Rental Property Investor · New York, NY · Member since 2018 · 14 posts · 9 votes
Hello, has anyone approached this issue and was able to overcome it? We are considered high earners and not able to take the passive income loss on schedule E due to the $150k cap thus unable to enjoy the depreciation on our duplex. How does one offset their W2 income with the loss on rental properties due to phantom expense of depreciation? Truly appreciate any help on this.
New to Real Estate · Hong Kong · Member since 2019 · 44 posts · 16 votes
4y
@Jingwen Ni
Invest as an LP in multiple syndications, build up your passive losses, then when those deals exit and generate capital gains, you can shelter the gains with the suspended passive losses. For passive investors who don’t meet the high bar of real estate professional status, in my opinion it’s the best way.
Hello, has anyone approached this issue and was able to overcome it? We are considered high earners and not able to take the passive income loss on schedule E due to the $150k cap thus unable to enjoy the depreciation on our duplex. How does one offset their W2 income with the loss on rental properties due to phantom expense of depreciation? Truly appreciate any help on this.
The tax laws that you mention are specifically designed to prevent what you hope to accomplish. If you have full-time jobs, you will not qualify for the "real estate professional" loophole. And investing in syndications does nothing to offset your W2 income, either.
Hello, has anyone approached this issue and was able to overcome it? We are considered high earners and not able to take the passive income loss on schedule E due to the $150k cap thus unable to enjoy the depreciation on our duplex. How does one offset their W2 income with the loss on rental properties due to phantom expense of depreciation? Truly appreciate any help on this.
The tax laws that you mention are specifically designed to prevent what you hope to accomplish. If you have full-time jobs, you will not qualify for the "real estate professional" loophole. And investing in syndications does nothing to offset your W2 income, either.
Hi @Michael Plaks- thank you for this and your post on the other forum was extremely useful. Question for you on if I obtained a Duplex and lived in one of the units "house hack", could I still write off the interest and including if I bought points, off my personal return? Furthermore since it is a primary residence is there any depreciation I can write off? I know since it is a primary residence I will not be able to cost seg but at least the standard 27.5? Thank you again for your time.
if I obtained a Duplex and lived in one of the units "house hack", could I still write off the interest and including if I bought points, off my personal return? Furthermore since it is a primary residence is there any depreciation I can write off? I know since it is a primary residence I will not be able to cost seg but at least the standard 27.5? Thank you again for your time.
This is off-topic for this thread, but you essentially split your duplex into two properties: a personal residence and a rental property. Expenses allocated to the rental unit are deductible against the income from the rental unit, including depreciation, just like they would be with a stand-alone rental property. There're some complications actually, but it's getting into the finer points of taxation.
Hello, has anyone approached this issue and was able to overcome it? We are considered high earners and not able to take the passive income loss on schedule E due to the $150k cap thus unable to enjoy the depreciation on our duplex. How does one offset their W2 income with the loss on rental properties due to phantom expense of depreciation? Truly appreciate any help on this.
The tax laws that you mention are specifically designed to prevent what you hope to accomplish. If you have full-time jobs, you will not qualify for the "real estate professional" loophole. And investing in syndications does nothing to offset your W2 income, either.
I've just begun looking into this situation in the topic on this thread. I plan on approaching a CPA soon but I am doing my research to be prepared. I read the thread you linked where you mentioned this:
"Your wife may qualify as a RE Pro if she does not have a regular 40-hr job and spends a lot of time in real estate, minimum 750 hours per year. If she qualifies, then you can catch a piggyback ride. Marry wisely."
My wife is the highest W-2 income tax bracket. After being a stay at home dad for the past ten years I'm looking to enter back into the workforce. One option I'm looking into is becoming a full time real estate professional. What exactly do you mean by "catch a piggyback ride"? Would working as a full time RE pro lower our taxes? Thanks in advance.
@Kyler Serfass you cannot just work in RE. You must have a 5% equity stake or greater in real property trades or businesses for the hours to count
Gotcha. So I currently the take care of our two rental properties and we're in the process of buying two short term rentals. (edit: I plan to self-manage these). Would either of those count?
This is exactly what you need a real estate tax accountant for. To discuss your specific situation, goals etc. So what if REPro lowers your taxes? Are you going to tailor your life to the lowest possible taxes? Or the highest possible satisfaction, both material and non-material?
You can achieve REPro status if you spend sufficient time personally doing REI, including self-managing your STRs. But a) this is a lifestyle decision, not just a tax strategy and b) STRs may not need REPro status at all, they come with different tax strategies. Again, need your personal advisor.
This is exactly what you need a real estate tax accountant for. To discuss your specific situation, goals etc. So what if REPro lowers your taxes? Are you going to tailor your life to the lowest possible taxes? Or the highest possible satisfaction, both material and non-material?
You can achieve REPro status if you spend sufficient time personally doing REI, including self-managing your STRs. But a) this is a lifestyle decision, not just a tax strategy and b) STRs may not need REPro status at all, they come with different tax strategies. Again, need your personal advisor.
Michael I am with you on knowing we need a personal advisor, but where do we find one?
Investor · Milwaukee WI · Member since 2022 · 8 posts · 2 votes
4y
@Jingwen Ni I've seen quite a bit of interest recently in the lazy 1031 option that @Charles D. mentioned. In 2021 my companies fund produced a passive loss for investors of 57% of their investment amount which has attracted a lot of interest. If you are interested in exploring this option in more detail I am happy to connect and tell you more about our investment opportunities!
In certain instances, we can even use the passive loss to offset W2 income for additional tax savings!