What is considered tax deductible?

Question

I am looking at a property to buy and hold where the taxes are quite high. Over $9000 a year in NY. As such, everytime I run my numbers, I get negatives in cash flow due to the inability to get around the tax expense.

Heres my question:

What is generally tax deducted from a rental property in the course of operating it as a  business?

Mortgage? Taxes? Water bills? Sewer bills?

In other words, if I am technically operating at a loss because I am spending most of my money on mortgage and taxes, can I deduct this expense and thus be better off in the long run?

Any and all help is greatly appreciated.

Christian Reyes · Answer

Thanks @Audrey Ezeh!

Audrey Ezeh · Answer

Hi Christian,

Check out this helpful blog post. Best of luck in your RE ventures :)

https://www.biggerpockets.com/renewsblog/2015/05/20/tax-benefits-real-estate-investing-rental-properties/

Christian Reyes · Answer

@Taylor Brugna that is exactly the statement I needed to hear. I  needed someone else to make this observation and just reinforce it so I can justify my moving on from NYC and its surrounding Cash Broke neighborhoods.

Thanks again Taylor! I appreciate the help!

Taylor Brugna · Answer

@Christian Reyes NY is an interesting market..frankly most of the very successful real estate investors here have made so much money through appreciation that they don't really care/can afford to have little to no cash flow every month. So yes, I've seen people operate in this manner, but there is no denying that it is extremely risky.

Now of course I don't know you're whole situation, but it sounds like you might be a good candidate for out of state investing or looking further from NYC if you are looking for monthly cash flow. There's plenty of markets to research that won't have as high of taxes, and will have lower purchase prices. This comes with it's own set of risks of course, so make sure to do some research!

Best of luck!

Christian Reyes · Answer

Thank you all for your responses. I wish I hadn't been traveling for work so I could have read them earlier.

@Taylor Brugna have you seen other investors operate in this manner?

I am more questioning how other investors get around this issue in NY where you can find a great deal to buy and hold but the taxes eat away at every bit of cash flow you could possibly make.

I figured perhaps other investors were ok with holding properties with high taxes if they could get the rents up but the neighborhood I am investing in wouldn't allow for rents to go up that high.

Taylor Brugna · Answer

most of the money* apologies for the typo

Taylor Brugna · Answer

@Christian Reyes Be careful. Mortgage interest is the only deductible portion, not the principal. You also get to depreciate the property.

However, you seem to be ok with "operating at a loss" because you are spending most of my money on mortgage and taxes. Sure, you'll be "better off" by deducting these high expenses but at the end of the day it will still be costing you money every month! Are you taking a different approach where the monthly cash flow is irrelevant (trying to speculate for appreciation etc)?

Mark Jones · Answer

I'm not an accountant. Yes all of that is deductible. BUT, you definitely want positive cash flow after paying PITI. One thing to look at is whether the taxes are reasonable. Could you challenge the assessment?