if needed. Control from beyond the grave is a real thing.
- National Clients and How to Work with Terry – Terry works with investors in 20+ states and frequently partners with estate attorneys across the country. Whether you’re in Memphis, Arizona, or Utah, he can guide you on investments, retirement plans, and how to structure wealth that outlives you.
If you’re still treating your rental income like a side hustle, you’re making rookie mistakes. In this episode, we showed you why depreciation is the holy grail of real estate tax benefits, how to protect your wealth with LLCs and insurance, and what to do with your income once it’s flowing. You also learned how to plan for death—without destroying your family’s financial future—through smart estate planning tools like trusts and step-up in basis strategies. This is how you build true financial freedom with real estate—not just by buying property, but by running it like a smart, protected business.
Contact Terry Morris
Name: Terry Morris, CFP®
Organization: Raymond James Financial Services & Pinnacle Financial Partners
Title: Certified Financial Planner
Phone: 901-351-7740
Email: Terry.Morris@RaymondJames.com
Note: Terry is not a CPA or attorney and does not provide tax or legal advice. Consult your own professional advisors for personalized guidance.
About 5 O’Clock Somewhere Real Estate Investor Podcast
5 O’Clock Somewhere Real Estate Podcast throws out the script, brings common sense back to real estate, and has casual conversations about the one and only market that matters – Memphis! We’re not interested in what some real estate expert from California has to say because we know the truth: Memphis is where the smart investors put their money. Forget about Vegas, Nashville, and the rest of the country, Memphis is the blue-chip stock of the real estate world. We’ll tell you everything you need to know about why Memphis is the safest and hottest place to buy rental real estate, and how you can be a part of a smart investment.
If you would like to join the conversation, participate in an upcoming recording, or just call to bounce ideas off one of our team, you can call or text us at 901-692-7401. Or if you prefer send us a message.
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