Realizing Your Cash Flow

3 Replies

Hey guys, I'm still in my "learning about real estate" stage. I just got Amanda Han's book on tax deductions. My question is, how do investors realize that $200/mo cash flow from a property? Obviously it would be going into the LLC bank account, but I'm wondering in terms of the correct tax way to do it. Do you just take the money out month by month and pay taxes on it at the end of the year? And if you had a big portfolio with a bunch of depreciation, travel receipts, etc how would you realize that? Would your tax return the next year give you like 38% back (assuming a 38% bracket)?

@Alexa Martinelli once you own your properties in an LLC you have to take "distributions" from your LLC. This is essentially writing yourself a check if you are the owner of the LLC, and it is the equivalent of your job paying you. If you own properties in a partnership, it is fairly common to do quarterly distributions, not monthly distributions. From a tax perspective, the distributions are jut one of the events that happen during the year. You would be logging all the other expenses that you write off as a business owner.

@John Warren Thanks for the reply! I understand you would take the distribution, but is that taxed like a normal paycheck from your job would be? And would the bracket depend on your professional income or since its from a real estate LLC would it be a different rate?

@Alexa Martinelli the short answer is no. Real estate is considered passive income, which is taxed much more favorably. Beyond that, I can't give you much insight as I am not a tax attorney. Do you have a good CPA you can talk to? Most of my rental properties do not even move the needle for me at tax time due to depreciation. A lot of this has to do with building values, etc, but depreciation is still an incredible tax shelter.