Very New investor with very little tax knowledge

Tax, SDIRAs & Cost Segregation
2yFollow

Very New investor with very little tax knowledge

Omar Hassan
Member since 2022 · 2 posts · 2 votes

Hi everyone, i wanted to put my ignorance out there and see if I can learn some valuable information from you all. 

I'm looking to form a simple tax strategy based on a very small portfolio, I want to do it right while taking advantage of all the tax advantages that come with REI.

I've owned a single family home for 2 years, my primary was owner financed, and im an LP on an rv park. 

What advantages/tax forms should i take advantage of, how does owner finance vs traditional lending change things and how does rental vs primary change things? 

Is a professional needed for this or can i file independent? Im not against either just looking for the most bang for buck method. 

Any insight helps and all information is likely to be new info. 

0Reply
41 views

Most Popular Reply

Jana CainPro Member
Enrolled Agent · Richmond, CA · Member since 2016 · 225 posts · 148 votes
2y

@Donald Bowman Sort of. If your modified adjusted gross income (MAGI) is below $100k, the passive activity loss rules may allow you to deduct up to $25,000 in passive losses. That amount reduces from $100k-$150k MAGI, with $0 in allowable loss once you exceed $150k (MAGI). The loss is still captured and carried forward and can be applied if/when your MAGI falls below $150k. 

2Reply
See this reply in the discussion

8 Replies

Jump to latestLatest
  • KC Pake
    Investor · Orange Park, FL · Member since 2019 · 173 posts · 108 votes
    2y
    Quote from @Omar Hassan:

    Hi everyone, i wanted to put my ignorance out there and see if I can learn some valuable information from you all. 

    I'm looking to form a simple tax strategy based on a very small portfolio, I want to do it right while taking advantage of all the tax advantages that come with REI.

    I've owned a single family home for 2 years, my primary was owner financed, and im an LP on an rv park. 

    What advantages/tax forms should i take advantage of, how does owner finance vs traditional lending change things and how does rental vs primary change things? 

    Is a professional needed for this or can i file independent? Im not against either just looking for the most bang for buck method. 

    Any insight helps and all information is likely to be new info. 

    Hi Omar,

    Navigating the tax implications of your real estate investments, including a single-family home, an owner-financed primary residence, and a limited partnership in an RV park, requires a thoughtful approach to maximize your tax benefits. One key advantage for both your owner-financed primary residence and potentially the single-family home, if it's not your primary residence, is the mortgage interest deduction. This can be claimed on Schedule A (Form 1040) if you itemize your deductions. Additionally, if the single-family home is used as a rental property, you can benefit from depreciation deductions over the property's useful life, which you would report on Form 4562 and deduct on Schedule E (Form 1040). Rental income and related expenses for both the single-family home and your share in the RV park also go on Schedule E, allowing you to offset rental income with expenses such as repairs, maintenance, and property management fees.

    The intricacies of owner financing versus traditional lending primarily affect the loan's terms rather than its tax implications. Regardless of financing type, interest deduction, property taxes, and investment-related expenses remain key considerations. However, the distinction between rental properties and primary residences significantly impacts your taxes. While primary residences benefit from mortgage interest and property tax deductions, rental properties allow a broader range of deductible expenses, including depreciation and operating costs. Also, the sale of a primary residence can qualify for a significant capital gains exclusion under certain conditions.

    Given the complexity of your situation, especially considering the limited partnership and owner financing aspects, consulting with a tax professional familiar with real estate investments is advisable. They can ensure you fully leverage available tax benefits and comply with IRS regulations. While independent filing is feasible, especially with the help of tax software for straightforward situations, the unique elements of your portfolio suggest that professional guidance could provide the most value, ensuring you navigate the tax rules effectively and maximize your investment returns.

    All the best,
    KC
    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    2y

    The first tax benefit of real estate is that the cash-flow and appreciation grow tax free(in general).
    Cash flow will likely be offset by depreciation and appreciation is not taxed.

    If you are making 8% on real estate(combined cash flow and appreciation), you money will double  in 9 years.
    If you make 12% on real estate, your money will double in 6 years.

    There are other strategies in real estate(time involved in real estate) where you can create 'paper-losses' to decrease your W-2 wages, interest, dividends.
    I normally don't like this route too much as I think people can focus their time and attention more on other tasks that can generate a higher hourly return.

    Best of luck.

    [email protected]917-280-8544
    Basit Siddiqi CPA4.979 Reviews
    View Page
    0Reply
  • Donald Bowman
    Member since 2022 · 3 posts · 0 votes
    2y

    Is there a limit on how much I can make at my w2 job, that would prevent me from deducting depreciation and expenses on rental properties?

    0Reply
  • Jana CainPro Member
    Enrolled Agent · Richmond, CA · Member since 2016 · 225 posts · 148 votes
    2y

    @Donald Bowman Sort of. If your modified adjusted gross income (MAGI) is below $100k, the passive activity loss rules may allow you to deduct up to $25,000 in passive losses. That amount reduces from $100k-$150k MAGI, with $0 in allowable loss once you exceed $150k (MAGI). The loss is still captured and carried forward and can be applied if/when your MAGI falls below $150k. 

    2Reply
  • Donald Bowman
    Member since 2022 · 3 posts · 0 votes
    2y

    @Jana Cain Thank you so much for confirming. My tax person told me about the $150k limit, but that seemed to contradict things I've heard on the BP podcasts. I guess I need to pay better attention.
    I have had expenses, like roofs, windows, and a host of other smaller repairs. I wasn't too stressed because I thought they would at least lower my taxes.  My income is over $150k, my wife's is under. we have been filing jointly for over 20 years. Would it raise red flags if we start filing separate?

    0Reply
  • Jana CainPro Member
    Enrolled Agent · Richmond, CA · Member since 2016 · 225 posts · 148 votes
    2y

    @Donald Bowman There are quite a few things to consider when you are married but filed separately. You may find that collectively (as a household) you may end up with a bigger tax bill/smaller refund when you file separately vs when you filing jointly. If you're working with a tax pro, they should be able to run a comparison for you to show the differences. Simply filing separately isn't going to automatically raise red flags to the IRS. You'll just want to thoroughly evaulate if that change in filing status actually makes sense for you.

    0Reply
  • Donald Bowman
    Member since 2022 · 3 posts · 0 votes
    2y


    @Jana Cain Thank you, I'll do that.

    0Reply
  • Account Closed
    Member since 2023 · 194 posts · 13 votes
    2y

    There are many advantages of investing in real estate.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free