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Joe Mansfield
  • New to Real Estate
  • Bay Area, CA
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Advice on first property and developing a strategy

Joe Mansfield
  • New to Real Estate
  • Bay Area, CA
Posted Dec 27 2022, 10:37

Hi all, 

I'm new to real estate and am trying to develop a strategy to best achieve my desired result. I feel like the biggest detriment to my financial picture is paying almost 40% in taxes (single with no dependents). If I was able to eliminate all of a significant portion of my taxes, I'd be almost "doubling" my income, which would give me a lot more capital to deploy in the markets. For this reason, STR seem most appealing because of the bonus/accelerated depreciation without needing to be a "real estate professional." And as the accelerated depreciation is getting phased out by 2027, there seems to be pressure to take advantage of it before then.

The other option would be buy a primary residence but that would not help much on the tax side of things, although a duplex would allow me to save a significant portion of my income to deploy again in the market. 

Also, is anyone aware of how long a property has to be a STR to take advantage of the tax benefits before converting it to a long term rental?

Any help and guidance would be appreciated!

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Nathan Gesner
  • Real Estate Broker
  • Cody, WY
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Nathan Gesner
  • Real Estate Broker
  • Cody, WY
ModeratorReplied Dec 28 2022, 07:04
Quote from @Joe Mansfield:

I'm not aware of any tax benefits available only to STR. Can you explain? I thought cost segregation was available for any investment property.

You should consult a CPA. I hired one last year and we actually got our first refund in 10+ years. I am paying less than 12% in taxes despite earning a strong six-figure income.

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Joe Mansfield
  • New to Real Estate
  • Bay Area, CA
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Joe Mansfield
  • New to Real Estate
  • Bay Area, CA
Replied Dec 28 2022, 07:21
Quote from @Nathan Gesner:
Quote from @Joe Mansfield:

I'm not aware of any tax benefits available only to STR. Can you explain? I thought cost segregation was available for any investment property.

You should consult a CPA. I hired one last year and we actually got our first refund in 10+ years. I am paying less than 12% in taxes despite earning a strong six-figure income.


 Hi Nathan, 

I could be mistaken but I believe that yes, you can use cost segregation on any investment property, but unless it's a STR you need to qualify as a Real Estate Professional to take advantage of the tax benefits which wouldn't work for me. I think REP requires you to spend more time in your real estate business than your W2. For STR there are a handful of criteria you must meet regarding time spent working in your real estate business, but the criteria is very doable.

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Basit Siddiqi
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  • Accountant
  • New York, NY
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Basit Siddiqi
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  • Accountant
  • New York, NY
Replied Dec 31 2022, 14:05

Your profile mentions that you live in California.
You may want to understand how your 'strategy' may play out on a federal and state level.

You may be best off to have a consultation with a CPA to run your plan before you go about it.

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Joe Mansfield
  • New to Real Estate
  • Bay Area, CA
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Joe Mansfield
  • New to Real Estate
  • Bay Area, CA
Replied Dec 31 2022, 18:51
Quote from @Basit Siddiqi:

Your profile mentions that you live in California.
You may want to understand how your 'strategy' may play out on a federal and state level.

You may be best off to have a consultation with a CPA to run your plan before you go about it.

@Basit Siddiqi thanks for the response! That’s a good idea, I’m sure California has some rules I need to be aware of lol

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Eliott Elias#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
  • Investor
  • Austin, TX
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Eliott Elias#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
  • Investor
  • Austin, TX
Replied Dec 31 2022, 19:02

You will never avoid the 40% tax, just kick the can until it's time to sell. You have to play by the rules, IRS is going to be a good partner for you. 

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Joe Mansfield
  • New to Real Estate
  • Bay Area, CA
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Joe Mansfield
  • New to Real Estate
  • Bay Area, CA
Replied Dec 31 2022, 19:56
Quote from @Eliott Elias:

You will never avoid the 40% tax, just kick the can until it's time to sell. You have to play by the rules, IRS is going to be a good partner for you. 

Hey Elliott, that’s true, although one can always 1031 into new properties and kick the can further down the road, potentially till you die and never have to realize the tax.