Passive Losses Offset Active Income

[Jon Fletcher]

Thoughts on Adam Neumann's real estate strategy post-WeWork? It sounds like he is using depreciation to create passive losses so that he can offset active income from his enormous golden parachute? If so, it seems like a smart strategy. This is from the RealDeal article yesterday: 

"And thanks to a special tax classification for real estate professionals, Neumann and his family may be able to shelter an extra $500,000 of his golden parachute. What’s more, he could exploit the latter loophole each year, provided that he remains a real estate professional. But that is not a shoo-in. The hurdles are not minimal to being considered a real estate professional,” said Donald Williamson, professor of accounting and taxation at American University. The tax classification would be hard to achieve for anyone moonlighting as a property owner. Its strict requirements include spending half of one’s time on business related to real property, and at least 750 hours, in a given year. 

“Most real estate professionals are agents or brokers who believe in the product, and work hard on a handful of properties they own,” said Williamson. The main barrier is that people often spend too much time doing other things."

[Michael Plaks]

@Jon Fletcher

I don't find it particularly helpful to read about people with $200M buyout packages. It's not my world.

But since you posted this article, let's look at the key numbers, per this article's very superficial review:

• $200M golden parachute received
• majority stake in a $1B rental portfolio purchased
• $500k of income potentially sheltered

In other words, he might shelter 1/4 of 1% of his windfall!  0.25%!  And he had to buy half of $1B portfolio for that.

He probably made a great acquisition, but it was not a tax strategy he was after. Taxes play almost no role in his situation, even if he can shelter 10 times as much income as the article suggests.