Ep 238: Turning Taxes Into Real Estate: How to Invest in Historic Properties Using Your Federal Tax Liability

You may have attended our webinar a few weeks ago that we did with Gordon Short of GBX Group.

And if you haven't, this is the audio version.

Now.

Also make sure to check out our show notes.

We'll post the link to the YouTube video so that you can see the slides and the video version of this.

But it's going to be really interesting.

And we are going to talk about some ways that you can purchase historic real estate using your federal tax liability.

Yes, it can actually happen.

And here we go.

Welcome to the weekly wealth podcast.

I am certified financial planner David Chudick.

This podcast and my wealth management practice are both designed to help the mass affluent to live better lives by how they handle their money.

We talk about financial strategies, prosperous mindsets, and simply how to build true wealth.

So come on and let's enjoy this journey together.

Really excited to have Gordon Short on the webinar today.

Gordon and his company have done a lot of work with our firm in the past, and we're going to learn about a really exciting tax strategy, how to invest in historic real estate and get a pretty nice tax deduction along with it.

Just a little housekeeping.

This is general information.

This is not tax advice.

Consult your cpa, your attorney, your financial advisor, and if you want to speak more specifically, specifically on how this might fit into your financial reality, we can definitely set up a separate time.

But, yeah, with that being said, Gordon, take it away.

Tell us a little about yourself and let's learn some cool stuff.

Sure.

Well, David, thank you and welcome, everyone.

And again, I'm Gordon Short with GBX Group.

We're based out of Cleveland, Ohio, and I'm recovering tax accountants.

So I spent 20 years in public accounting before joining GBX, actually, 10 years ago this week.

And it's really exciting and fun business to be in where we're preserving some great historic architecture in the United States while also allowing for people to utilize their tax dollars to help do that in a congressionally mandated program to save historic structures.

So with that, speaking of historic buildings, I want to start with here, this next slide.

This is Penn Station in New York City, but if you've been there in the last 50 years, 60 years, you realize it doesn't look like that anymore.

It's now just an underground labyrinth of tunnels.

And this beautiful structure is no longer there because in the 1960s, when the Pennsylvania Railroad ran out of money, it couldn't afford the structure anymore, and they basically sold away the air rights to build Madison Square Garden.

And so this beautiful structure that you See here is no longer it ended up in a landfill in New Jersey.

But because of that and the destruction of that beautiful piece of architecture in New York City, first locally and then the federal government in 1976, decided that it was time to give some incentives to owners of historic buildings to save them rather than tear them down and build newer, turn them into parking lots.

And so one of the programs they created in 1976 was, it's called the Federal Historic Preservation Easement Program, which allows for the preservation of historic buildings in perpetuity forever.

We'll get more into that in a minute.

But, you know, much like the government wants to encourage homeownership, charitable donations, having children, they allow tax benefits and tax deductions for that.

So similar thing with the preservation and restoration of historic buildings, they created several programs in the bicentennial year of 1976 to encourage again the preservation of historic structures.

And also, too, you look at this slide here, you know, basically you can give a dollar to the government and it goes into the conference and does whatever, or it can be directed more specifically to a socially responsible program like the preservation of historic buildings.

And so, you know, we'll talk about this here in a minute.

But gbx, as a private company, gets those dollars kind of redirected from your tax liability, put into the buildings to save and rehab them.

And at the end of the day, we'll see at the end here how actually the rehabilitation of these buildings actually pays back the treasury, not only the tax benefits that were initially given upfront by the government, but over the long term, as the buildings become functioning properties in both income and real estate taxes over a period of time, it actually pays back more than what was given up in terms of the initial tax incentive.

So this is all in the Internal Revenue Code.

Like I said, this started in 1976.

It's been tweaked over the years.

The last kind of tweak to it and actually recertification of the program was in 2022 and the Secura 2.0 act, this is under Internal Revenue Code 178.

This is a program both jointly administered by the IRS and the National Park Service.

The National Park Service actually has to first certify that the building is historic and is a landmark to the United States.

Without that designation, you cannot use this program or at all.

And it's kind of a misnomer that's out there that when people see that plaque on buildings or on monuments, they think it's protected forever.

It's not all that does is open up the use of these programs.

