Accounting for taxes in real estate analysis.

Real Estate Deal Analysis & Advice
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Accounting for taxes in real estate analysis.

Austin Cardon
Property Manager · Bountiful, UT · Member since 2020 · 7 posts · 3 votes

I am working on my evaluating 100 different deals before I make my first purchase (I really liked this suggestion) now I have done maybe 20 and found that I’m definitely missing a huge chunk of analyzing these deals. How do we add in the taxes?!? Do you just focus on if you are a pass through entity or no corporation at all put the income on your income tax bracket? Or do you try to do other tax strategies. I’m currently reading Tom wheelrights “tax free wealth” (which I highly recommend) and wanted to know what tax strategies all you pros use. Mahalo for your help!

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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Austin Cardon

    I’m not sure I understand.... not it info here. First of all, figuring your profit “loss” due to income taxes is pretty complicated since it depends on many factors outside of the real estate investment/transaction. Are you analyzing short term flips? Long term rentals?

    Well, bottom line is profit/loss is well, profit/loss. If you are doing flips it’s ordinary income. If you are doing long term rentals it’s passive income.

    You need to determine what sort of business structure you are doing. Only C Corp taxed as corporations, ie didn’t make a S Cornelection, do separate tax returns. So, everything else are pass through entities.

    So, take the profit/loss from your analyses and apply them to you what is probably your personal tax return accordingly as either ordinary income or passive income. The latter has the various rules regarding passive activity limits and associated passive allowed losses, etc.

    Does that help any?

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    6y

    @Austin Cardon

    Everyone's tax situation is different so you normally won't find a calculator to calculate the tax.
    I.E. Some people are in a high tax bracket, some people are in a low tax bracket.
    Some people live in a state with no state income tax, some people live in a state with a high state income tax.

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  • Austin Cardon
    OP
    Property Manager · Bountiful, UT · Member since 2020 · 7 posts · 3 votes
    6y

    @Basit Siddiqi

    Thanks for the insights

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  • Account Closed
    Investor · VA but NOT in real estate · Member since 2020 · 57 posts · 55 votes
    5y

    Many years ago on a planet far, far, away, I was a tax accountant.  One thing that I used to try to impart to my clients is that you shouldn't spend a dollar to save 35 cents in taxes. That's a losing proposition.  Other than that, it is kind of tough to analyze real estate strategies from a tax perspective and plug it into an everyone can use it calculator because everyone's scenario is a little different.  And in any case, the tax scenario for residential buy and hold investment "A" in say Bountiful and residential buy and hold investment "B" in say Ogden isn't going to be all that different.  Same state, same investor, same depreciation rate, same tax bracket unless some odd local tax program is in play. Where it gets interesting is where you're in places with vastly different tax scenarios such as Wyoming and California.  

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