Investor · Scottsdale, AZ · Member since 2021 · 8 posts · 5 votes
Let's say, I have real estate business that does two core things.
1. Sells software products to real estate investors
2. Purchases long term rental properties
Can I take the "profits" generated from software sales and use it for a downpayment on one or more properties without needing to pay taxes on the money earned? My objective is to delay paying taxes and have the business operate close to break even.
Here's a scenario:
The software piece of business generates 100k in "profits" after all development, hosting, etc.. costs are paid. Then that 100k is used for a 20% downpayment on a 4-plex. All of this would happen within the same year. As a result the company would have $0 cash on hand and would have "spent" the money on the property down payment.
Would the company be taxes for a 100k profit or would it be considered an expense?
Matt is correct above, BUT- no, you can't write off the down payment as a business expense because that cost is being depreciated over the course of the next 27.5 years. If you were to write it off, that would be double dipping.
That's an excellent question though, I can tell you are really digging deep and considering all angles, keep going!