W2 Tax With Holding Advice, house hack

Roanoke, Virginia
Tax, SDIRAs & Cost Segregation
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W2 Tax With Holding Advice, house hack

Josh Cocker
Rental Property Investor ¡ Danville, VA ¡ Member since 2024 ¡ 26 posts ¡ 3 votes

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 

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Joshua ThompsonBusiness Member
Accountant ¡ Melissa, TX (Remote) ¡ Member since 2017 ¡ 210 posts ¡ 135 votes
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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

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  • Joshua ThompsonBusiness Member
    Accountant ¡ Melissa, TX (Remote) ¡ Member since 2017 ¡ 210 posts ¡ 135 votes
    1y

    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

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  • Aaron ZimmermanBusiness Member
    Accountant ¡ Chicago, IL ¡ Member since 2018 ¡ 2k+ posts ¡ 1k+ votes
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    To add, if you're below $100,000, you could potentially deduct up to $25k in losses if you have them. If you believe you'll have losses, you could adjust it or you could work with a cpa and do a tax projection once you have a couple months of data on your rental property. You could also cost seg your property for additional losses (assuming you can utilize the losses to offset your taxes). 

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  • Kevin Aumack
    Glassboro, NJ ¡ Member since 2025 ¡ 37 posts ¡ 13 votes
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    Hey Josh,

    I wouldn't change anything yet, just keep withholding as normal. 

    Once your tax guy runs the actual numbers for your entire situation and the performance of the property, then may be a good time to adjust.

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  • Jason MalabuteBusiness Member
    Accountant ¡ Los Angeles, CA ¡ Member since 2016 ¡ 2k+ posts ¡ 901 votes
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    Hey Josh, congrats on the duplex!

    I would not recommend stopping your withholding unless you are super, super, super, super, super responsible with money and have a large stack of cash just sitting around.

    Now that you own a duplex, unexpected repairs and expenses will come up—it’s just part of being a landlord. If you stop withholding, you’ll feel like you have more money each month, but when those surprise costs hit, it’s easy to tap into funds that were supposed to be saved for taxes.

    Then come tax time, you may not have enough to pay what you owe. That’s how people get stuck with penalties, interest, or payment plans with the IRS. Unless you’re extremely disciplined and financially prepared, I’d stick with your current withholding strategy.

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  • Ashish AcharyaBusiness Member
    CPA, CFPŽ, PFS ¡ FL ¡ Member since 2017 ¡ 5k+ posts ¡ 3k+ votes
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    @Josh Cocker When house hacking a duplex, it's true that your rental unit brings in new tax deductions, but it's important to understand how and when those deductions actually impact your W-2 tax liability.

    Key clarification:

    • Unless you qualify for Real Estate Professional Status (REPS) or meet the STR (Short-Term Rental) loophole participation rules, your rental-related losses (like depreciation, interest, etc.) are generally passive. Passive losses can only offset passive income—they don’t reduce your W-2 income in most cases.
    • So while your duplex rental may generate losses on paper, they won’t reduce the amount of tax withheld from your W-2 unless:
      • You qualify as a real estate professional, or
      • You materially participate in a short-term rental under 7-day average stays, or
      • You have other passive income to offset.

    What to do instead:

    • Don’t stop your W-2 withholding entirely unless you’ve worked with a CPA to confirm a significantly reduced tax liability.
    • If your rental qualifies under STR or REPS, then yes—depreciation and losses can offset W-2 income, and you might reduce withholding.
    • Otherwise, you can still update your W-4 to fine-tune your withholdings slightly if you tend to overpay and get large refunds, but be conservative.
    • Run a midyear tax projection with a real estate CPA who understands REPS, STR, and passive loss rules. That'll give you clarity before making changes.

    So the answer depends on your specific tax status, but unless you're unlocking active treatment through REPS or STR, your rental won't reduce your W-2 liability directly. Adjust cautiously, and check with a tax pro before making big changes.

    This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

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  • Basit SiddiqiBusiness Member
    Accountant ¡ New York, NY ¡ Member since 2015 ¡ 8k+ posts ¡ 3k+ votes
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    It will depend on how the rental activity is classified. 

    If its passive and your income is above $150,000, you may want to continue withholding as normal as the rental activity will not reduce your taxable income.

    If you are able to claim REPS or if its a STR treated as active for tax purposes, you may potentially be able to reduce your taxable income and you may want to see if its possible to reduce your withholding.

    Have a conversation with your tax accountant before proceeding to reduce your withholding.

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