If you don't actually implement the historic preservation easement program, that building can be torn down tomorrow absent any local protection.

So just because you see that plaque doesn't mean it's protected unless this program is implemented.

So let's talk about the program from a high level first.

So this is actually our headquarters in Cleveland, Ohio.

It's a five story brownstone built 1913.

And basically what the it is on the national retrohistoric places.

And basically what the government says is, and the code says at a minimum, you have to protect all four outside walls, the air rights around the building.

You can never build above or around it.

You can't tear it down.

Anything else in the National Park Service deems historic.

And if you put the ease on, you protect that forever.

And what you've done essentially is you have prevented the future development rights of that piece of property or that building.

So if you could have tore it down and built a building, you know, there, or built around it and kept it as part of the structure, you have forgone those future development rights.

And so hypothetically, let's say if you could have tore this down and built this structure here, and it could have been student housing or housing in downtown Cleveland, Ohio, that's worth 10 million.

But you chose to preserve this little structure, it's only worth 5, you've foregone 5 million of future value.

Right.

And so this is what the building looks like today where I'm sitting in this morning or this afternoon.

Now it looks pretty much like it did in 1913, except for the little GBX sign there.

And what was the original use of that building, Gordon?

And why is it on the historic registry?

So it was actually, it was.

This is part, it's on Superior Avenue in Cleveland, which is part of the old garment district outside of New York.

In the 1920s, Cleveland was the next largest producer of clothing in the United States.

And so this was actually a garment factory initially.

And so the district is actually historic.

And then the buildings inside it are also historic, including this one that I'm in.

So a little bit of history there as well.

It depends.

It could be something really famous happened at the building, or it could be something as simple as that.

Part of a very historic production period in the United States.

And I would say the National Park Service is very lenient on how to get a building on the register, but you still have to have a story or a reason why it's historic to the United States.

So again, that's Our building today.

Now the lot goes, I won't get into the full detail, but basically you have to have the highest and best use support.

So again, in my example, let's say it could have been worth 10 million.

You have to have the right zoning.

You have to be able to design that structure.

You have to be able to do a market study to say yes, if we did build it, there is a market need for housing or for apartments or for office, whatever that you say your hypothetical is based on.

You have to demonstrate there is a need for that and ensure that you can build it and engineer it to support that value.

And it's all done by outside third parties as well.

That and those plans are actually almost shovel ready because you have to be able to prove that you could build it in the event that you could tear that building down.

So here at gbx, what we do is we will look across the country and acquire, you know, these buildings, will identify them, acquire them and put them into a fund which we'll talk about why and how that fund helps high income earners mitigate their taxes while giving us the capital to preserve historic structures.

We also keep the buildings and manage them because also our investors share in the underlying real estate as well.

So you know real from a high level.

Traditionally, you know, in a real estate deal you have a lot of debt and investor equity to acquire that property.

With gbx, it's quite different.

There's still some debt, a lot less and sometimes we don't use any debt at all to buy the properties.

It's all with the equity that we raise a little bit of equity and a lot of other is tax incentives, a big one of that being the easement.

But others as well as a project and a rehabilitation evolves in its life cycle.

So just a little bit about Oscar.

We're in 24 states, completed 211 projects through January of this year.

Our new fund this year will have another eight to 10 buildings in it.

And we have about 1365 unique investors that have invested in our fund over the years.

We've been doing this fund model since about 2010 and utilizing historic preservation easements since 07.

You can see the states that we're in here across the United States and again continue to add to that every year.

And then just to look at our last few years fund, you see our 21 fund had a lot of properties, 20.

Last year we had nine.

So all depends on the buildings, the size of the easements and the size of those structures as well.

So let's talk about our fund and how that works for higher, higher income earning people in the tax year.

And again, everything we're going to talk about today accrues to this tax year.

So we're talking about your 2025 liability and you'll see here in a minute as we discuss this.

You know, the tax benefit has to make sense in 2025 and if it does, it's something to be considered for higher income individuals.

So the historic investment fund again will have about 8 to 10 buildings in it.

But we invest in downtown urban cores in cities across the United States that are experiencing kind of a revitalization of their downtown and their inner core areas that ebbs and flows every year.

