Tax Season for a new investor

[John Brito]

Hello,

I purchased my first 3 unit in Dec 19 and I am in the process of looking for my next unit since my first was not with an FHA loan but home possible and I am going to use FHA in a better location for the next one.

I am doing my taxes this year and my CPA included all my rental income on 2 of the 3 units and included depreciation but after discussions with my loan officer and others, it seems like not taking major expenses is beneficial in the beginning of the real estate journey to show positive income on your rental properties. My current DTI is roughly 27% as my only debt is my mortgage. For DTI I can not use my current unit in the calculations but I can use 75% of purchased units rents. so if I do this I think my DTI would jump up to roughly 36% with the new FHA purchase.

So my question is do you think it is better to not take major expenses at the beginning of your real estate journey and just pay taxes on the gains in order to make your DTI look attractive as this seems to be an issue with some investors as they gain more real estate. Currently with no expenses added I would have to pay roughly 2,500 in taxes this due to rental income year but my accountant said that if you take expenses you get roughly 27% of the total expenses taken out so for every $1,000 you spend you can deduct 270 from your tax bill. Just trying to see what others' experience has been on this and is it worth it to pay the taxes in the beginning and then take more deductions after you build up your portfolio and have been showing that your units do increase your overall income.

Thank you for any input! I understand you will not be giving me tax advice but just from your experience I want to make sure I approach this correctly and I don't regret saving a little money now and then end up messing up future purchases such as in this blog post below 

 https://www.biggerpockets.com/...

[Eamonn McElroy]

Your lenders would prefer you take zero deductions, as it's best for them.

Your best bet is to rely on a competent tax advisor who has a history of being able to execute.

You might have some wiggle room by advantageously choosing between de minimis safe harbor or BAR rules, or by making an election to capitalize repairs and maintenance.  But, it's not a good idea take a frivolous tax position because it benefits the the lender and your debt-to-income ratio.