Real estate tax strategy
Ted Lanzaro on Why Good Records Come Before Any Real Estate Tax Strategy
The CPA and real estate broker explains why organized books, separate business accounts and careful cost allocation decide how much an investor can actually deduct.
Milestone Group Coaching Tax Strategy W~Ted Lanzaro
Video from Joe Barletta.
Generated from the canonical interview transcript and validated against source data by Guests on Air.
Why does record keeping matter for real estate tax strategy?
Ted Lanzaro says good records are the foundation every real estate tax strategy rests on. Without organized books, an investor cannot show what a flip earned or what a rental cash flows, and deductions get lost. Running all activity through one business bank account means that even with no bookkeeping during the year, the bank statements still hold the full record.
Real estate investors often hear about depreciation, cost segregation and self-directed IRAs long before anyone tells them to sort out their paperwork. Ted Lanzaro, a CPA and real estate broker, puts the order the other way round. On a Milestone real estate coaching call hosted by Joe Barletta, he said the first advice he gives a new investor is to be organized and to be a good record keeper.
His reasoning is practical rather than fussy. Tax strategies depend on numbers an investor can prove, such as what a flip made or what a rental actually cash flows. When those numbers are missing or buried in a pile of receipts, the strategy has nothing to stand on, and deductions that were genuinely earned never reach the return.
This article walks through three parts of that conversation: treating investing like a business from day one, keeping business and personal money apart, and why careful allocation of a purchase price separates a thorough accountant from a hurried one. Each point comes back to the same idea, that the records come first and the savings follow.
Key takeaways
- Good record keeping is the foundation of every tax strategy, because deductions depend on numbers an investor can prove.
- Running all business activity through one dedicated bank account leaves a full record on the statements, even without bookkeeping.
- Convenience checks should be deposited into the business account first, so the company borrows the money and the trail stays clean.
- Listing five-year and fifteen-year assets before splitting building and land can lift deductions above the standard 80/20 approach.
1. Treat investing like a business from the first deal
Ted Lanzaro's starting advice is simple: treat real estate investing like a business. A business has a business bank account, so a new investor should open one, get a debit card, and run every piece of business activity through it, paying bills either with the card or from that account. The aim is not elegance. It is to make sure every dollar that touches the properties leaves a trace.
The payoff shows up at tax time. Even if an investor does no bookkeeping at all during the year, everything is still on the bank statements, and an accountant can organize it later. Lanzaro contrasted that with a habit many investors, himself included, have had: running into Home Depot, paying cash for a couple of cans of paint, and walking out. A year later nobody remembers the purchase, and the deduction is gone.
His view is that an investor who approaches everything as a record keeper gets the maximum ability to deduct, because everything is tracked. The alternative comes close to a guarantee of leaving money on the table. Piling receipts into a shoe box and dumping them on a desk at the end of the year means items get missed, whatever system is used afterwards to sort them.
2. Keep business and personal money apart
Commingling, as Lanzaro defines it, means paying business bills out of a personal account or personal bills out of a business account. New investors fall into it easily because they pull money from everywhere, including the convenience checks that arrive from credit card companies. The fix he described keeps the convenience but removes the mess from the books.
Rather than writing a convenience check straight to a contractor, he writes it to his own company and deposits it into the company account. The company then knows the money came in and that it owes the card issuer, and the bills get paid from the business account or its debit card. In effect the investor is lending the company the money, and every payment stays traceable.
The same logic applies to credit cards. A company can use several cards, but the bills should be paid from the checking account set up for the business, and the cards should be kept for business use as far as possible. Lanzaro admitted it will not be a perfect scenario, yet paying everything from one account means the investor knows exactly what was paid for.
3. Good records make better depreciation possible
Depreciation is where organized records start to pay off. Lanzaro explained that it allocates the cost of a rental over the useful life the IRS sets: twenty-seven and a half years for residential rentals and thirty-nine for commercial property. In his example, a two-family house bought for $275,000 produces $10,000 a year of depreciation, so a property netting $10,000 of cash flow can show zero taxable income.
Accelerated depreciation goes further. Anything an investor can unplug, unscrew and walk away with, such as appliances, cabinets, light fixtures, vanities and toilets, counts as five-year property, while driveways, walkways, fencing, patios and landscaping count as fifteen-year land improvements. Lanzaro walks a property, lists those items, prices them by condition and totals each group before touching the usual split.
Only then does he apply the 80/20 split between building and land, on a lower remaining cost, because he wants to allocate as little to land as possible. Many accountants skip that step and apply 80/20 to the whole price from the start. He noted the breakdown suits investors who can actually take rental losses, and it only works when the purchase details are written down.
