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ContinueWe spoke with Grant Dougherty a real estate investor and specialist real estate CPA, and discussed depreciation, cost segregations, and tax-saving strategies.
In episode 9 of the profitable rental podcast, Logan Ransley talked with financial expert Grant Dougherty to shed light on some of the key financial strategies that can help investor’s increase their portfolio profitability. From depreciation to tax loopholes, his insights offer a roadmap to maximizing profits and minimizing liabilities.
They began by discussing one of the major tax benefits of owning and operating real estate investments, depreciation. Grant stressed its pivotal role in reducing taxable income over time. By deducting property costs, investors can unlock substantial tax benefits, ultimately bolstering their bottom line.
However, understanding property depreciation is only the first step. Grant introduced the concept of cost segregation—a tactic that allows investors to accelerate depreciation on specific property components. By strategically classifying short-lived elements, investors can supercharge their tax benefits.
"I've seen cases where clients didn't even include depreciation in their tax returns, a common oversight. Additionally, some people attempt to apply cost segregation to their primary residence, not realizing it's only applicable to investment properties. Understanding these nuances is crucial for real estate investors," Grant said.
For experienced and new real estate investors alike, Grant recommended focusing on the following financial literacy tips:
1. Understand Your Financial Statements: Learn how to read and interpret your income statement and balance sheet. Understand what each line item represents and how it contributes to your overall financial health. Your financial statements tell the story of your business, so being able to read and analyze them is crucial.
2. Educate Yourself on Taxation: Familiarize yourself with the basic real estate tax laws. Understand how rental income is taxed, the deductions you can claim, and any tax credits available to real estate investors. Knowledge of tax laws can help you make informed decisions and minimize your tax liability.
3. Properly Structure Your Business: Consult with a tax professional or accountant to determine the most tax-efficient legal structure for your real estate business. Whether it's a sole proprietorship, LLC, S Corporation, or partnership, the right structure can save you money on taxes and provide liability protection.
"Don't overcomplicate it. I see people come to me all the time; they're like, 'Hey, should I put my properties in a corporation?'... Just leave it either in your personal name or in an LLC. LLC gives you that limited liability, that legal protection, but to get favorable tax incentives, you actually don't need an LLC to get that." - Grant said.
4. Implement Good Record-Keeping Practices: Establish a system for keeping track of all your income and expenses related to your real estate investments. Use real estate accounting software or hire a professional bookkeeper to maintain accurate records. Organized records will make tax preparation much smoother and reduce the risk of errors.
Grant said, "You can't do anything without bookkeeping... You have to have a strong foundation, and bookkeeping is your foundation in the world of business."
5. Stay Updated: Tax laws and regulations can change, so it's essential to stay updated on any updates or revisions to the tax code that may impact your real estate investments. Following reliable sources, attending seminars, or working with a knowledgeable tax advisor can help you stay informed about changes that could affect your tax strategy.
6. Network and Learn from Experienced Investors: Surround yourself with experienced real estate investors and professionals who can share their knowledge and insights. Join real estate investment clubs, attend workshops, and participate in online forums. Learning from others' experiences can provide valuable lessons and help you avoid common pitfalls.
7. Plan for the Long Term: Develop a long-term financial plan for your real estate investments. Consider your financial goals, risk tolerance, and exit strategies. Having a clear plan in place can guide your investment decisions and help you navigate market fluctuations and economic changes.
8. Seek Professional Guidance: Don't hesitate to seek advice from qualified professionals, such as real estate CPAs and accountants, tax advisors, and real estate attorneys. Their expertise can provide personalized solutions tailored to your specific situation and goals.
"Ask them different questions about real estate professional status and even short-term rental strategies... do your own homework and then take that homework and go and ask them these questions. But usually, it's going to be word of mouth. That's usually the best way to find... the professional that you're working with," Grant said.
9. Practice Patience and Persistence: Real estate investing is a journey that requires patience and persistence. Success may not happen overnight, but with dedication, strategic planning, and continuous learning, you can achieve your financial goals over time.
Grant Dougherty is a Houston, Texas based enrolled agent, and a federally licensed Tax Advisor, capable of preparing taxes in all 50 states and representing clients before the IRS. He works extensively with small business owners and Real Estate Investors, focusing on various taxation and tax laws related to real estate and small businesses.
Website: https://steadily.com/
Instagram: https://www.instagram.com/doughertytaxsolutions
Facebook: https://www.facebook.com/DoughertyTaxSolutions
X/Twitter: https://twitter.com/doutaxsolutions
LinkedIn: https://www.linkedin.com/in/grant-dougherty-ea-mba-964b24103/
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The Profitable Rental is a podcast by Landlord Studio. We interview real estate experts and discuss practical advice on how you can build a profitable real estate portfolio.
Stay tuned for the next episode where we’ll get stuck into even more tax strategies for landlords to maximize profitability and stay on top of their numbers.
