Your tax savings aren’t extra cash.

General Real Estate Investing
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Your tax savings aren’t extra cash.

William ThompsonBusiness Member
Accountant · Williamstown, NJ · Member since 2025 · 321 posts · 177 votes

I see investors get excited when a tax strategy creates a big deduction.

But here’s the part I always ask:

What are you doing with the cash you saved?

Pay down debt?
Keep reserves?
Buy the next property?
Or just spend it?

A tax deduction is great, but the real win is using the savings to strengthen your portfolio.

What do you do with your tax savings?

[email protected]609-820-0891
RE Accounting and Tax Professionals LLC522 Reviews
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  • Igor Ganapolsky
    Coral Springs, FL · Member since 2018 · 464 posts · 90 votes
    1w

    William, good question and one I think a lot of investors don't think about until their CPA calls them in March.

    For me, tax savings from depreciation go straight back into the business. I buy properties at tax deed auctions in Broward County, so my basis is usually well below market value. The depreciation shelter on those properties is meaningful, but the cash I save on taxes doesn't just sit in my checking account.

    Here's what I do with it:

    First, it goes into reserves. When you buy as-is at auction with no inspection period, you learn quickly that every property has surprises. Having tax savings flowing into a dedicated reserve account means when the AC dies in July or the roof needs patching, I'm not pulling from my personal funds or scrambling for a hard money loan at 12%.

    Second, it funds the next acquisition. Tax deed auctions in Broward require cash, and the balance is due in about 30 days. So I keep my tax savings liquid and ready to deploy when the right property comes up at auction. The discount I get at acquisition is usually worth more than any return I'd get parking that money somewhere conservative.

    Third, any excess goes toward light rehab that increases the property's rental value. Not luxury upgrades, just the basics that get a property rent-ready and keep good tenants in place.

    The mistake I see is investors who treat their tax refund or tax savings as a bonus check. They spend it on lifestyle stuff and then wonder why their reserves are thin when the water heater breaks. The tax savings are business capital, not a windfall.

    Curious, in your experience do most RE investors actually have a written plan for what happens with their tax savings, or is it more ad hoc?

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  • William ThompsonBusiness Member
    OP
    Accountant · Williamstown, NJ · Member since 2025 · 321 posts · 177 votes
    1w

    Igor,

    Great response. Unfortunately many of the tax savings don't get applied to the plan that was created. But there are plenty of situations where they do.

    [email protected]609-820-0891
    RE Accounting and Tax Professionals LLC522 Reviews
    WebsiteView Page
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