newbie tax savings??

[Maximillian Engram]

I'm new to real estate and been self-educating for the last 8 months or so ...but one thing I'm a little confused about is the tax advantages...

Do you have to wait until you are a full-time real estate investor to benefit from depreciation? or as long as you own a property and rent it out you will receive all the benefits?

[Josef Hardi]

Hi Max, 

I am also a newbie in RE investing, and I have to say the BP podcast with Tom Wheelwright was a game changer for me. I had to listen to it a few times, and am still going through his books right now: The Win-Win Wealth Strategy and Tax-free Wealth.

I am also trying to find a compatible tax strategist that can assist me with planning for 2023 strategic investments. My head has been reeling with so many ideas.

In any case, to my (limited) knowledge, tax treatment differs whether your activity is considered a passive or active one. For example, passive would be a long term rental. Active would be a short term (under 7 days) rental.

If you go with the route of short term rental. Let's assume you purchased the property on Jan 1, 2022 and you owned it for the whole year. Come tax time, you can run a Cost Segregation Analysis. It will break down based on: value of land, building, land improvement and contents of building.

Typically then you can claim about 30% of the purchase price. For example, let's say you purchase a house for $1M, then you can claim bonus depreciation of $300k. And since this is an active expense (generated from your active participation in the business). It can go against your other active income (aka W2).

On the flip side, if this is a passive investment, such as a long term rental. Then you are allow to have this deduction only against your other passive income.

Hope that helps, please take it with a grain of salt and check out those books i mentioned above!