How to calculate tax implications when investing in real estate?

6 Replies

Hi,

My husband and I are trying to purchase rental real estate properties. We are just learning about it, but our plan is to buy a few of these properties (ranges between $80k - $150k) in the next couple of years and establish a stable passive income. I think we made pretty good progress on how to value properties, what to look for in which market etc but taxes are a black box and I don't even know where to start. I thought I ask a few questions here to help me get started:

1. Would you suggest to find a good RE tax advisor in these early stages to help us structure the purchases or should we reach out to one when we actually have a rental income? Is it actually worth it to have a RE tax professional to

2. We are in a high tax bracket. Would an LLC help on saving taxes?

3. How much can we expect to save in tax deductions? Is there an easy way to calculate it?

4. Do you have any recommendation for a great RE tax professional, who can work with properties in different states?

Thanks in advance!

@Ivett Soti

1. Yes

2. No

3. Let's clarify  what your question is. If you guys make $500k in W2 income and expect that rental properties will reduce your overall taxes - they won't. However, if you do have cash flow from your rentals, you may be able to avoid paying additional taxes on your rental income. In other words, you may have extra income, but your taxes will stay the same as they are today. For details, you do need a good RE accountant.

4. This forum has 20+ tax professionals specializing in REI and working remotely nationwide. Browse this forum and contact those experts who you like. Warning: this is the peak of the tax season, so we are all extremely busy.

Good luck with your plans.

Thanks a lot for your replies. I would feel a bit more confident if a tax professional would advise in the beginning at least and you confirmed my idea on it as well.

@Ivett Soti

1. Yes
2. LLC will not impact your taxes
3. Having rental properties will not reduce your taxable income if you make above $150,000(and no one is claiming real estate professional status). However, rental income from your properties in the $80,000 - $150,000 range will likely be cash-flow positive. Depreciation will bring that cash-flow from a taxable standpoint and you may not pay additional tax as a result.
4. There are many great accountants on this message board. You may want to connect one who is familiar with New York Tax laws.