Tax deductions on a purchase of an investment property llc

[John Brown]

Hi Everyone! I am brand new to the forum and had a relatively quick question, but could not find the answer anywhere online. Here goes:

I have a growing business ( llc) (nothing to do with investment properties and currently don't own any) which will clear after costs and other deductions slightly more than 500k this year. Can I purchase an investment property through the business and write off the down payment plus other expenses (example: buy a 500k home and put down 20% is that 100k deductible making the taxable income only 400k?

Any insights or other advice would be much appreciated! The closest to anything I have found online was this website so hopefully you guys can help. Thanks!

[Joe Splitrock]

As Wayne said, cash used to invest in real estate is not an expense and neither is the principal portion of loan repayment. Cash and principal just build owners equity.

The way you claim the expense of acquiring a rental property is through depreciation. In the case of residential real estate, you can depreciate the structure over 27.5 years. If you purchased a $500K home that works out to $18,181 of expense per year. 

There are some options for accelerating depreciation in the tax law using bonus depreciation. You may be able to accelerate a portion of your rental property to get larger tax write offs in the early years.  

What type of business do you operate? There may be options to make purchases for your business and leverage bonus depreciation. For example if your business requires an automobile, certain weight classes of vehicles may qualify for up to 100% bonus depreciation. You could buy a truck or SUV and potentially write off the entire expense, provided there is valid business use.

It may also make sense to invest in equipment for your business. Talk with your tax professional to understand what types of purchases may qualify within your business.

You have enough income that you should pay for a consultation with a tax professional to analyze your situation and help develop a strategy.