Deductions available on LTR with W2?

Tax, SDIRAs & Cost Segregation
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Deductions available on LTR with W2?

Storme Whitby-Grubb
Member since 2021 · 7 posts · 3 votes

Hi all, 

I'm gearing up to purchase my first investment property. I had settled on OOS SFH in 2023, with the goal to potentially purchase MFH in 2024. I have been looking at buy and hold, and putting tenants in the property. However... I just stumbled upon info online about not being able to deduct losses if your AGI is over 100k with W2 employment, which mine is. I've spoken to my CPA a number of times about my plan to buy real estate, but it is not his area and isn't able to help with any strategy or advice etc. I'm trying to educate myself as much as possible, whilst trying to find either another CPA, or an attorney (which is what my CPA advised).

I stumbled upon the incredible Amanda Han (Brandon Turner's CPA/advisor) online, and her bite sized info has alerted me to possibly running into an issue with my current plan. I am getting killed by taxes in CA (I don't own a primary here, single filer, no kids, so I have essentially no deductions right now), and was hoping this could help me with some deductions whilst building assets. 

I had originally planned to do this through an LLC, but having spoken to a few professionals, at this point it doesn't make sense to do that.

I am actively on the hunt to consult with a REI CPA, and am sifting through the recommendations on here as I type. In the meantime, if anyone has any insight into if there are ANY deductions that can be made whilst owning LTR whilst on a W2 with over 100k AGI, I'd greatly appreciate your input. I wanted to steer clear of STR because all the AirBnB laws keep changing, and with economic slow down and layoffs in tech sectors which is an area of extreme disposable income to travel etc, it just feels like the wrong time for me personally to invest in an area where discretionary travel is likely to be the first to go from people's budgets as they tighten their household budgets. That's just me though, and I know there are tons of great success stories out there, and that CPI has come down, so yay for that. But right now, that had been why I was steering away from STR.


If you read this far, thanks for reading this essay! Appreciate any insights, or CPA / tax strategist recommendations I could get a consult with too. 

Thanks!

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Travis Biziorek
Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
3y

Man, I REALLY need to up my tax knowledge gain. 

I have 12-doors in Detroit. We spent 2017-2022 there building our portfolio and now I help a buddy that manages a turnkey operation on the ground after we relocated BACK to California this past August.

I have a CPA in the Detroit Metro area. He's great and an investor as well. Happy to make an intro if you think it makes sense.

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    3y

    At $100k your ability to take losses starts getting squeezed out and disappears at $150k.

    That said, looking at investing in real estate as a tax shelter is wrong when you have a full-time W2 job and no spouse who could be full-time in real estate. You invest for wealth accumulation and cash flow, and tax benefits are just an icing on the cake. There're still tax benefits, but they will not reduce your current taxes on your W2.

    This forum has over 20 of accountants who fit your criteria. Just browse this forum, and you will see us. We all work nationwide.

    0Reply
  • Storme Whitby-Grubb
    OP
    Member since 2021 · 7 posts · 3 votes
    3y

    Thanks for your response @Michael Plaks! My goal is to build wealth and cash flow, and get back out of W2 (I was self employed and had a few companies along the way for the first 20 years of my career), so I want to make sure I'm utilizing any deductions to their max. I appreciate you taking the time to respond. Thanks.  

    0Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y

    Pretty much none. I'm married with two kids, and a third on the way. My wife stays at home, and I have 10+ small businesses I own & manage. Given such income and deductions on those small businesses, the REI tax deductions are 0. It's unfortunate, but it is what it is.

    Your idea sounds excellent though. I think cash flow and wealth is the right focus, and your views on STR mirror mine. I just started REI here in 2023, I think you need to view it as another source of income, and building wealth. Any advantage on top of that is just gravy.

