If you’re in the real estate space, it’s critically important to have a tax plan up front says Tallahassee CPA, John Harvard. In this episode, Thom and Jason interview John to pull out insight for those real estate investors who are looking to build a rental portfolio but lack the background in real estate accounting and taxes.
Tune in to hear:
John’s extensive background in accounting and the real estate space.
How he made the jump in to running his own firm; as well as becoming an investor himself.
Insight into deductions, depreciation and capital gains.
3:12: John gives us some background on his accounting career, how he’s invested in Real Estate himself, and how he transitioned into starting his own firm.
4:45: John explains the importance of doing a little planning upfront and how having a tax strategy can really help drive clarity for investors; as well as the impact it can have on being able to take advantage of deductions and depreciation.
5:28: We discuss how simple things like setting up a separate banking account and tracking income and expenses through that separate account can drastically simplify the tax process come tax time. Likewise, the act of simply having a separate bank account will force you to think of it as a business; rather than simply an extension of your personal finances.
7:35: John explains 1031 exchanges and how you can defer gains to then buy other properties; as well as how selling a property after a period of depreciation can impact your capital gains.
9:21: We talk about how high income earners, who aren’t considered “Real Estate professionals”, may not be able to take loses on their tax returns right away, and how it’s important for individuals to work with a tax professional before they get started investing in real estate.
11:43: We discuss how the popular question “should I set up a LLC?” is best answered by a legal professional and how there really isn’t a tax benefit to setting up a separate LLC.
14:30: Thom and John talk about the important concepts to understand about deductions once you’ve actually purchased a property. John provides several examples of minor items that can be deducted in year 1 and a few examples of larger items that will need to be depreciated over time.
16:12: John explains the concept of depreciation and how the rules differ for Commercial and Residential properties. Likewise, he highlights the fact that buildings depreciate and land does not.
17:20: Jason and John discuss how real estate taxes, property insurance and mortgage interest are all deductible in the year that they are incurred. John reiterates the importance of working with a tax professional before you invest in properties.
19:26: Lastly, John discusses the important concepts to understand for those investors who find themselves wanting to sell a particular property. He stresses that you, depending on your approach, there can be a meaningful impact on items like capital gains and the taxes you’ll owe on various incomes.