Posted by JHyre in Ohio on February 16, 2001 at 13:53:36:
What were the total rental payments on the properties? What is the amount, term and interest on the related mortgages.
You are very likely making profit in the form of principal payoff, which would account for the extra taxes. Classic buy and hold issue, got equity build-up, maybe appreciation, got taxes but no cash to pay 'em with.
John Hyre
Tax Question - Posted by Steve C.
Posted by Steve C. on February 16, 2001 at 11:28:17:
Kind of a newbie to RE investing so please bear with me. Just filed my 2000 tax return with a local CPA and to say the least I was upset at our return. My wife and I got into RE investing roughly a year and a half ago. To date we have have and have held 6 properties( we had seven but sold one and and made approx 5600 on it)in the last year. The intrest used/payed out on all properties from last year totalled 47,000(P&I). My wife and I are currently employed and our annual income totals approx 90K(both work full time).For tax purposes(and at the advice of a local CPA)we had the maximum amout taken out of our income for last year.(I know this all is so vague but I just want to give you the gist of our dilemna). The kicker to all of this is we make absolutely no profit on our properties…none. We bought these at the advice of a Realtor and initially wanted to hold for a long term gain when we sell(I could write a whole chapter on the mess this Realtor put us in but unfortunately we will have to except some of the blame). All properties are leased out on a year to year basis with the total lease option money totalling 6500 for all six. My wife and I paid into taxes last year approx 7600 that was withheld. The frustration is this - the CPA that I hired to do our taxes called and said…“congratulations!..your getting back 500.00!”. To say that I was floored would be a understatement. Where did I go wrong? Last year filing seperately/married I got back 1700!!!I am lost. Anyone here have a similar incident? Im sorry this was so long buy I tried to give you the meat and potatoes of my problem.Maybe Im just being to impatient…maybe not. Please take it easy on your post back to me. This experience has been humiliating enough. Any input would be greatly appreciated and valued.
Steve C.
Re: Tax Question - Posted by Bud Branstetter
Posted by Bud Branstetter on February 17, 2001 at 01:10:59:
CPA’s have a habit of capitalizing repairs. Did you do a repair? did you buy tools or office equipent that could be expensed(1279)? Did he include the option consideration in this years income instead of waiting until the option is exercised or expires?
Re: Tax Question - Posted by Dave T
Posted by Dave T on February 16, 2001 at 22:24:05:
Based upon the information in your post, and without looking at your completed tax return, I am going to make some gross assumptions.
Now it would appear that you are experiencing the marriage tax penalty first hand. Last year, I suspect that each of you were in a lower tax bracket but your combined incomes put you in the next higher tax bracket. This may be the reason that your refund is smaller than last year, if all other income factors were essentially the same.
You lament that you aren’t profiting from your rental properties. If your cash flow from the properties is only break even, consider this silver lining: If your rental activities have produced a “paper loss” of $25K this year, that’s a $25K reduction in your taxable income. This means your rental properties have reduced your tax bill by $7000 this year.
Re: Tax Question - Posted by Rich
Posted by Rich on February 16, 2001 at 20:37:10:
Six properties and no repairs to write off? What about depreciation? I thought the buy and hold was especialy good for tax sheltering purposes. What about realtor commissions? Aren’t they deductable on rental property?