Tax Planning for a REI with W2 income
Investor · Member since 2024 · 12 posts · 9 votes
Tax Planning for a REI with W2 income
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votesQuote from @Abhishek Joshi:
I wanted to seek help on "proactive" tax planning from qualified professionals . Our family profile is W2 wages , and a few LTR properties. FWIW, we have been breaking even on those properties more or less over the past decade. How could we plan better, particularly as W2 income earners, so that we could legally save on our tax obligations with some smarter planning. I thank you for taking the time for reading my post, and for your inputs on the same.
I'm going to tell you something you don't want to hear, because there will be plenty of people FALSELY promising you what you want to hear.
Two full-time W2 people with long-term rentals are basically limited to breaking even where you already are. No extra depreciation, cost segregation blah blah blah is going to help.
In order to overcome those limitations, you would have to either drastically change your business model to short-term rentals (which sometimes may not be feasible at all or may be detrimental to your business) or drastically change your lifestyle (such as one of you quitting your W2 job and becoming a full-time investor.)
If you are willing to explore those drastic changes - sure, an experienced tax professional like myself and my colleagues on this forum can help.
But if you're hoping that somebody will teach you "secrets" of how to reduce your taxes in your CURRENT (W2/LTR) situation - there're none, outside of general tax planning like maximizing your retirement contributions etc.
13 Replies
- 1yDenver McClurePro MemberFinancial Advisor · Flower Mound, TX · Member since 2018 · 661 posts · 479 votes
Highly recommend chatting with @Ben Trageser or @Jeff Nash when you can. They can help out!
- Glassboro, NJ · Member since 2025 · 37 posts · 13 votes1y
Quote from @Denver McClure:
Highly recommend chatting with @Ben Trageser or @Jeff Nash when you can. They can help out!
Hi,
I will start with the rental property side of things. Considering you are pretty much breaking even already and that the properties are held for long-term use, there may not be much room to save there are the moment. You both are W-2 and any passive losses are carried over.
If you wanted to get more strategic with your properties, you could turn them into short-term rentals and try to qualify for active participation status. This would allow you to take $25,000 in rental real estate losses, so if you take advantage of the new 100% bonus depreciation rule or maybe look into a cost segregation at that point, it could make sense.
As for trying to reduce the rest of your tax bill, make sure to keep track of all your taxes paid now that the SALT cap has been raised to $40k. You might want to consider "bunching" your property taxes in one year for example, then take the standard deduction the next year.
You may also consider doing the same bunching strategy with charitable contributions.
Further, if you have a company 401(k) and/or HSA, you can contribute more money to that in order to reduce your income.
There may be additional opportunities available depending on your complete scenario, but these are just a few options!
- 1yJulius VincentBusiness MemberTax Strategist | CPA, MBA + Wharton FP&A | CFO-Level Planning · Houston, TX · Member since 2025 · 157 posts · 172 votes
Hey @Abhishek Joshi - As W-2 earners with rental properties, you're in a good position to start unlocking more tax savings with a few targeted strategies. A few areas that often move the needle for families in your situation:
- Maximizing depreciation (especially with cost segregation if any of your LTRs are eligible)
- Looking into STR opportunities (if you're open to short-term rentals) can unlock deductions against W-2 income under the right conditions (no REPS required)
- Entity structuring and income shifting if you're planning to grow your portfolio
Happy to share more if you ever want to talk through your goals.
Horizon Wealth & Tax Advisors510 Reviews - 1yBill HamptonBusiness MemberAccredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 977 votes
You came to the right place. Bigger Pockets is a great place to find a real estate tax strategist.
A good real estate tax strategist can save you thousands of dollars by leveraging entity selection and formation, tax deductions, cost segregations, bonus depreciation, 1031 exchanges and tax planning.
I recommend finding a strategist specializing in real estate taxation, business taxation, financial planning and tax planning.
Consider working with your strategist remotely to expand your options.
I would also recommend looking for a strategist willing to work with you throughout the year. You want an accountant who can help you strategize and who is responsive when you want to know the consequences of the financial decisions you are making throughout the year.
Good luck.
