Maximizing W2 Tax Deductions - Quit second job or keep working 2 jobs or STR?

Question

I have two W2 jobs. W2 income is total ~300k/year. I already co-owning a duplex, but the VA loan is under my friend's name, so I don't think I can quite deduct that yet; I have helped with furnishing / renovating one side of it for an MTR, which has taken ~15 hours/week. We are planning on converting it into an investment property next year since that's the earliest we could do it.

That said, I'm debating on what to do as my "first" real estate investment to maximize my yearly W2 tax deductions. Have around 90k cash and 90k in stock. Possible strategies:

1. Quit 1 job, get 1-2 investment properties in Sacramento, cost-seg them, and attempt to claim REPS (may be too late for this year as I just started halfway)? .

2. Keep working 2 jobs, get STR in San Diego, cost-seg it, and use STR loophole.

3. Quit 1 job, get STR in San Diego, cost-seg it, and use STR loophole.

Jeff Nash · Answer

@Michael Plaks gave great advice.

It's been mentioned a time or two on here, but another option you don't list and that may be helpful for higher earning W-2 folks (or accredited investors) is to invest in oil and gas. There is accelerated write-off for intangible drilling costs (IDC), lease and well equipment and percentage depletion. It is a good choice from a tax perspective, but from an investment standpoint you have to do due diligence, more so than with other types of investments. I'm an advocate of it in the right situation, with consideration given to someone's risk tolerance, investment objective, time horizon, etc.

Jeff Nash · Answer

@Angelo Cortez yes it is, and that is a key reason for that type of investment whether you are W-2 or have other significant taxable income you are trying to reduce. Like I said it is not as well known of a tax strategy, but highly effective. I worked for 2 HNW families in the past and have an O&G background.

Angelo Cortez · Answer

Thanks. Really looks like STR is my only option. Now I gotta figure out where to get one lol

Angelo Cortez · Answer

Do you have any recommendations to how to get my foot in the door for that industry?

Corby Goade · Answer

I love this question- it's great to get in to this strategy and you obvioulsy understand the concept on paper.

Since you make to much to deduct those passive losses, you need REPS one way or another.

One possibility that many people don't consider- are you single? If you are filing jointly, can your partner get REPS? That's the simplest way.

If not, I think there is more to consider. You'll hear lots of people here just blindly say "do a cost seg," but I don't think you make enough to fully cost seg a new investment in Cali. If you use the STR loophole and you want to cost seg, make sure you aren't throwing away that future depreciation by claiming more now than you can actually use.

Second- there's the quality of life factor here- do you NEED two jobs? Do you like them both?

Third- have you calculated the actual return you'd get from a cost seg? Trust me, I don't want to pay taxes either, but you are making good money, making a move like this might not be worth the effort if you have excellent W2 income. Your time and energy might be better spend just doing your jobs and investing, eating the taxes for the time being.

Hope that is helpful- best of luck!

Angelo Cortez · Answer

Thanks for the response Jeff. Never heard of that before. Is it possible to write off W2 taxes with that route?

Basit Siddiqi · Answer

it sounds like you gave some capital to your friend to be an 'investor' in a duplex that he owns.
It sounds like you may not be on the title.

If this is true, I would look for ways to protect your investment.
What happens if your friend dies. It is most likely that the investment and appreciation will go to his heirs.

If you are on the title, disregard the above.

If you are a high income earner, I normally suggest that people look for the best possible investment instead of what strategy will generate them the largest refund.
Doing the 'STR loophole' requires people spend time on a task that may only be $20 an hour when they can instead focus on another job / side job that can possibly pay $100+ an hour.

Best of luck.

Michael Plaks · Answer

@Angelo Cortez

Quitting jobs is never a tax-driven decision. You really need to reflect on your life goals and priorities before bringing taxes into the picture.

Erik Browning · Answer

What are your jobs? Lol, I'm interested

Maximizing W2 Tax Deductions - Quit second job or keep working 2 jobs or STR?

Maximizing W2 Tax Deductions - Quit second job or keep working 2 jobs or STR?

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