tax question

[Amy Ranae]

So I know the answer to my question is "ask your tax person", but I asked my tax lady and the info I got back doesn't jive with what I've heard and what I've read about so I'm asking you all. No need for specifics.

Ok. So I'm a real estate agent usually taxed at the 30% bracket. I am closing on my first investment property TOMORROW! so I asked my tax lady to run a scenario about how this might impact my taxes this year. I'm putting 20k down on a 100k townhouse that needs 15-20k of work. I'll rent it out for 1600/mo hopefully starting in December. When she ran my tax scenario, the 20k worth of work only amount to about $450 in tax savings this year. This seems grossly incorrect. 

I read Tax Free Wealth as recommended by one of the podcast guests and I have 3 LLCs already set up so I'm planning to use one as a management co that will do the repairs and manage the tenants and hold the property in my real estate llc, and have the companies paying each other for their services as mentioned in the book. I feel like this should result in more than $450 in tax savings...

I'm not purchasing this thing for tax perks, but I was hoping they would be a bit better than she has suggested. Also for comparison, I ran a P&L for my biz w/ the accounting software I use (LessAccounting, it's AWESOME!) and it says I will owe about 14k in taxes this year while my tax lady came up w/ 45k in taxes. Obviously I'm shopping for a new tax professional or thinking about doing it myself. Any input, tips, help, referrals, references, etc would be helpful! 

THANKS BP!

[Wayne Brooks]

@Amy Ranae

Your tax lady is right, whatever else you're reading is wrong. The $20k in renovations/repairs you're going to do are Not tax deductible this year. They are to get the property "rent ready", and as such get added to your purchase price to establish your basis, and get depreciated. $20k over 27 1/2 years is about a $725/yr deduction, which would save you about $215/yr in actual taxes. Now, you could "cost segregate" some of the improvements perhaps, on a shorter depreciation schedule. But, using one LLC to pay another LLC does nothing to change this. Your tax lady knows more than you do, and whatever you're entering into your accounting software is incorrect, likely due to you classifying certain things as deductible expenses, when they are in fact only depreciable expenses.