Fremont, Alameda County · Member since 2023 · 11 posts · 5 votes
From my research, I understood that my rental property paper losses could offset my W2 income/capital gains if: (1) my AGI is under $150k, (2) the property is a short-term rental, or (3) I have a Real Estate Professional designation. I've recently learned that these conditions might not apply if the properties are held in an LLC, and there might be no limit on the amount of rental income paper losses used to offset W2 income/capital gains. Is this accurate?
@Ben Lee the majority of what you just said is incorrect.
FIrst, having an LLC or not doesn't impact the ability to take rental losses against non-passive income (W-2, 1099).
Second, REPS removes the requirement to evaluate the $150k threshold and short-term rental status. These things are decoupled.
I support real estate investors doing their own research, but what you posted is very tangled, mixed up, and as a result incorrect. Before you execute any of the strategies that you just posted above make sure you are clear on how the tax strategies work for long-term, short-term, and flip. Also, how REPS impacts each of these types of investments. .
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*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.
Let me start by being an angry boomer: we should not apply the words "my research" and "I've learned" to reading a few random posts on Reddit or even on BiggerPockets.
That said:
- there's a limited room ($25k) to offset W2 income with rental losses if your income is below $100k, and that room is being squeezed out between $100k and $150k of income
- there is an option to offset W2 income with STR losses under some specific conditions and for one year only
- there is an exception for REPS (real estate professional status) which you cannot qualify for if you have a regular full-time W2 job
- LLCs change absolutely nothing for the above rules
Each of these rules comes with an hour-long explanation of various conditions, exceptions, nuances and what-ifs - therefore you cannot make reliable conclusions without having an experienced tax accountant reviewing you specific situation. YMMV.