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Updated 2 months ago on . Most recent reply presented by

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Travis Kumar
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No Tax Advantages for New Investor?

Travis Kumar
Posted

BP community,

I have been following BP forever, and purchased my first rental property in May of 2024. On the hunt for a second. Now that I am seeking tax pro's through BP portal, I am hearing that there are NOT mechanisms to offset my W-2 income because it is a mid-term rental, and I make over 150k. I have heard so many times that there are "tax benefits" and "offsetting w-2 income" as one of the advantages of real estate and feel a a bit frustrated.

I lived in the property and completed most of the rehab myself, now its ready to rent. I was seeking counsel for best way to set up LLC and to take maximum advantage of 2024, only to learn not much can be done.

I have been tracking every expense thinking that part of the reason was for some sort of tax impact. Should I seek other opinions or have others found that in the fine print, there really isn't much at first? 

Also, what "tax advantages" or "offsetting w-2 income" are folks mentioning on so many BP episodes as an advantage?

Staying positive because I know the benefits, and I am committed. Hoping for some insight. Thanks all!

  • Travis Kumar
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    Natalie Kolodij
    • Tax Strategist| National Tax Educator| Accepting New Clients
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    Natalie Kolodij
    • Tax Strategist| National Tax Educator| Accepting New Clients
    ModeratorReplied

    That's correct. 

    Rentals as passive so if your AGI is over $150k you can't use the losses to offset your other income sources like your W2. 

    You should be tracking every expense. It's a business. You want to report all valid income and expenses. 

    When a passive loss is disallowed it carries to the next year. So you don't lose the benefit-you just don't get it right now. 

    You will be able to use those disallowed passive losses: 

    -Against other passive income 

    -If this rental has net income in a later year these disallowed losses will offset that income

    -When you sell a rental those carried over disallowed losses offset the gains on sale 


    Other situations you hear about where people CAN use the rental losses to reduce W2 income are where the rentals qualify to be Non-Passive 

    This typically happens in the following two situations: 

    Real Estate Professional Status- A taxpayer or their spouse spends at least 750 during the year on real estate- and more time on it than anything else. (this is simplified but basically can't have a W2 job; must be FT real estate in some way)

    Short Term Rental Loophole -If an average guest stay during the year is 7 days or less and you materially participate in the property it is by definition non-passive. 

    With mid-term rentals if your average guest stay is 30 days or less but you provide substantial personal services (daily maid service, meals, shuttles etc, more like a hotel) then it would be non-passive...but you'd also pay self employment tax on any income as well. 

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    Kolodij Tax & Consulting

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