    0Reply
  • Storme Whitby-Grubb
    OP
    Member since 2021 · 7 posts · 3 votes
    3y

    Thanks for the encouragement @V.G Jason! I'm so glad I found this forum, because I would've gone in assuming I'd benefit from the deductions, as all the REI research/books I read all praise the deductions available - luckily I stumbled upon that very important factor of AGI of 100k! Already, I have a better idea from the articles and comments on this site, which is awesome.
    I'm going to revisit Syndicates given this intel. I had attached myself to the tangible asset of property (with a manager), but if cashflow and appreciation are on par in a syndicate, I may be better off parking cash there. The goal remains the same - to build wealth and get out of the rat race and city. Hmmm, a lot to think about.

    Have you done anything with Syndicates? 

    thanks again for replying. 

    0Reply
  • Travis Biziorek
    Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
    3y

    Man, I REALLY need to up my tax knowledge gain. 

    I have 12-doors in Detroit. We spent 2017-2022 there building our portfolio and now I help a buddy that manages a turnkey operation on the ground after we relocated BACK to California this past August.

    I have a CPA in the Detroit Metro area. He's great and an investor as well. Happy to make an intro if you think it makes sense.

    1Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    3y

    Don't forget that your losses carry-forward indefinitely!

    This is one of the challenges with investing in Class A rentals => usually don't cashflow for 3-5 years, which is usually offset via appreciation. 

    If you target LTR's, you may want to consider Class B rentals. You could also target Class C tentals, but the challenges involved usually aren't recommended for newer investors.

    Keep in mind that STR's usually require Class A properties.

    [email protected]248-209-6824
    Logical Property Management4.9451 Reviews
    WebsiteView Page
    1Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y
    Quote from @Storme Whitby-Grubb:

    Thanks for the encouragement @V.G Jason! I'm so glad I found this forum, because I would've gone in assuming I'd benefit from the deductions, as all the REI research/books I read all praise the deductions available - luckily I stumbled upon that very important factor of AGI of 100k! Already, I have a better idea from the articles and comments on this site, which is awesome.
    I'm going to revisit Syndicates given this intel. I had attached myself to the tangible asset of property (with a manager), but if cashflow and appreciation are on par in a syndicate, I may be better off parking cash there. The goal remains the same - to build wealth and get out of the rat race and city. Hmmm, a lot to think about.

    Have you done anything with Syndicates? 

    thanks again for replying. 

    You're much like me about 3 years ago, when Covid first struck just with different goals. In regards to trying to get involved in real estate, but unsure about my involvement. However, I got out of the rat race in 2017. Between then and when I started, I made sure to eliminate all personal debt( no mortgage, no car notes, no anything).

    I invested in two syndications; one in Q4 '20, and one in Q1 '22. I had about 80% of my investments split between those two, and then I put 10% in Arrived Homes and 10% in Fundrise. So far, results have been okay. I'd say 2020-2021 put huge numbers up, but the last 6 months dropped it down. You got to do your diligence on you who you're investing in, the hold periods, etc.

    FWIW, I wouldn't do another syndication, I'm fully focused on building out 50-75 house portfolio. Possibly up to 100.

    It's very hard to find a better return than buying premium land, it may cost you up front and it may suffer the first few years but if you're hold period is a decade plus, I just don't know of a better investment. It's imperative you start operating when you're in the best position, too. No debt, limited to no obstacles, no liabilities(legal and insurance structure). 

    I think the getting out of the rat race or even FIRE lifestyle is not very realistic, if you're an above average paid employee in today's world. It'll take probably 25-30 properties to really do that, and you got to make sure you can weather any bump. I hate to sound pessimistic, but it really is what it is. I don't know what kind of returns you're expecting but if it's $8-10k a month, consistently with limited issues like large variances in STRs, or ****** tenants in F neighborhoods, given issues with capex, etc., it'll take probably 25-30 + properties
    0Reply
  • Storme Whitby-Grubb
    OP
    Member since 2021 · 7 posts · 3 votes
    3y

    @V.G Jason, thanks so much for the insight. THIS is why I joined this forum. These convos are invaluable! Really interesting to hear your thoughts on Syndications, and yes, I imagine the past couple of years' returns are being used to reel investors in now, when I don't think we're out of the woods yet with the landscape. 

    I really appreciate your thoughtful replies! 

    0Reply
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