Rental property income investing

[Travis Odette]

Hi all!!

I think I know the answer is yes, but I want to get some input.

If I profit $10k (or any amount) from rentals and invest all that into the next rental purchase to add to my portfolio, do I pay taxes on that $10k?

Like I said above, I believe the answer is yes, because it is still income. Then I think, well I am investing it into the LLC to build the business, and I get a second guess in the back of my mind that it may be able to be written off as a business expense.

Any advice would help, thanks in advance.

[Ryan Ingram]

Hey Travis, this is a really complex question of which their are many variables. 

I think the way you posed the question, definitely you'll have to pay taxes. 

But, I think once you factor in all of the things you can write off, including depreciation, you won't be near that $10,000. I think when we sit back and analyze properties, we say things in our heads like "this profits $300 per month after all expenses" but in reality, that isn't exactly true. I think it is definitely true if you forecast the performance of the property out 10-30 years. But, our pretty capex, repairs/maintenance, vacancy percentages don't actually correspond to real financials. The first few months of owning the property, its possible to have a repair or capex item that eats up your budgeted percentages for the next 2-3 years. 

I'm not completely sure that it is possible to both grow your portfolio and show true profit at the same time, unless you're not taking advantage of the full tax benefits available to you.