Tax deductions that don't affect buying power

[Moses Lin]

Hello! Tax question from a new real estate investor. Right now, I have a side business making 100k/year and two rental properties I bought this year that cash flow about $800/month. If I deduct all my actual expenses, I'd probably pay little to no taxes, but then I wouldn't be able to qualify for a loan next year.

I know that depreciation for my business equipment and my properties are added back in to my income amount when I apply for a mortgage. Is there other real estate deductions that are also not counted against my income? Like renovation costs?

My question is, how can i maximize my buying power while minimizing my tax bill? 

[Ashish Acharya]

Originally posted by @Moses Lin:

Hello! Tax question from a new real estate investor. Right now, I have a side business making 100k/year and two rental properties I bought this year that cash flow about $800/month. If I deduct all my actual expenses, I'd probably pay little to no taxes, but then I wouldn't be able to qualify for a loan next year.

I know that depreciation for my business equipment and my properties are added back in to my income amount when I apply for a mortgage. Is there other real estate deductions that are also not counted against my income? Like renovation costs?

My question is, how can i maximize my buying power while minimizing my tax bill? 

Yes, the renovation cost is not deducted the same year, so it will be depreciated and added back as you had mentioned. 

As mentioned above, you are supposed to take a deduction for an expense you incurred. You cannot avoid deduction to make numbers more favorable to lenders. 

However, you can avoid taking an expense via De minimus safe harbor so that you can capitalize and depreciate rather than an expense.