W2 Tax With Holding Advice, house hack

[Josh Cocker]

Hi All!

Thank you in advance for any guidance and insight.

Quick question for you 😁 I recently purchased a duplex to house hack, this will be my first purchase, and at the moment in my W2 I withhold the maximum taxes on federal & state tax (Virginia) and I usually get cash back each year. Should I stop doing this now and quit withholding? Or just continue as usual? 

I can’t remember if I read somewhere once you own a rental it might be better to not withhold anymore as you are reducing your tax burden with the rental etc 

Thank you for any guidance or insight you have. Apologies if this is too much of a generic / person specific question but would love to hear from other people’s experience in the same position 

[Joshua Thompson]

Hey Josh,

Great question! If your income is over $150,000, the losses from the duplex, assuming one of the units is a rental, may not change your tax situation. If this is the case then there is no need to change or reduce your withholdings. However, if your income is below $150,000 then the losses could potentially benefit you.

This brings up the question: do you enjoy receiving a refund, or would you rather not give the government an interest-free loan? We find many clients enjoy receiving a large refund and decide to keep their withholdings the same, even if the real estate will reduce their taxable income. On the other hand, some clients prefer their money spread out over the year instead of a large refund. I would ask which do you prefer?

If you choose to change your withholdings, assuming the real estate losses will benefit you, then any one of the accountants here in the forum should be able to run some numbers for you to provide a new W-4. Alternatively, you can use the IRS withholding estimator linked below, however, software is only as good as its user.

https://www.irs.gov/individuals/tax-withholding-estimator