How To Buy Rental Properties To Save On Taxes
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How To Buy Rental Properties To Save On Taxes


How to buy a rental property
before the end of the year to help you save on your taxes. That’s today’s video. Let’s dive in. Hi, there. I’m Clayton Morris. I’m the founder
of Morris Invest. We’re a turnkey
property provider, one of the largest in the country. And today, we’re going to talk
about how to save on your taxes before the end of the year
by buying a rental property. My office gets very,
very busy towards the end of the year when the investors
that we work with basically get a call from their
accountant saying hey, you’re going to owe
the IRS $40,000. You may want to consider
buying another rental property or better put that to use. So we get a lot of phone
calls from investors that want to pick up properties
before the end of the year. Now, that’s probably not good
accounting on their part. But nevertheless, buying
rental real estate is a fantastic way,
probably the number-one way, to mitigate your overall
tax burden in this country. It truly is phenomenal. And the tax code in this
country, in the United States, was specifically written to
encourage entrepreneurship. And rental real estate ownership
is a fantastic way to do that. Just about every member of
Congress owns real estate. There’s a reason
they own real estate, because the tax
code rewards them. OK. Let’s dive in to some
of the reasons why. Number one– deductions. Of course, with owning rental
property and all the expenses that go with it, when you’re
doing a rehab on a property or maintenance or upkeep,
even the printer that you’re buying to print out the leases
for your tenants if you manage and do all these
things yourself, that is an expense, right? So the deductions
that you get to claim. Now, I presume that you
probably– if you’ve watched any of my videos
for a number of time– you know that you should
be buying these properties in a legal entity,
an LLC or an S corp, whatever your accountant
tells you to do. But the deductions
that you then get to apply because you
own it as a business and you own your
rental properties inside of a business, those
things are deductions. Perhaps you have a
home office that you use to manage your properties. You and your wife sit down. You’ve got a home office
that you can close the door. You work on your spreadsheets
for your rental properties. You get to claim a portion
of your home office on your annual taxes. So that’s another great way
to take advantage of this. Number two is depreciation. It’s pretty simple. You simply get to depreciate
the value of the property over the course of 27.5 years. That’s what the federal
government says you can do. Now, I’ve got another video
where I deep dive depreciation. You can click on that right
here in the little card that pops up, also in the
description below this video. But for now, just know that
when you spend $30,000, $40,000, $50,000 on a property,
the value of that property does not have to be hit
for your taxes all at once. You can claim that
value depreciated over a number of years. Basically, the
government’s saying, hey, that asset is deteriorating
like a car, wear and tear. And the government is
recognizing that property is going to have wear and tear. Well, you get to claim that
against the rental income that you’re bringing
in, which is a great way to mitigate your overall
tax burden by owning rental property, depreciation. And there’s some great
strategies and tactics on how to use depreciation. And there’s some really
high-level ninja tricks on how to use depreciation if
you own commercial property or multiple properties. We’ll deep dive that
a little bit later. But again, we can deep
dive that if you check out my other video on depreciation. Number three on the
list– another great way to mitigate your tax burden if
you’re selling a house this tax year is to use what’s
called a 1031 exchange. Now, this is a
fabulous way of being able to take the money, the
profit that you would get from the sale of a property. So let’s say you
sell a property, and your profit is
going to be $300,000. Well, you don’t have to
pay capital gains taxes on that in this calendar year. Well, the IRS gives
you the option of a 1031 exchange,
which lets you then roll that profit
into other property, into like-and-kind
assets, as they say. So you could take that $300,000,
and you could potentially buy six, maybe eight rental
properties with that amount, maybe you buy– each
of them are $50,000. Anyway, it has to
be like-and-kind, and it also then can’t be less
than the $300,000 in value. Roll that into those
properties, and then you don’t have to pay
the capital gains. This is a fantastic
way of exploding your rental portfolio,
number one, because now you went from one property
to six properties. And the overall rent roll
that you’ll be able to achieve is going to increase as well
by doing a 1031 exchange. So it’s a great way of
mitigating your overall tax burden. And one of the
biggest and best ways to really mitigate
your overall tax burden with rental real estate
is number four on my list. And it is treating it
as a capital expense. The bottom line is when you’re
purchasing a rental property, it is a capital expense
for your business, right? It is not a business expense,
so it’s not the same thing. But the capital
expense, you then get to depreciate
over that 27.5 years. Just like buying a big
tractor for your company that is going to be depreciated,
it is an asset for your company and therefore, it offsets your
overall income and other income sources from your company,
a big capital expense. And especially if
you’ve got to make $20,000 worth of improvements
on that particular house, that is a huge capital expense. And this is why, my friends,
really smart real estate investors who taught me this a
number of years ago– the rule is never stop buying
rental properties. Buy until you die. Why? Because the moment you stop
buying rental properties, now you start to pay taxes
on all of that rental income. If you stop buying
properties to mitigate that, now all you have is income
tax, rental income coming in, and nothing to offset it with
the purchase of new property. Again, I’m not an accountant. I’m not a lawyer. So seek consultation from
your accounts or lawyers on all of this, but this
is the way that we do it. And this is why the tax code
is so great for real estate investors. It can mitigate your
overall tax burden if you understand the
tax code and if you work with an accountant who
understands real estate. There’s really nothing
better than real estate to crush your taxes. I’m Clayton Morris. Please subscribe to my
channel if you already are not a subscriber. Please. We publish videos
multiple times a week. Just click on the little
Subscribe button right here on this video. And you can check out all the
resources in the description below and some of
the other videos we talked about here today. We’ll see you back here again
on another video, everyone. Go out there and take action and
become a real estate investor.

10 Comments

  • sammyzt93

    So how are you ever able to enjoy your rental income if you're just taking 100% of it to buy more real estate every year until you die to avoid taxes? Or am I missing something?

  • CanesFan65

    WOW. This Video Just SCARED the daylights out of me. As you were speaking – I was thinking – "Holy Cow – once you start that train down the tracks – there's no way to stop it. You would have to keep rolling your cash into more and more properties and it would never end." The.you said exactly that! I suppose that would be ok if you have children that you plan to leave everything to and maybe they will take over the properties when you become unable – but if you are older and single like me – that can be a scary proposition! Now I have to reconsider this whole rental thing just as I am going to see a duplex tomorrow. UGH!

  • Wei Han Teo

    Hi Morris, awesome video. Learnt so much from you.

    I just have a few questions. For Deductions & Depreciation, its to reduce the income tax from rental income. 1031 exchange is to reduce the capital income tax.

    I would like to ask on property tax? What are the ways to reduce property tax?

  • Sanjay Aiyar

    @Morris Invest. Do you have a company you recommend using for a 1031 exchange. I am selling a property in NYC into one in NJ, so not sure if that also matters.

  • Skiidzman

    So help me understand this please. If I am working a 70k/year job, and tax time comes and I don't "owe" the IRS any money, do deductions provide any benefit? I keep reading deductions lower the amount you are taxed, but that money comes out of my paycheck… so I am confused where and how I get the money back if I don't already owe the IRS. If I paid 25% taxes during the year and deduct 10% of that, do i magically get a check or a credit on my return?

    Or are we not talking about my personal taxes? Just business taxes under a corp?

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