Real Estate Agent · Tuscumbia, AL · Member since 2015 · 47 posts · 26 votes
Closed on my second rental property today! Very excited to get it up and running and find a tenant. Not quite hitting the 2% rule but over 1.5 so I'm pleased. Also did my taxes today and was able to use tips from BP on rehabs and depreciation to wind up with a refund. Last year with just flips we paid a big ole bill to Uncle Sam. Knowledge gained from BP and the podcasts are making a huge difference in our way of thinking and ultimately our entire lifestyle eventually.
Architect · Sonoma, CA · Member since 2013 · 53 posts · 30 votes
10y
Nice work @Jon Wright! Your post struck me as I too am closing on a deal this week and am wrapping up taxes. Owning your own business both helps and hurts during tax season for sure. As all the "Rich Dad Poor Dad" (RDPD) folks know, it's great being able to only be taxed on what your corporation doesn't spend (very simplistic explanation BTW) and having un-taxed income to invest until this time of year is awesome but can cut both ways.
Lots of folks are asking for tax tips so here are a few I use.
I AM NOT A TAX ACCOUNTANT OR CPA!
I just do what they suggest to help me out and keep me out of trouble.
1. Deduct everything that qualifies..... repeat.... that qualifies. Miles to and from RE inspections, property improvement costs, airfare to check in on out of state properties, etc.
2. If you practice the BRRRR strategey, and paid cash, be sure that you take out (2) loans when you go the refi, one for the original purchase amount and one for the added value equity. Then you can combine the two to purchase your next deal and write off the interest payments on both loans. If you take out all the principal and equity of the ARV as one loan, then the IRS sees that as income. Where if you take it out in two loans, the principal repayment loan (the cash purchase) has now been converted to a loan with deductible interest. The second loan for just the increase in value is then transferred/combined to purchase the next property and is now considered a second position loan rather than income. It is similar to a 1031 exchange but different....kind of like Thailand. (foreign travel joke).
3. Find a nice place to stack your non-taxed income percentage all year so it is working for you until right about now. Personally, I use Lending Club and option strategies (iron condors, broken wing butterflies, and the occasional DITM covered call) for that.
Hopefully that sparked a few ideas or at least gives BPer's some things to Google.
Worth repeating..... I AM NOT A TAX ACCOUNTANT OR CPA! Your mileage may vary.
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
10y
That's excellent. Please provide more details of the property and the financial aspect of it. We always love to hear success stories. Did you use BP calculators too? They're quite helpful.
Wholesaler · Bloomfield, NJ · Member since 2016 · 104 posts · 16 votes
10y
@Jon Wright I would love to hear more of how you worked out the numbers for the taxes if possible the information will be really helpful also where did you buy your property.
Real Estate Agent · Tuscumbia, AL · Member since 2015 · 47 posts · 26 votes
10y
Sure, house is in Alabama and we got it for 42k and plan to rent it for 700. It needs minor cosmetic rehab to be rent ready in about 1-2 weeks.
As far as tax tips listen to the podcasts with Amanda Hahn.
I used Evernote to make a list of every property we visited as a prospect and wrote off the mileage. Evernote marks the location.
Really just keeping a record of everything you buy that is real estate related and writing it off. Owning a rental property in the first place has tax advantages built in.
Amanda has an ebook on biggerpockets but I am waiting for the hard copy.
Investor · Huntsville, AL · Member since 2014 · 108 posts · 50 votes
10y
@Jon Wright that pod cast with Amanda Hahn might be my favorite ever - learning how to keep my money!!! it blew my mind that even if you don't take depreciation they assume you did...this was the first year we got money back too!!!
Architect · Sonoma, CA · Member since 2013 · 53 posts · 30 votes
10y
Nice work @Jon Wright! Your post struck me as I too am closing on a deal this week and am wrapping up taxes. Owning your own business both helps and hurts during tax season for sure. As all the "Rich Dad Poor Dad" (RDPD) folks know, it's great being able to only be taxed on what your corporation doesn't spend (very simplistic explanation BTW) and having un-taxed income to invest until this time of year is awesome but can cut both ways.
Lots of folks are asking for tax tips so here are a few I use.
I AM NOT A TAX ACCOUNTANT OR CPA!
I just do what they suggest to help me out and keep me out of trouble.
1. Deduct everything that qualifies..... repeat.... that qualifies. Miles to and from RE inspections, property improvement costs, airfare to check in on out of state properties, etc.
2. If you practice the BRRRR strategey, and paid cash, be sure that you take out (2) loans when you go the refi, one for the original purchase amount and one for the added value equity. Then you can combine the two to purchase your next deal and write off the interest payments on both loans. If you take out all the principal and equity of the ARV as one loan, then the IRS sees that as income. Where if you take it out in two loans, the principal repayment loan (the cash purchase) has now been converted to a loan with deductible interest. The second loan for just the increase in value is then transferred/combined to purchase the next property and is now considered a second position loan rather than income. It is similar to a 1031 exchange but different....kind of like Thailand. (foreign travel joke).
3. Find a nice place to stack your non-taxed income percentage all year so it is working for you until right about now. Personally, I use Lending Club and option strategies (iron condors, broken wing butterflies, and the occasional DITM covered call) for that.
Hopefully that sparked a few ideas or at least gives BPer's some things to Google.
Worth repeating..... I AM NOT A TAX ACCOUNTANT OR CPA! Your mileage may vary.