I can tell you we've had a lot of buildings in Cleveland, Ohio and Columbus, Ohio, but also Nashville, Nashville, Columbia, South Carolina, New Orleans, Denver.

So it varies every year but you know, looking at areas that are continuing to see some growth in their urban cores.

And again these buildings are being rehabilitated or some are still operating.

They'll provide cash flow and value from the underlying real estate to our investors, which you'll understand in a minute.

So again, look again this is 8 to 15, we'll probably do 8 to 10 this year.

Just I know there's a few buildings that are pretty large in there.

Again, our investors invest into a fund.

So when we, when you invest in gbx, the fund will collect the capital, we'll purchase these buildings.

You as the investors owe 99% of the fund as limited members.

GBX has the 1% managing member interest for the first five years of the fund.

And for this type of investment, again you gotta be in the top tax bracket.

37% makes the most sense.

You have to be an accredited investor.

What's nice about our fund is that there's a very conservative underwriting in here.

Very low leverage of any on the, on the properties.

It is a fund model.

So again you'll have those 8 to 12, 8 to 10 buildings spread out in different geographic regions of the country and also which helps minimize real estate risk and also different asset classes.

I will tell you we'll probably have no, we will not have any office in it this year just because that market right now is really struggling.

But you'll see student housing, residential, mixed use developments in urban areas.

Nice thing is after five years you can, you have the first ability to exit the investment or if you like the real estate, you can stay in it.

We'll talk about that a little bit more here in a minute and then every Other year after that decide to, you know, exit or invest at the then fair market value.

And again the buildings we have, you know, over the past 15 years now our 16 fund have really made a solid economic and social impact to urban cores in cities.

You know, as I talked about, when you're investing with gbx, this is not discretionary money you put with parallel financial or David, you know, this is, this is money you're going to write to the IRS or write to gbx.

So this is not your discretionary money you can go invest in a stock or buy a car or a house with.

This is what we call non discretionary.

This is shifting your federal tax liability into the historic preservation easement fund to allow us to purchase the buildings and kind of, you know, receive the tax benefit the Congress intended as the incentive for doing this for us.

Who are our investors?

Again, usually those in the top tax bracket.

So if you're a high W2 employee, that's the top tax bracket.

If you are, you could be somebody that had made a Roth conversion that's creating capital income.

And this is a way to kind of help mitigate the conversion of a Roth ira, a business owner with lots of flow through income passing through as ordinary income to you and somebody that wants to do some social impact investing.

Right.

Using this to help also not only get a tax benefit but do good in the, in these urban areas.

You know, I will say too if, especially for our business owners that pay quarterly estimates, nice thing about doing GBX is if they invest and then they usually don't have to make their third and fourth quarter tax estimates because they mitigated that with the tax benefits and then or W2 people sometimes can stop their withholding but or get a big refund in 2026 when they file their 2025 tax returns.

There is one limitation on this though.

You cannot eliminate your tax liability.

It is subject to a 50% adjusted gross income limitation.

So you're.

So again if you make a million dollars, you can only deduct up to 500,000 on this, but still can make a nice, make a nice dent in your tax liability for 2025.

And we'll talk about this too.

You know, they're, you know, we're going to talk about this at the federal level.

But the way this benefit flows through is a non cash charitable tax deduction.

And so some states like South Carolina recognize that federal itemized deduction.

So there is an additional state benefit as well that can be recognized.

So for some of our investors that are in States like South Carolina, they get an additional state benefit as well.

I'm in Ohio.

Unfortunately, Ohio does not recognize that.

So Ohioans do not get that benefit.

But still pretty good from a, from a federal perspective.

But again, real quick, before we get into some of the details of how the fund works, natural returns and why people invest with us.

So the big kicker here, the big benefit I should say to investing, is if you invest a dollar in the gbx.

Normally, you know, if you give a dollar to a charity or you make it, you get a dollar deduction for your mortgage interest.

It's a dollar write off at the top tax bracket of 37%.

You say 37 cents on the dollar here.

And this is the real incentive that Congress gave this program is it's a $2.45 deduction, a 245 to 1 ratio.

So for every dollar you invest, it's a $2.45 tax deduction on your tax return the year you Invest.

So at 37% right away you're getting 91 cents back on your dollar.

And that leverage is very key as opposed to other types of itemized deductions.

