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Strategic Tax Tips For Property Owners

Geraldine Serrano Tax Advisor Tax Veracity

For the past nine years, Geraldine Serrano has been helping real estate investors, renters and CPAs use a strategic tax planning tool called cost segregation that allows companies and individuals who have constructed, purchased, expanded, or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.

Q. How does cost segregation work?

A. Cost segregation is the process of breaking down a building into its component parts and reclassifying them for tax purposes. The benefit from cost segregation is accelerated depreciation, which will help reduce taxable income in the near term. The amount of accelerated depreciation a real estate investor can take via cost segregation depends on a multitude of factors, including whether the building is new construction or an existing building, the date it was placed in service, the condition of the building, and even where the building is located. An experienced cost segregation provider, like myself, will be able to assist the real estate investor in navigating the complexities of a cost segregation study.

Q. What property-related tax changes are on the horizon for 2023, and how should real estate investors prepare for them?

A. I wish so badly that I owned a crystal ball and could see the future of tax legislation. Unfortunately, all we can do is watch and wait. We have heard about many new tax proposals from the new administration. No one knows if any of them will become law. Since the U.S. Senate is evenly divided, it’s unlikely that any extreme tax increase measure would be able to pass. Since we have so little clarity on what’s going to happen from a tax standpoint, we need to make sure that we take advantage of the very generous existing laws surrounding real estate investments. My advice to real estate owners for 2023 would be to buy more properties before Congress can figure out how to eliminate the positive changes that were included the 2017 Tax Cuts and Jobs Act. For example, 80 percent additional first-year depreciation deduction, which was part of the TCJA, with the percentage being reduced to 60 percent in 2024, then 40 percent in 2025, and so on until it gets to zero. So, there is no better time than now to get into that next real estate investment. If you’re waiting to see what’s going to happen from a tax perspective, don’t! Buy now and take advantage of the most generous depreciation expense environment in history before it fades away.

Maximizing Your Rental Portfolio with DSCR Loans: A Guide for Real Estate Investors

Expanding your rental portfolio can be a lucrative way to increase your income and secure your financial future. However, with the rising cost of real estate, obtaining financing through traditional banking channels can be a challenge. Fortunately, real estate investors have an alternative option: Debt Service Coverage Ratio (DSCR) loans.

DSCR loans are designed for real estate investors, taking into account the potential income from the rental property. This type of loan is based on the ability of the property to generate enough income to cover its debt obligations. This makes it easier for investors to secure financing for expanding their rental portfolio.

Private money lenders are a great place to find DSCR loans. These lenders specialize in lending for real estate investments, providing more flexible terms and quicker approval times than traditional banks. They also tend to be more lenient with borrowers who may not meet the strict criteria of large banks.

For example, let’s say you’re interested in purchasing a rental property that has a monthly rental income of $3,000 and a monthly mortgage payment of $2,000. In this scenario, the DSCR would be 1.5, meaning that the property generates 50 percent more income than the monthly mortgage payment. A lender would consider this property to be a good investment and would be more likely to approve a loan for it.

Another advantage of working with private lenders over large banks is the personalized attention and customized financing options that they offer. For instance, a private lender may be willing to provide a loan for a property with lower DSCR if the investor has a proven track record of successful real estate investments.

In conclusion, DSCR loans and private money lending can be powerful tools for expanding your rental portfolio. By taking advantage of the income-focused criteria and personalized attention offered by these options, you can secure the financing you need to grow your rental portfolio and achieve your financial goals. By choosing private lending over traditional banking channels, real estate investors can benefit from more flexible and tailored financing solutions.

Article provided by Arena Commercial Capital.