Hampton Tax and Financial Services LLC4.7106 Reviews - 1yMichael PlaksPro MemberTax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
Quote from @Abhishek Joshi:
I wanted to seek help on "proactive" tax planning from qualified professionals . Our family profile is W2 wages , and a few LTR properties. FWIW, we have been breaking even on those properties more or less over the past decade. How could we plan better, particularly as W2 income earners, so that we could legally save on our tax obligations with some smarter planning. I thank you for taking the time for reading my post, and for your inputs on the same.
I'm going to tell you something you don't want to hear, because there will be plenty of people FALSELY promising you what you want to hear.
Two full-time W2 people with long-term rentals are basically limited to breaking even where you already are. No extra depreciation, cost segregation blah blah blah is going to help.
In order to overcome those limitations, you would have to either drastically change your business model to short-term rentals (which sometimes may not be feasible at all or may be detrimental to your business) or drastically change your lifestyle (such as one of you quitting your W2 job and becoming a full-time investor.)
If you are willing to explore those drastic changes - sure, an experienced tax professional like myself and my colleagues on this forum can help.
But if you're hoping that somebody will teach you "secrets" of how to reduce your taxes in your CURRENT (W2/LTR) situation - there're none, outside of general tax planning like maximizing your retirement contributions etc.
- Glassboro, NJ · Member since 2025 · 37 posts · 13 votes1y
Quote from @Michael Plaks:
Quote from @Abhishek Joshi:
I wanted to seek help on "proactive" tax planning from qualified professionals . Our family profile is W2 wages , and a few LTR properties. FWIW, we have been breaking even on those properties more or less over the past decade. How could we plan better, particularly as W2 income earners, so that we could legally save on our tax obligations with some smarter planning. I thank you for taking the time for reading my post, and for your inputs on the same.
I'm going to tell you something you don't want to hear, because there will be plenty of people FALSELY promising you what you want to hear.
Two full-time W2 people with long-term rentals are basically limited to breaking even where you already are. No extra depreciation, cost segregation blah blah blah is going to help.
In order to overcome those limitations, you would have to either drastically change your business model to short-term rentals (which sometimes may not be feasible at all or may be detrimental to your business) or drastically change your lifestyle (such as one of you quitting your W2 job and becoming a full-time investor.)
If you are willing to explore those drastic changes - sure, an experienced tax professional like myself and my colleagues on this forum can help.
But if you're hoping that somebody will teach you "secrets" of how to reduce your taxes in your CURRENT (W2/LTR) situation - there're none, outside of general tax planning like maximizing your retirement contributions etc.
Hey Michael, the information the other accountants have provided are not false at all. They are legitimate tax strategies, as you mentioned, that would require changes to what is currently being done to a more tax advantageous plan. I think that's what any person would want to hear, are the options that are available, whether or not they are put into play is a different ballgame. Becoming an active participant in a short term rental really wouldn't require any significant changes in lifestyle, I'm doing it right now without the use of a property manager which would alleviate even more of any hassle.
- 1yMichael PlaksPro MemberTax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
Quote from @Kevin Aumack:
Quote from @Michael Plaks:
Quote from @Abhishek Joshi:
I wanted to seek help on "proactive" tax planning from qualified professionals . Our family profile is W2 wages , and a few LTR properties. FWIW, we have been breaking even on those properties more or less over the past decade. How could we plan better, particularly as W2 income earners, so that we could legally save on our tax obligations with some smarter planning. I thank you for taking the time for reading my post, and for your inputs on the same.
I'm going to tell you something you don't want to hear, because there will be plenty of people FALSELY promising you what you want to hear.
Two full-time W2 people with long-term rentals are basically limited to breaking even where you already are. No extra depreciation, cost segregation blah blah blah is going to help.
In order to overcome those limitations, you would have to either drastically change your business model to short-term rentals (which sometimes may not be feasible at all or may be detrimental to your business) or drastically change your lifestyle (such as one of you quitting your W2 job and becoming a full-time investor.)
If you are willing to explore those drastic changes - sure, an experienced tax professional like myself and my colleagues on this forum can help.
But if you're hoping that somebody will teach you "secrets" of how to reduce your taxes in your CURRENT (W2/LTR) situation - there're none, outside of general tax planning like maximizing your retirement contributions etc.