And so that's why a lot of high income earners invest with us, because that initial deduction without any state benefits, you're essentially out of pocket, only 9 cents right away.

And then you're also investing in a fund that now owns historic real estate and you'll share in those benefits as well.

And again, it's a five year hold period.

So I'm going to flip ahead here to this next kind of pro forma from a high level.

And Dave, we have a calculator at the end that we can walk through.

Yeah, perfect.

Now this is exactly numbers because part of this sounds like.

Yeah.

I'm not sure if what Gordon's saying is too good to be true or this is crazy, but this kind of shows it and I think it's really important.

And, and just to highlight this investment amount of $100,000 for this hypothetical person and tell me if I'm explaining this correctly, this person, who this performer would be for Gordon, they're going to owe $100,000 to the federal government.

That's what they and their advisor and their CPA have projected for this year.

So either they're going to write $100,000 check to the government or they're going to write $100,000 check To GBX.

So this is not an additional $100,000 I have to come up with.

Is that accurate?

Correct.

Correct.

Exactly.

You're out of pocket this 100,000 one way or another, correct?

Exactly.

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So again, right now we're not going to show any state benefit.

And again, we show that we have a calculator.

We can show at the end of this if you want to show some South Carolina benefits.

But again, from a federal perspective, 100,000 invested.

Again, this doesn't show that.

So that generates a $245,000 non cash charitable tax deduction, which times 37% gets you this 90,000.

6:50 back in year one.

Now, yes, technically still out of pocket, about a little over $9,000.

But over five years, you're going to see cash distributions which are tax free because again, remember, this fund is investing in real estate.

Some of the buildings are already operational.

In year one, you'll see these cash distributions jump up.

And these are all targeted.

They could be more or less, depending on how the real estate performs.

But, but our goal was by the end of the third year, have all buildings in operation.

So you as the investor share in that as well.

So you're technically made whole by the end of five years just from the cash distributions.

And then on the back end, after five years is the first, that five year hold is the first year a redemption window opens up.

Where our targeted goal is for every dollar you invest, it's $1.50 back in tax benefit cash.

And then the value at the end, which you can take out then as cash, you can get your.

So again, you put 100 in, going to walk away with 150,000 net 50.

Or you could leave this in and decide to continue to ride the real estate.

Because again, our goal with this fund is to start to liquidate buildings in years seven through 12.

And you may want to share in those, those liquidation proceeds if you don't need the cash at the end of five years.

Now, after five years, generally this always Tax free.

This cash, if you stay in after five, at some point it could become taxed at a capital gain rate.

So those are those considerations.

Although after the five years it's only a two year hold and the ownership structure does change, which is a big factor in this decision as well.

Again, for the first five years, the investors own 99% of the fund.

When we get to this end of five years, GBX does a look back because we've really aligned our interest with the investors.

If we've met or exceeded this target goal for you, we get a big back end promote.

We could own as much as 70% going forward after that.

And those sales or if we've missed you, the investor could own as much as 95.

So it really, you know, makes us, incentivizes us to get you that $1.50 or more back by the end of five years.

But if we don't, you share more in the bigger back end as well if you choose to stay in the fund.

All right, so let's say that it is.

It's September, October of 25 and I'm working with my CPA, I'm working with a really good financial advisor named David Chudick.

And we're estimating that my, my tax burden for the federal is going to be $100,000.

So I decide I'm going to write a check to Gordon's company for $100,000.

That's going to get me a $90,650 tax deduction.

So I'm in the hole for a little over $9,000.

Now in 2026, Gordon's company is, is projected to send me 400 bucks.

In 2027, they're, they're projected to send me 800.

In 2028, they're projected to send me 2275.

Then in 2029, 2685 and 2030, 2750.

But then in 2031, if I choose, I can get out of the fund and have GBX send me $50,440, correct?

Correct.

Yes.

Or you can keep that in the fund depending on those factors.

And that becomes your new like equity investment into the new ownership structure of the fund.

Perfect.

So now let's.

Nothing's guaranteed.

So we are dealing with investments in buildings.

So is there, is there a theoretic possibility that, I mean, obviously you have insurance, so if buildings burn down that that's covered.

