How to Reduce Taxes With Alternative Assets

TL;DR

Alternative assets can reduce taxable income when their deductions match the investor’s tax situation and participation status. The discussion highlights cost segregation, accelerated depreciation, oil and gas investments, short-term rentals, and grouping elections, while emphasizing that year-end planning must account for where activities are reported, whether losses are active or passive, and how rental income is distributed across a portfolio.

Transcript

Welcome to Phoenix. We're here right now for the Alt Asset Summit. Matt Sorenson, Mark Kohler, Pace Morby, Carlton Dennis, and a ton of other speakers. We grace the stage here in a few hours. Why are we here? Because people have an opportunity to invest in a different type of asset class to build their wealth, but more importantly, they can use som... Read More

Key Insights

• • Alternative assets can combine wealth building with tax reduction when an investment produces deductions that apply to the investor’s income and circumstances. The summit focuses on strategies involving cost segregation, accelerated depreciation, material participation, oil and gas activities, and short-term rentals.
• • Oil and gas investing has three phases: upstream extracts oil from the ground, midstream transfers it to refineries, and downstream refines it. Dennis states during his presentation that all three phases are active and connects them with investors seeking active deductions.
• • Short-term rental activity is reported on Schedule E according to Dennis’s answer to another tax professional. He says he labels the activity as a short-term rental on Schedule E, even when discussing active or substantial participation and related IRS guidance.
• • Grouping elections depend on the investor’s qualifications and the composition of rental income. Dennis says a qualifying real estate professional may group a syndication when its rental income does not exceed 10% of the income from the rest of the rental portfolio.
• • Syndication cash flow exceeding 10% of total rental income can prevent grouping under the rule Dennis describes. He distinguishes this cash flow from the investor’s other rental distributions and repeatedly emphasizes evaluating total rental income for the year.
• • Cost segregation and accelerated depreciation are presented as tools for reducing taxes while building cash-flowing real estate portfolios. The Houston property tour described alongside the event focuses on new construction and why a high building value matters when evaluating bonus depreciation opportunities.
• • Long-range planning is a method for improving personal and business efficiency. After hiring an assistant dedicated to Dennis and his family, Dennis says he began mapping May, June, and July of 2026 while operating in October, reflecting a focus on future years and decades.
• • Sales ability can turn technical tax knowledge into valuable client outcomes because the value depends partly on communicating how a strategy solves a specific problem. Dennis calls tax strategy his vehicle, identifies sales as his core skill, and recommends sales training and relevant internships.

Questions & Answers

Q: How can alternative assets help reduce taxes?

Alternative assets can support wealth building while also generating deductions that may offset taxes. The strategies discussed include cost segregation, accelerated depreciation, oil and gas investing, and short-term rentals. Whether a deduction is usable depends on factors such as active or passive treatment, material participation, reporting location, grouping eligibility, and the investor’s broader mix of rental income.

Q: What are the three phases of oil and gas investing?

The three phases are upstream, midstream, and downstream. Upstream involves extracting oil from the ground. Midstream covers transferring the oil to refineries. Downstream is where the oil is refined. Dennis tells the summit audience that all three phases are active, presenting oil and gas investments as relevant to taxpayers seeking active deductions on their returns.

Q: Should a short-term rental be reported on Schedule C or Schedule E?

Dennis says he reports the short-term rental on Schedule E and labels it as a short-term rental there. He maintains that answer during a discussion with another tax professional who asks about Schedule C, Schedule E, material participation, active substantial participation, and IRS guidance. The exchange shows that reporting classification must be considered alongside participation-related tax treatment.

Q: When can a real estate syndication be included in a grouping election?

Dennis says a syndication may be included in a grouping election when the taxpayer qualifies as a real estate professional and the syndication’s rental income does not exceed 10% of the income from the rest of the rental portfolio. He frames the calculation around total rental income for the year and distinguishes syndication distributions from distributions generated by other rentals.

Q: What happens when syndication income exceeds 10% of total rental income?

Dennis says the activity cannot be grouped when cash flow from the syndication makes up more than 10% of total rental income for the year, even if the taxpayer made a grouping election. In his explanation, the investor is no longer considered an active participant for that grouping. He repeatedly stresses using total annual rental income when evaluating the threshold.

Q: How do cost segregation and accelerated depreciation reduce taxes?

Cost segregation and accelerated depreciation are presented as strategies that can create deductions for real estate investors while they build cash-flowing portfolios. The description also connects bonus depreciation with the value assigned to a building during a Houston tour of new-build properties. The material emphasizes evaluating these tools within the investor’s participation status and overall tax position.

Q: Why is planning years ahead important for business efficiency?

Dennis links future-focused planning with greater efficiency and says wealthy people operate in future years rather than thinking only in days or weeks. After hiring Brian as a personal assistant, Dennis says they were already mapping May, June, and July of 2026 while working in October. He contrasts that approach with his earlier experience of staying busy while completing less work.

Q: What skill does Carlton Dennis recommend for building a tax strategy career?

Dennis recommends sales training because communicating technical knowledge can translate into substantial client value. He describes sales as his core skill and tax strategy as the vehicle through which he applies it. He specifically mentions Grant Cardone sales training, recommends the book titled Seller, Be Sold, and encourages internships with people doing the type of work the learner wants to pursue.

Summary & Key Takeaways

• At the Alternative Asset Summit in Phoenix, Carlton Dennis presents tax strategies for high-income earners who invest beyond conventional asset classes. He emphasizes that certain investments can build wealth while generating deductions, then discusses oil and gas activities, cost segregation, accelerated depreciation, short-term rental reporting, material participation, and grouping elections with attendees and tax professionals.

• The event combines a stage presentation with detailed conversations about applying tax rules to actual portfolios. Dennis says short-term rentals remain on Schedule E, including when labeled as short-term rentals, and discusses how participation status affects deductions. He also addresses when syndication income may prevent a qualifying real estate professional from grouping activities.

• Dennis connects technical knowledge with business execution and long-range planning. He describes hiring a personal assistant after operational responsibilities overwhelmed his existing staff structure, planning months into 2026, and treating sales as the vehicle for communicating valuable tax solutions. He recommends sales training, relevant internships, and learning directly from experienced professionals.