All Forum Posts by: Brian Hunsaker

Quote from @Brian Hunsaker:

 Wow, very helpful! Thank you. What is CSS? That's a new one on me. I'll look up that book :)

 Cost Segregation Study.

Quote from @Brian Hunsaker:

Quote from @Basit Siddiqi:

your properties are showing $27,000 taxable income after all expenses?

If that is true, and the properties were recently purchased, I have double that its being done correctly.

Well 2 of the 3 properties have no loan. So I just have real estate tax, landlord insurance ($200 a year) and HOA dues as expenses on those two (plus the occasional repair). Had those 2 properties for about 5 or 6 years.

Pretty profitable. Would knowing that change your opinion?

What have you set aside for reserves and capital expenditures and for such things as legal fees, etc.?

Setting aside reserves is an expense, so long as they are not excessive. When you draw down the reserve you count it as income but offset it with the expense causing the draw. Best to put the money into a trust account for that purpose. The loss of control justifies the expensing of the reserve on your taxes. 

@Brian Hunsaker - get the Nolo's "Every Landlord's Tax Deduction Guide" book and learn how to track and take advantage of every deduction available to you.

Even if you self-manage and TurboTax, you should have enough deductions and depreciation to minimize your footprint. That is the main goal - to get enough real cash flow in your pocket, after all expenses, and to offset it with deductions and depreciations down to a zero-taxable amount. And to maintain that balance throughout your REI quest.

If not, 1. Congratulations, you have a "good" problem on your hands and are one of the very few to make it to that point of "my rentals are making too much money". 2. Buy more (financed or not) and do a DIY CSS to accelerate depreciation + bonus depreciation to bring down your taxable amount 3. Since you self-manage, create a shell property management LLC and run your rentals management through it, charge yourself pm fees, thus generating self-income, thus being able to open Solo-401K where you can contribute 56K+/year tax deferred (you will have to pay self-income tax, but might end up better than paying full tax on rental income...check with your CPA as this requires planning).

Quote from @Brian Hunsaker:

Quote from @John Morgan:

Quote from @Brian Hunsaker:

Quote from @John Morgan:

@Brian Hunsaker

I have 25 SFR and do mine on turbo tax. You shouldn't be owing anything for many years if ever the way the tax code is for investors. Even if they're paid off and you don't have the mortgage interest to write off. Are you depreciating your property over 27.5 years? Subtracting your property taxes, insurance and repairs? I can't imagine you're still able to show a 9k profit on each one. Something isn't right.

Yes, I am. The depreciation for Unit A is $4546 this year. After Real estate taxes, insurance, HOA fees and repairs (only $340 for repairs this year), we still are up like $12k for the year, subtracting all that from the rents. Then minus the depreciation. Does that make sense? It's a townhouse.

How much are you netting each month? Like around 2k/month after all your expenses? How much is rent? You must be absolutely crushing it. Well done, if that’s the case. 

 2k a month, between the 2 of the paid off ones, that's about right. 

Rent is just over $2k, HOA is $400 (hate those), Real Estate tax $250, insurance $20, all monthly.

I paid off my first two properties and realized I could make a ton more if I took that equity and bought more rentals with leverage. I learned about the power of leverage and used that equity in my two paid off rentals to scale up to 25 SFR with debt (on 18 of them) vs just my original  two paid off properties. My cash flow went up from 2k/month to 17k/month profit. You might have already hit your financial goals so are probably fine with the cash flow from your paid off properties. But if you’re interested in making much more cash flow and pay zero in taxes, consider scaling up. All my write offs and depreciation show a yearly loss due to our tax code. So it’s all tax free income. And having 25 rentals appreciating vs only 2 properties adds up over time. Numbers don’t lie! I’d do cash out refis on your two paid off properties and buy as many cash flowing SFR as you can get with 20% down. 

@Brian Hunsaker sure a paid off property netting you ~$10k annually, or ~$15k before depreciation, sounds fine.

The potentially "silly" way to reduce your taxes is to leverage out your properties.  The interest payments will be additional deductions/expenses.  But, I assume you paid in cash for a reason.

Good luck.

Quote from @Brian Hunsaker:

Quote from @John Morgan:

@Brian Hunsaker

I have 25 SFR and do mine on turbo tax. You shouldn't be owing anything for many years if ever the way the tax code is for investors. Even if they're paid off and you don't have the mortgage interest to write off. Are you depreciating your property over 27.5 years? Subtracting your property taxes, insurance and repairs? I can't imagine you're still able to show a 9k profit on each one. Something isn't right.

Yes, I am. The depreciation for Unit A is $4546 this year. After Real estate taxes, insurance, HOA fees and repairs (only $340 for repairs this year), we still are up like $12k for the year, subtracting all that from the rents. Then minus the depreciation. Does that make sense? It's a townhouse.

How much are you netting each month? Like around 2k/month after all your expenses? How much is rent? You must be absolutely crushing it. Well done, if that’s the case. 

@Brian Hunsaker

I have 25 SFR and do mine on turbo tax. You shouldn't be owing anything for many years if ever the way the tax code is for investors. Even if they're paid off and you don't have the mortgage interest to write off. Are you depreciating your property over 27.5 years? Subtracting your property taxes, insurance and repairs? I can't imagine you're still able to show a 9k profit on each one. Something isn't right.

Switching your rental properties to an LLC or electing S Corp status might not significantly reduce your tax burden, as both are generally pass-through entities for tax purposes. However, there are other strategies you can consider to optimize your tax situation:

1. Maximize Deductions: Ensure you're fully utilizing all deductible expenses related to your rentals, such as maintenance, repairs, property management fees, and travel expenses to the properties.
2. Depreciation: Make sure you're taking full advantage of depreciation on the properties, which can significantly reduce taxable income.
3. Cost Segregation Study: For larger properties, a cost segregation study can accelerate depreciation on certain parts of the property, offering more upfront tax savings.
4. 1031 Exchange: If you're considering selling any properties, a 1031 exchange allows you to defer capital gains taxes by reinvesting the proceeds into another rental property.
5. Energy-Efficient Improvements: Tax credits may be available for making energy-efficient improvements to your properties.

Rod

You have out of state rentals and you're using TurboTax...

Find a good CPA. Send them the TurboTax file and let them look it over. It may look very different.

your properties are showing $27,000 taxable income after all expenses?

If that is true, and the properties were recently purchased, I have double that its being done correctly.