Updated almost 4 years ago on . Most recent reply
Tax Benefits episode -- no mention of REPS
I'm a huge fan of the Rookie pod. Bravo to Ashley and Tony for keeping that train moving with content that's consistently helpful and entertaining. Thanks to you both and all of your guests!
I'd love to hear some thoughts from the group on one aspect of the recent tax benefits episode released 12/14/21.
Given that the vast majority of my family's income is attached to a W2, I love learning about the tax benefits of RE investing. In this episode, Ana touts the use of depreciation and cost segregation (presumably for unleashing bonus depreciation) as a way to offset active W2 income, but she makes it sound like it's available to every investor by default. Was anyone else taken aback that there was no mention of the Real Estate Professional Status (REPS) requirement?
For rookies, especially, I found this misleading. With respect to long term rentals, it's my understanding that one (or their spouse if filing jointly) must qualify for REPS in order to use passive RE losses to offset active W2 income. Qualifying for REPS isn't trivial, especially if your W2 is a full time job. I know the situation is different with respect to short term rentals, but it at least seemed like she was talking about RE investing in general, not just STR.
Am I on the right track here? Always looking to learn and find my blind spots. Thanks to Ana for being a great resource to investors and sharing some insights and advice on the pod.
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- Tax Strategist| National Tax Educator| Accepting New Clients
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You're pretty spot on- People CONSTANTLY are mad when they buy REI for tax benefits only to find out there aren't any in the direct way for thier sitaution.
If your AGI is over $150k- you can't use those losses each they (they do accumualte and carry forward, but if your rental makes a $10k loss you can't just count on your income that year being $10k less)
The exception is RE pro which is not obtainable for most couples who both work w2 jobs. Or with only one rental (even if all someone is doing is managing the properties- likely won't hit the 750 hours requirement)
But yes people shouldn't buy rentals for tax benefits until discussing what THEIR tax benefits would be with a professional first .
