What are the key tax considerations and implications that I should be aware of in managing my real estate investments? “First and most importantly: depreciation. This is something you can deduct annually, and what you can deduct varies depending on the type of rental, how long it was rented out, and what you do to the property. Most properties, residential and commercial real estate, use a “straight-line basis” for depreciation. For homes, this can be done over the course of 27.5 years, while non-residential properties can be depreciated over the course of 39 years. If you bought a home mid- year, obviously, you’ll likely have a partial first-year depreciation. The alternative, accelerated depreciation, is rare for properties. However, it is common with tangible property, which can be fully depreciated over the course of 5-7 years — if you need to offset your income sooner. Ultimately, this lowers your taxable rental income by reducing what you owe in income taxes. Secondly, deductions. While revenue from rentals is taxable income, expenses from managing and maintaining real estate properties are the oft-overlooked deductions. For instance, simply advertising a vacant rental allows you to deduct expenses (even if it isn’t for the entire year). Additionally, traveling to and from the property, paying a landscaping service, insurance, maintenance, and repairs can all go toward deductions for property.”
How can I effectively incorporate real estate note investing into my investment strategy to diversify my portfolio and enhance overall profitability while avoiding common pitfalls? “Never buy notes from people who teach notes. Ipso- facto, they are unethical.” “Avoid note funds. They are often unregulated and are rife with fraud. Buy individual notes from property sellers who have created them or through a reputable note broker.” “Do not buy a note from a seller who promises that they will handle any default or foreclosure and/or promises that they will make the payments to you if that happens. Courts have ruled that is a security.” “Perform the 3 P’s of note investing due diligence: Confirm that the payor, the property, and the paperwork are as represented. If you are new to this investment, consult a real estate lawyer. Ask for recommendations from people at local real estate investment clubs or our Facebook group.” “Take title to notes. Have the original paperwork signed over to you.” “Never allow the seller to service the note. Get a servicing company.”
Derek Hobson from Huddleston Tax CPAs
“Do not buy partials. Another party may control your investment.”
“Buy notes that were professionally created and are serviced.” “Before you buy a note, do internet searches with the name of the seller and words like ‘fraud,’ ‘scam,’ ‘rip- off,’ ‘ponzi,’ etc.”
“Join our Note Investing Facebook group.”
W. J. Mencarow from The Paper Source How can I strategically analyze real estate market trends to make informed investment decisions that maximize long-term profitability and asset value?
36 SPOTLIGHT ON BUSINESS MAGAZINE • VOL 24 ISSUE 2
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