All Forum Posts by: Ana Garcia

@Jared Kouba It sounds like your concern is the tax implications once you sell your investment property...which is very understandable. There are many ways to mitigate or even eliminate/defer the capital gains taxes from the sale, however, a tax strategist would need to evaluate your situation and provide the proper advice. One strategy would be to 1031x your investment property to defer paying taxes, but you cannot buy a primary residence in that transaction (it must be another investment property).

@William Ring 

Yes, get an expert. If you are already doubting whether you should continue to do your own taxes or not, get help, outsource it, and focus on finding more deals and growing your wealth. It looks like you are off to a good start with real estate investing - don't stop.

If you get a CPA who is a tax strategist (there are plenty here on BP), even better, because he/she will find you tax savings so you can achieve your goals (retire early, purchase more investment properties, pay for your children's private education, travel more...)

Our clients who used to prepare their own taxes start saving thousands in taxes per year...thousands! These clients think they are saving money because they are not paying an expert, but it is actually costing them money. The tax code is complicated.

Happy investing!

Hi @CJ Moulton!

Great question and one with many different answers, depending on who you ask. 

As a tax strategist, I usually recommend my clients to avoid having 1 LLC per property because it can get very complicated and extremely expensive, especially when you co-own real estate with other people. LLCs do not bring more tax benefits, they do however, provide liability protection.

With this said, the first question to ask is "how much equity do your properties have?" and hence, "how much liability protection do you need?" If your properties have a lot of equity (low or no mortgages), you want to make sure they are legally protected through LLCs or other means. How many LLCs do you need to legally protect your 5 properties will depend a lot on the amount of equity in each property and what your risk tolerance is. 

Are LLCs the best entities for real estate? They typically are the best for rentals (although there are tax strategies in which other entity types may help bring bigger tax savings). DO NOT try any other entity type for rental activities unless you consult with a tax planner first!

I hope this clarifies some of your questions. In order to give a more exact response, it is important to know how much equity you have in the properties and what your plans are for the future (how many more properties do you plan to acquire/sell, etc.)

Happy investing!

@Yun Han

I would make sure you are renting at market value...you may be able to raise rents and make up for the negative cash flow (you do need to consider the cost of changing tenants vs keeping current ones).

Even if you are not able to raise the rent, there are different ways to analyze whether a property is worth keeping or selling/exchanging. If I read correctly, you paid only 5% down... so of course your monthly cash flow will be lower than if you paid, say 20-25% down, in which case you would be cash flowing because your mortgage would be lower. I would analyze the deal using operating expenses.

One thing to keep in mind with a 1031 exchange is that you need to move fast and find deals rather quickly. Many investors have regretted doing this because they ended up with a bad deal. I am not against 1031, it is actually a great tax reduction strategy, but it does have it's cons and you need to be aware of them.

Hope this helps,

Ana B. Garcia, CPA, MSA, CTP

 Oh, go in person then.

Start by calling them. This sounds like a mistake. Be nice and explain your concerns. It will get resolved. Good luck!

@Joshua Sun Interesting you ask this. I was once told by a wealth management expert that real estate investors are not good clients because they are not the type to invest in the stock market or retirement accounts. Curious to know the answer to your question from other investors or other wealth management professionals. Personally, I find myself using my savings account to reinvest in real estate, unless a tax planning strategy tells me otherwise (there are many retirement strategies that help reduce taxable income while freeing our cash to invest in more deals). 

@Daniel Forero Welcome to BP and keep going for your dreams. Real estate is tough in Miami these days, but not impossible.

You got this!

Ana B. Garcia, CPA, MSA, CTP

@Shafi Noss

As a tax professional I can tell you depreciation is an amazing deduction, for the simple fact that it reduces your rental income even when no cash flow goes out and the real estate actually appreciates in value over time, as you mentioned. 

The fact that you cannot deduct losses against W2 income (in cases when your income is above a certain threshold) can happen with any other expense, not just depreciation. To provide an example, let's pretend that your tax accountant forgot to include depreciation on your tax return, but you had a lot of repairs that get you to a rental loss, you still will not be able to deduct the loss against W2 income if your income is above a certain threshold.

However, things are never black and white in tax law. This is where tax planning comes into play, so that taxpayers can actually benefit from many tax deductions and loopholes that, with proper and proactive tax planning, can be applied, putting more money in the investors hands.

I hope this is helpful!

Ana B. Garcia, CPA, MSA, CTP

Hi Robert,

There are definitely strategies to accomplish that. I would recommend you contact a real estate attorney who would be best suited to advise on this matter.

Good luck,

Ana B. Garcia, CPA, MSA, CTP