Are Losses Your End Game?
There are all types of seminars, self-help programs to eliminate your tax liability, but the real question is are you going to be tax compliant? This all depends upon various factors you need to consider because you know the IRS isn’t going to make it easy for people to not pay their taxes. However, like everything, there are loopholes to see what the possibilities and if your round block fits in the round hole and not into the square hole.
- Are you an active participant in which you make decisions regarding who rents from you, figuring out rental terms, determining what does and doesn’t get any repairs? Being on the sideline and expecting that mailbox check doesn’t make you active.
- What are the comparable rents in the area or are you just assuming you can set any amount?
- Do you have a stress test that shows the total cost of any renovations, the mortgage payment, insurance and property taxes, HOA dues, and other expenses showing what your monthly outlay of cash is and can you afford those payments when you don’t have any tenants renting?
- What’s your back-up plan if some type of natural disaster happens and your tenant needs to move out if it becomes uninhabitable – are you covered in the agreement?
- When you have a property on the market and believe that you’d rather show a loss than a profit at the end of the year because you think it’s a tax perk, what happens when you need to show positive financials for a refinance?
- When are you projecting to make a profit and are you willing to keep it in an emergency reserves fund for those months you don’t have a tenant?
- What’s your process to find a qualified tenant and keep them happy or your process to quickly remove a bad tenant?
- How far are you located between you and your property – out-of-town purchases are the most difficult to deal with because you’re often relying on locals to make sure that your investment is protected.
Not everything is a good fit for what you’re trying to achieve, and there are situations that you’re able to help offset your tax liability at the end of the year. However, it’s not the wild wild west days where you can get money any time you want it, nor is it easy to hold onto what you have.
Again, “I want to pay my fair share of taxes” and unfortunately there’s no real truth in determining what is considered a person’s fair share. However just like a marriage, it’s very easy to get into and very difficult to get out of. Whether you’re looking at real estate flipping or becoming a landlord, you’re not going to be able to get out of what you can and cannot do quite so easily and you have to be prepared to deal with the long haul.
Dwayne J. Briscoe