Hey Michael, the information the other accountants have provided are not false at all. They are legitimate tax strategies, as you mentioned, that would require changes to what is currently being done to a more tax advantageous plan. I think that's what any person would want to hear, are the options that are available, whether or not they are put into play is a different ballgame. Becoming an active participant in a short term rental really wouldn't require any significant changes in lifestyle, I'm doing it right now without the use of a property manager which would alleviate even more of any hassle.
You and I are saying the same thing
- 1yJason MalabuteBusiness MemberAccountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 902 votes
Great question. Since both you and your spouse are W-2 earners, I’m assuming you’re both working full-time. That makes it difficult to qualify as real estate professionals under the tax code, which would typically allow you to deduct passive losses against your W-2 income.The first thing I’d want to confirm is your total income. If your modified adjusted gross income (MAGI) is $150,000 or less and you actively participate in your rentals, then you may qualify for the $25,000 passive activity loss allowance. In that case, proactive tax planning could definitely help.
However, if your income is above that threshold and you don’t qualify as a real estate professional, then traditional tax planning strategies (like cost segregation or maximizing depreciation) may not be immediately beneficial unless paired with other strategies
Malabute & Company CPAs525 Reviews - 1yBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
If you have or looking to invest in a STR, have a conversation with your accountant to see ways that you can classify the property as active instead of passive.
This will allow you to have the real estate losses offset the other forms of income such as wages, interest, dividends, etc.
This can drastically reduce your taxes in a given year
Basit Siddiqi CPA4.979 Reviews - 1ySean GrahamBusiness MemberInvestor , CPA · Detroit, MI · Member since 2016 · 584 posts · 248 votes
Hey Abhishek, look into short-term rentals (STRs). If your average stay is 7 days or less and you materially participate, the STR loophole allows you to offset W-2 income with losses, even without real estate professional status. Combine that with bonus depreciation (now 100% for 2025) for major first-year tax savings.
Maven Cost Segregation Tax Advisors554 Reviews - USA · Member since 2023 · 145 posts · 84 votes1y
@Abhishek JoshiGood question. Similar to what some have said, since both of you are a W2 earner, it’s going to be tough to qualify for Real Estate Professional (REPS) status. One of the tests requires 750 hours, which is basically a part time job. Additionally, any strategies around accelerated depreciation will likely just result in suspended passive losses carried forward to future years (ie can’t be used against W2), since you probably won’t qualify for REPS.
Also, remember that any accelerated depreciation plans are just a deferral of tax, not an elimination.
Technical stuff aside did you get into real estate to be active in it? The IRS makes it a high hurdle for a reason (ie not a free lunch).
- 1yBonnie Griffin KaakePro MemberReal Estate Consultant · Denver, CO · Member since 2021 · 666 posts · 389 votes
As others have said, you don't have a lot of options with your current W2 double income which makes your investments passive. Cost segregation is not going to help if you are only breaking even...it just gets you more in losses.
I suggest that you take a look at your current properties to see if you can increase the rents. Can you make improvements that could allow you to secure higher paying tenants to increase your income? You would also have tax benefits from the improvements but you have to be able to use those benefits. Another option may be to 1031 exchange your current properties into something that gives you a better ROI.
- 1yJason MalabuteBusiness MemberAccountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 902 votes
If you’re a W-2 earner with rental properties, there are definitely ways to unlock more tax savings. A few big ones that can really move the needle are: maximizing depreciation (especially with cost segregation), exploring short-term rentals (since they can open up deductions against W-2 income under the right conditions), and making sure your entities and income are structured smartly if you’re planning to expand your portfolio.
That said, I want to be upfront—two full-time W-2 earners with only long-term rentals are generally limited. You’re mostly just breaking even tax-wise. No amount of extra depreciation or cost seg alone is going to radically change that. To get real tax benefits, you’d either need to pivot your business model into short-term rentals (which isn’t always practical) or drastically change your lifestyle—like one spouse qualifying as a real estate professional by leaving a W-2 job.
If you’re open to exploring those bigger changes, then someone experienced in tax strategy can help map out what’s possible. But if you’re hoping for “secrets” that will slash your taxes while keeping the exact same W-2/LTR setup, that doesn’t exist. In that case, your best bet is focusing on traditional planning moves like retirement contributions and making sure your bookkeeping and entity structure are solid.
Malabute & Company CPAs525 Reviews
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