Irvine, CA · Member since 2017 · 9 posts · 7 votes
Hello,
I have been considering entering into real estate investing for both diversification and a way to spend my free time.
I have some questions regarding taxes since the taxes will either make or break the return it seems.
In the example, let's assume I purchase a property that provides $8,000 a year in rental income, and I can write off $2,036 and $2,225 in both depreciation and interest respectively.
Total operating expenses and total loan payments equal $5,784 per year.
My marginal tax rate in California is 25% federal, 9.3% state. So that brings the rental income down to $5,200 a year before any tax write-offs.
My question is how will the write offs affect how much in taxes I will pay? I would like this deal to be cash flow positive as there will be little appreciation, if any.
You say you are doing it for diversification and way to spend your free time. Then you ask about taxes? If you are making positive cash flow and a profit at the end of the year then I say do it. Learn to automate it as much as possible for the least amount of expense. This way you can make money with very little effort.