But are there any possible theoretic scenarios to where, you know, the years 1 through 5 and 6, you know, would.

Be substantially lower I mean, there's, again, these are targets.

It could be more or less.

If, like, for some reason, like if we had another Covid shutdown, right, where the world shuts down for six months and obviously people aren't shopping or living or, you know, again, these buildings, you know, there's not gonna be office space.

They'll be residential, but, you know, people are fleeing downtowns for whatever reason.

Yeah, there's a chance those could be less.

But again, what's nice about.

If we do miss these and this back end, you could own 95% going forward.

So even though maybe the cash flows missed, these are real buildings.

They are real real estate.

So maybe, you know, there is a turn in the market and in year 1095, you could get more back.

Right.

So there is that possibility that the cash flows could be less, but they also, if the bills are doing well, it could be more.

But the way we kind of make that up and try to mitigate some of that risk is saying, you know, there is still value in the real estate.

And, you know, depending on the cycles and what's going on the real estate market, if we miss you owe 95%, then you might want to ride it out and see how that 95 does.

Yeah, okay.

But, you know, each individual investor actually owns brick and mortar, your own pieces of real estate through the fund.

But yes, you own the fund.

The fund.

Correct.

Owns an underlying brick and mortar.

Correct.

Absolutely perfect.

So that's the pro forma.

Just real quick, from.

Because I'm a tax geek, just so everybody knows, from a tax perspective, I won't get too technical on this, but you do get a K1 every year.

It is an LLC.

It is a partnership.

So you'll get a K1 your first year that you invest like you invest in 2025.

You will have to extend your tax return because these are.

You'll get a draft K1 in March that shows the tax benefits.

So your CPA can perform the calculations and prepare an extension for you, which should hopefully be zero.

If we did good tax planning using gbx, you won't owe the government any money.

And you kind of get an idea what your refund may be.

And then this is actually issued in August for filing.

So generally, just so you know, the first year you will have to extend.

But this also shows too, you have what's called tax basis left, which is why those cash distributions and that payment at the end, generally in the first five years is tax free.

And then if you stay in after that, again, it could become Taxable, at least at a capital gain rate, which is lower than ordinary income tax rates, you know, 20% versus 37%.

So just real quick, some of you may or may not have heard, this is again, a federal historic preservation easement, similar to a green space easement or land conservation easement, which you may have heard about over the years.

Just real quick, from high level, very different programs.

The biggest difference being with green space, when you're preserving that land, you're not developing it.

So there is no economic benefit other than the tax benefit.

And this was abused prior, really prior to 2022, by a lot of people just taking the tax benefit and with no economic benefit.

Again, there was no cash flow or no residual value there.

So in the 22 act, which I mentioned earlier, Congress kind of shut down the green space syndication of green space easements, but exempted the historic preservation easements from that, again recertifying the program for historic buildings.

But the big difference there too is again, with historic, with historic easements, what GBX does, you actually get an economic benefit as well as the tax benefit as well, which is a key factor, especially with the IRS and the government.

So again, we talked about the real estate risk and how we mitigate that.

We do keep a cash and appraisal reserve.

So again, talking about the, the IRS audit risk, yes, the IRS could audit the funds.

Now, they don't audit the individual investor, they don't audit the fund.

They actually audit the buildings where that original easements place.

So if you go back to my original example that I showed you of our building and the $10 million hypothetical and the $5 million deduction, the IRS might come in and say, well, geez, GBF, you took that, you said the deduction was 5 million.

We think it's only worth 3.

We can actually say, well, we only deducted 3 because at 245 is actually kind of a haircut.

We take on the actual value.

And, and so we can say, the IRS, we only took 3 million, so there's no adjustment there.

So it's like a valuation reserve.

But each fund does keep a cash reserve because we do make a tax election that says if there is an adjustment greater than those valuation reserves, the fund holds a cash reserve because we make a tax election that says that the fund is responsible for the liability, not our investors.

We don't push that out to the investors.

So David, went through your earlier question as well.

What's the risk if you, if for some reason this all went to zero, and let's say in The IRS said there is no value those buildings and there's no deduction there.

You would still get your tax benefit in year one.

We'd have to sell every building.

Right.

And pay the IRS.

There'd be nothing left to pay out the 50,000 at the end.

Right.

