Understanding depreciation as a property investor with Amanda Han & Matt MacFarland

Episode 10

In this episode, we talk with investors and CPAs Amanda Han & Matt MacFarland about depreciation, cost segregation, and record keeping.

In episode 10 of The Profitable Rental Podcast, Landlord Studio co-founder Logan Ransley interviews two special guests, Amanda Han and Matt MacFarland. By day Amanda and Matt are the power couple behind Keystone CPA, and by night they're successful real estate investors!

In this episode we dig into the ins and outs of depreciation, accelerated depreciation or cost segregation, and how record keeping is the foundation of any tax strategy.

Tips For Maximizing Your Portfolio Profitability

Key Tax Deductions For Landlords

When it comes to understanding rental property tax deductions Amanda and Matt explain that one of the common things they see, especially for newer real estate investors is a lack of knowledge about the tax advantages of being a real estate investor.

“One of the biggest mind shifts for newer real estate investors is understanding in the eyes of the IRS a real estate investor is a business owner. So you can start taking advantage of the same tax benefits of write-offs, like depreciation and all those other things, that traditionally you miss out on when your sole income is from W2.”

They go on to explain the role of accurate bookkeeping throughout the year if you want to leverage these tax benefits an minimize your end of year tax liabilities.

About Depreciation In Real Estate

One of the major tax deductions for real estate investors is, of course, depreciation. “Depreciation in the traditional sense is the IRS allowing you to write off a portion of the building purchase price. For residential real estate you can write it off over 27.5 years, for commercial over 39 years. Meaning every year I'll take a little bit off,” Amanda explained.

However, as simple as that sounds there are complexities to calculating and maximizing your depreciation deductions. Amanda goes on to say, “A cost segregation allows you to break out the components of the building and depreciate them much faster than the building itself, essentially saving your tax dollars sooner rather than later… This though may not always be the most beneficial strategy.”

3 Costly Tax Mistakes To Avoid

Amanda and Matt go on to share some cautionary tales about common tax mistakes people make.

  1. Not taking depreciation: "One woman has around a dozen properties and had owned them for maybe 10 years, but had not taken depreciation expense on any of the properties - ever."
  2. Doing a cost segregation in the wrong situation: “We’ve seen situations where people have done cost segregation studies, they've paid somebody to do the calculation, created all this extra expense, but then they can't use because their income is too high.”
  3. Not keeping good books: "To truly save on taxes to have a good tax plan in place, and the foundation of this is to have good books. If you don't don't have good books then you don't know where your starting point is, you don't know what numbers we're working with," so you can't create a tax plan that works.

Related: Rental Property Bookkeeping Tips For Landlords

Connect With Amanda and Matt

Website: https://www.keystonecpa.com

Instagram: @keystone.cpa 

Facebook: @keystonecpainc

YouTube: @keystonecpas


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Don't Miss The Next Episode

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.

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