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Client wants to make more money from rental properties


NECPA in NEBRASKA
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I don't know what more that I can do to help this client. I love her to death, but I'm not a real estate advisor and I'm not going to go take one of those seminars to tell me how much money that I can make by getting rental houses.

Between her spouse and she they make from $180K-$250K in earned income. She is a realtor (Sch C) and they both make good money. They have three rental houses and think that they should have more deductions and make more money like other people tell them that they make. I can't pull expenses or income out of the air. LOL Much of the money that they have spent since buying them less than three years ago were for improvements, no they are really improvements. I try to expense anything that is legitimate expense. All three of the houses are mortgaged which probably doesn't help their cash flow. 

She has prepared a spreadsheet to qualify for real estate professional, but she wants to slow down. That will not help her when the expenses aren't deductible. 

I don't want her to feel like I'm not doing my job, but I don't know what more I can tell her to help them. She has already made 3 times as much gross income on her commissions in 2022 as all of 2021. That will probably slow down the last 6 months, but everyone loves her and she works hard, so she may still increase. I've mentioned way more money into retirement, but she does not want to tie it up. 

Does anyone have any ideas that would help since my crystal ball does not seem to be helpful?

 

Thanks!

Bonnie

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If she makes more money, she'll pay more taxes. If she wants to make more money, she can depreciate everything possible over the longest life possible. She can raise rents.

Usually landlords want to make as little money as possible or, better yet, have losses. Then they make money when they sell, and have suspended losses to release in the year of sale. Some of that sale income can be long-term capital gains.

You're her tax advisor. Maybe she needs a life coach.

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1 hour ago, Lion EA said:

If she makes more money, she'll pay more taxes. If she wants to make more money, she can depreciate everything possible over the longest life possible. She can raise rents.

Usually landlords want to make as little money as possible or, better yet, have losses. Then they make money when they sell, and have suspended losses to release in the year of sale. Some of that sale income can be long-term capital gains.

You're her tax advisor. Maybe she needs a life coach.

I have told her these things, she listens to other realtors that tell her they are making a killing with their rentals. After my responses to her today, she said that she is tired of paying so much in taxes. I replied that then she would have to make less money. It is an endless circle. She agreed that maybe some of the people that she was listening to weren't exactly truthful, had the additional earned income that they have, or have few expenses or debt. 

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Many years ago I had a few clients who owned multiple rental properties.  Most were constantly complaining they weren't getting enough tax deductions and at the same time complaining they had to pay too much for the services they obtained from their vendors.  Eventually the conversation came around to the fact that I was one of their vendors and maybe I could help out by reducing my fees.  Their sense of entitlement was boring and took up a lot of my time in unproductive conversation about tax-avoidance schemes.  Eventually I got rid of most of them and stopped taking landlords as clients.  I found most of them too cheap to keep. 

 

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On 7/14/2022 at 5:17 PM, NECPA in NEBRASKA said:

I don't know what more that I can do to help this client...think that they should have more deductions and make more money like other people tell them...I can't pull expenses...out of the air...already made 3 times as much in...2022...ideas?

On 7/14/2022 at 11:06 PM, NECPA in NEBRASKA said:

...other realtors...tell her they are making a killing...said...she is tired of paying so much in taxes.

 

Not much you can do I think and they'll probably leave eventually. They like you for your past good, solid work when they were "just folks".  Your CPA title helps, but they want to believe their buddies who say go with the big firms. It's a pattern; not confined to realtors/landlords. Once many SE types hit six-digits they develop (as John said) a "sense of entitlement"- a sort of "look at me" smugness; i.e. "My house and cars are paid off, I own rental property, have stocks, money in the bank, plus a fantastic job and all benefits." Or, as one once told me: "I've pretty much got everything else nailed down and I just don't see why we can't crack this nut." Oddly, he seemed to believe that his success could kill off taxes (the nut). 

 

 

 

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