If that would ever happen.

But that's one of the ways we mitigate there.

And at the end of the five years, if the audits are settled and there's no.

There's no tax adjustments, then that one, that cash reserve goes back to our investors pro rata.

We don't keep that.

So let's take a look at fund performance real quick over the.

The last few years.

This might be kind of hard to see, but, you know, the, you know, again, nothing's guaranteed.

That 245 benefit's not guaranteed.

You know, it's all based upon the appraisals of the buildings by a third outside third party.

But every year we've been able to hit that 245 deduction multiple that.

You can see the cash distributions, obviously it's a little bit lower for these newer funds as they're just starting to get going, but you can see that the cash distributions have been at or at the targeted amounts there.

And it's kind of hard to see on a graph.

This is the IRR for these funds going back to the 2017 fund.

The more recent funds have been right around that 35 to 40%.

A little bit higher here in 23 and 24.

As those funds have been able to pay a little more cash a little bit earlier, those buildings, we kind of shift our model.

We have more operating buildings earlier than later.

These earlier funds had more developmental projects like the 25 funnel.

Probably have half of them operating and half in development in 2026.

Let me show you here some buildings that we've actually done.

And you can see some of the befores and afters.

So this is the municipal light plant in.

This is in Columbus, Ohio.

It was a very huge old lake plant.

You can see very kind of run down.

And now it's a lot of boutique shops, some restaurants in there.

It's right outside the soccer stadium.

And you can see some of the.

There's a lot of work in this one.

We saved this in 20.

I believe it was a 2016 fund.

And it now sits next to the Columbus Crew soccer stadium.

But just some facts.

And we talk about, you know, economic impact and that, that economic substance of the deals here.

I mean, this doesn't count the construction job just on an ongoing annual impact.

You can see, I mean 483 jobs are there.

You know, you can see the income taxes being generated every year from this project.

After the investment in this, you know, this was a bigger easement, around 15 million.

But over, you know, within, you know, five years.

The return to the treasury of those annual income taxes far exceeds.

Now the cost of that program is this is what it looks like today.

Rehab, this smokestack.

Every time the crew scores a goal that they shoot, they shoot, they shoot the smokestack off.

But really just a really cool location in Columbus, Ohio.

Let me see, this is the YWCA in Nashville, Tennessee which was turned into a market rate condos.

You can see kind of run down very modern 21st century types of condos.

Again, you can see that 313 in federal taxes a year being added back to the coffers of the Federal government, local taxes.

449.

So again, these are real buildings generating real economic return for these cities.

This is what the building looks like today.

So again, a great structure with now modern, you know, apartments or condos inside there.

And then lastly our building real quick here, the before, you can see it was kind of run down how he fixed it up and the windows look like they did in 2013.

You see the difference there, the inside of it.

Now again, the great thing about the rehab is you have to preserve the historic characteristics, but you can rehab it after that into a 21st century office building or 21st century apartments.

As long as you don't alter the historic characteristics, the rest of it can be fully revitalized.

And that's.

You can see our office here when it went from to what it is today.

It's really a phenomenal site.

And I invite you in Cleveland, Ohio, please come visit us.

So this is again from our operations here you see 2.1 million taxes, over 350 jobs supported.

So, and this is all done by Rutgers as well.

This isn't us talking, this is Rutgers analysis of these buildings and the long term impact of their rehabilitation on the communities.

And again, you can see the benefit here after five years, far exceeded the cost to the federal government to implement this program.

And that's what it looks like today.

Again, another shot of our building.

So we'll get into that calculator, David, but that kind of ends the PowerPoint presentation.

But any, any questions from the crowd or anything or I can, I can jump into the spreadsheet.

We can kind of walk through a real world example of how this would work, especially if somebody has the state benefit as well.

Yeah, let's, let's jump into, you know, I don't know, a $600,000 South Carolina income and just kind of look and see kind of what that might look like.

Yeah, let me get it up here and then I'll share my screen.

All right, back to the screen.

Share.

And again, this hypothetical 600,000.

This is after all of the other tax planning has been done.

This is after 401 contributions.

This is after, you know, every write off this person's CPA and advisor can find everything else.

This is to where, hey, the best we can do is you're going to have an AGI of 600,000.

We've written off whatever we can write off all of those things, and that's going to create a tax burden at a pretty high rate.

So you had 600,000.

Now we'll take a look, say, married filing joint, 5.75.

A good rate for South Carolina.

Yeah, I think so.

Yeah.

So again, you see the 245 ratio here.

Now remember, we are limited to 50% of your adjusted gross income.

So again, on 600,000, the most you can deduct is 300,000, assuming some slight AGI or itemized deduction.

So 590 is taxpayer, your gross ordinary.

So the maximum being calculated at 245, 300,000.

Limitation, you put in 122, 449, but we'll only show 100,000 just for ease of calculation.

Now, the 600,000, David, just so you know, with the indexed inflation, this year actually puts them more down to the 32 bracket.

So it's 77 federal savings, but the state benefits another 14.

And that's a really key factor there.

Why this makes sense even in a lower tax bracket if you have a state that recognizes itemized deductions.

So again, 14,000.

So they're still out of pocket about $8,800 in the first year.

Now, again, GBX does not count as part of our returns.

The state benefits, you can see, even though they get an additional $14,000 state benefit, it does not affect any of the cash distributions nor the payout at the end.

So this 50 is only based upon federal, not any state.

So any state return is just additional gravy, for lack of a better way of saying it to our investors in that state.

Sure.

But then in 2031, when you're sending this person $50,440, that money can go towards purchasing another hundred thousand or whatever that number is into the GBX fund.

So it's almost like if you start laddering these things, you know, five years into it, about half of your investment in GBX can be made with this return of capital.

Correct?

Absolutely.

And we have a lot of investors that do that where they've laddered out and you know, they're, they're.

Every year it comes due, they, they take it and reinvest.

Some stay in, but a lot of them take it and reinvest.

Exactly.

It mitigates that cash flow hit as well.

Yeah, yeah.

No, I, I like it.

What if we plugged in like a 8 or 900,000?

Just, let's just go kind of, you know, higher and make sure that we're.

Yeah.

So they're at 900 again, we'll keep it at 100 even though it's below the max.

Just to show there.

Now, again, at that level of AGI, with the state benefit, you're now actually ahead in year one.

Again, because of the state benefit, you're going to get more back in tax refund than you put into the, to the program with the state benefit.

And again, does not affect any of the GBX returns.

Those are all based upon the federal.

But it does affect obviously the total return rather than 150% return because we keep that steady.

The state benefit, you know, the return goes up to 162% return and a 103, you know, cash on cash return in year one.

Sure.

Now let's, let's say we're dealing with, I don't know, orthopedic surgeon who has a W2 income.

And this guy's been having a lot of federal taxes withheld from his paychecks from the beginning of the year.

Now I guess he's going to have to float that $100,000 and maybe stop with holdings and then he's going to get a big refund or how would you answer that question for someone?

And then Maybe starting in 2026, he would a little bit better planning and not having anything or very little withheld from his paychecks.

No, you're exactly right.

Yeah.

Unfortunately, with W2s like you are, you know, your employer withhold.

So there's a couple options you have in the first year you do this.

I mean, it does have to come from other cash flows or sometimes some people may take like, you know, a small home equity loan or a loan against their investable assets to fund the cash.

But they can, depending on their employers.

I know some employees will.

If you say, hey, I'm doing this thing, I don't need any more withholding, they can stop withholding.

So you start to recoup some of that cash earlier and then they will get obviously their refund checks, you know, in August or September of the following year after they file their tax terms.

Again, you do have to extend the first year.

But then after that, as long as people believe that their income will remain the same or go higher, higher, and they want to do it in the following year.

Yes.

Then you say, hey, I want to reduce my withholding because my taxable income is going to be reduced by half because of this program.

And then you start to actually keep, you know, especially for W2, you pocket that cash, keep it in your pocket earlier rather than paying out and waiting a year for your refund.

Now for the small business owner, different story.

Those that are small business owners and paying federal estimates, those that know that again, if it's the first year, they usually don't make their third or fourth quarter estimates.

They keep that money in their pocket.

And then on a go forward basis, same thing in their tax planning.

When they're preparing their next year estimates, they include the gbx.

It lowers that cash outlay to the irs.

They can keep that money in their pocket.

Yeah, now that's a beautiful thing.

So it's just, you know, the first year that you get involved, there may be some complexities, but then moving forward, if you know you're doing it moving forward, it makes planning a lot easier from the beginning.

Let's just say, you know, for somebody who's solidly in the top, the top 37 bracket, again with that South Carolina benefit here you can see, you know, the full benefit there, the 14 in South Carolina benefit.

And again now that's a 105.

You're getting almost, you're ahead of the game.

$5,000 without even doing anything right just in tax benefits.

And then again now it's a 164 cash on cash return, counting that 14,000 from the, from South Carolina.

So again, you always want to run this by your tax advisor, make sure that you, you know, you know you are getting the most benefit out of this against the top tax brackets and that it does flow through to your South Carolina return.

The nice thing about this though, this is a non cash charitable deduction.

So what's nice about a lot of W2 people and to some extent business owners is with the new higher standard deduction, most people don't itemize anymore.

So there's additional tax benefits to this because this obviously opens up your itemized deduction so all your cash contributions are fully deductible.

The cash contributions don't count against this limit.

Only your non cash do.

Now your home mortgage interest, investment interest, even the $10,000 state and local deduction becomes deductible.

There are some ancillary benefits as well with this that come up because you open up your itemized deductions where most people, again, some people may still be able to.

But it's very hard not to itemize unless you really give a lot in cash deductions away.

I like it.

And so anybody who might be interested and you are available to set up a zoom call with their CPA and answer any questions to certainly make sure that it's appropriate for them, correct?

Absolutely, absolutely.

And our fund is open right now, taking subscriptions anticipate being open through mid to late November this year.

Again, if you invest this year, it all accrues your 2025 tax liability and tax return.

And again in 26, your income and everything we set to zero.

And so does GBX will start a new fund for 26 income as well.

The one thing is, you cannot go backwards with this.

If you.

I get a lot of calls in April when people say, oh, I got to pay this huge extension payment.

Can I do GBX for the prior year?

No, you have to invest in the year you want the tax benefit.

Okay.

Yep.

Makes total sense.

All right, so if we don't have any questions, I'm going to go ahead and thank Gordon for his time.

I think this is for the right person.

This is an incredible opportunity.

I don't think anybody loves paying federal taxes or state taxes.

So this is a way to mitigate that and also over years to, you know, get another roughly 50% of your original investment back.

So sounds like a really, really good win win and a great planning tool.

So I appreciate, appreciate your time and I think it's cool seeing some of those buildings too because you know, you look at some new buildings have no character and they're just not cool looking.

So I will say that that's a great point.

You know, you saw our building.

It's really a neat building and it's only a little five story, but there's a lot of character.

Built with brick and some ornate, you know, stuff inside.

I look down the street, Sherwin Williams just built, you know, a $200 million tower.

It's all steel and glass.

It's nice, it's new, but there's no character to it.

It's just steel and glass and we just don't build them like they used to, which is why, again, you're also doing good in helping owners preserve it.

Because it costs so much to rehab these, David.

Usually anywhere from 30 to 50% more.

Why most owners just let them go or eventually sell them to be turned in the parking lots or into new builds.

Because it's just.

It's so much to rehab them.

And this incentive and this capital we raise really allows for us to.

To save these buildings and bring them back to life.

Yeah.

Yeah.

And like you said, the government incentivizes behaviors, everything from electric vehicles to having kids to buying homes with mortgage, you know, and we may or may not agree with all the incentives, and that's a different discussion.

But they're there and they're legal and they're there for us to use, Correct?

Exactly.

And if the.

If the program's there, why not at least take a look at it and try to make it work for you?

Perfect.

Awesome, David, I appreciate it.

Always good to see you.

Thank you.

Absolutely.

Yep.

And we shall be in touch.

And we.

We may have.

Have some clients that would like you to speak with their CPAs, so.

Looking forward to that.

All right.

Thanks, David.

Have a great day.

Thank you, Gordon.

Investment advice offered through Parallel Financial and SEC registered investment advisor able to conduct advisory business in states where it had registered or exempt or excluded from registration contents contained herein or for informational purposes only and should not be construed as an offer or solicitation for investment advice or for the purchase or sale of any security, insurance or other investment product.